Tag Archives: Sedgwick county government

Testimony supporting an arena re-vote

From Karl Peterjohn, Executive Director Kansas Taxpayers Network

We need to correct the flawed downtown arena proposal’s mistakes. Since the legislature authorized the county sales tax for the downtown arena it has become abundantly clear that the case against proceeding with the flawed arena project has been made. Enclosed with this testimony is a copy of the 2004 flyer used in that election campaign that shows that the critics of this proposal were correct on the key points in this project.

Here are key points why there should be a revote:

1) The 2004 cost estimates for the downtown arena project at $184.528 million were inaccurate (see county’s Sept. 1, 2004 arena document). The county now projects $201 million and that is likely to grow. In addition, new reports indicate that there is an effort to have the city fund $108 million in additional infrastructure changes for the arena and the area around it.

If the 1 cent sales tax was used entirely for property tax relief, the county’s mill levy could be dropped by roughly 20 mills or roughly 65 percent of the current mill levy.

If you divided the total county and city costs ($201 M + $108 M), that’s almost $700 per person or over $2,700 for a family of four. That’s excessive.

2) There is no anchor tenant for this facility. The Kansas Coliseum rarely sells out. With the same shows and sports franchises, why build a larger facility?

3) There is inadequate parking for this facility. Adding necessary parking will drive the cost of this project even higher.

4) Downtown arena advocates threatened voters with higher property taxes if they did not vote for the sales tax. Sadly, the county property tax mill levy was raised roughly six percent last year and two incumbent commissioners were defeated in their reelection bids as a result.

5) A privately owned and funded arena in Park City is likely to be built and opened well before the downtown arena project is completed. One of the current users of the coliseum will move to this new private facility.

In 1993, Wichita city voters rejected a proposed downtown arena project by better than a 2-to-1 margin. In 2004 voters narrowly, by a 52-to-48 percent margin, approved the downtown arena at $184.5 million. Since then, more realistic cost data about the increased price for a downtown arena has become available.

Let the people vote again on the following four point proposal:

The county will not proceed with the flawed downtown arena project. The roughly $200 million in sales tax revenue that has been raised will be put to the following uses: 1) The Britt Brown Arena will be remodeled with roughly ¼ of the funds generated by the current 1 cent arena sales tax; 2) The current costs that have been incurred in land acquisition, designs, and other contractual costs will be paid with these funds; 3) The remaining sales tax revenue balances will be used to pay down the county’s mill levy (that should be well over ½ of the entire amount raised so far). In addition, the county will seek state authorization to continue the existing 1 cent countywide sales tax with the proviso that it be used entirely to reduce county property taxes. That would provide a reduction of about 65% of the county’s property tax mill levy; 4) All future county mill levy increases must be submitted to voters and approved at a referendum election in the same way that local sales tax increases are approved.

Eliminating this large a portion of the county’s mill levy will provide Sedgwick County businesses, taxpayers, and citizens with a significant comparative advantage over other Kansas counties by reducing this tax on assets as well as reducing the uncertainty concerning future property tax hikes. This will take us one step towards becoming more competitive with progressive states where all tax hikes have to receive voter approval: Colorado, Missouri, and Oklahoma.

Wichita downtown arena project’s failing finances

Arena Project’s Failing Finances
Critics And Tax Hike Opponents Were Right

From Kansas Taxpayers Network

“The arena critics are being proven right,” said Karl Peterjohn, Executive Director of the Kansas Taxpayers Network, the oldest taxpayer organization in Kansas. “As the leading opponent of the 2004 downtown arena project in Wichita, it is becoming increasingly clear that this project is in major trouble.”

“In 2004 KTN’s Vote NO flyer warned, ‘Key details about the arena such as location, parking, and design, are not known’,” Peterjohn said. “Our vote NO flyer also warned, ‘With a $184.5 million price tag and no guarantee of events, the arena is a huge gamble with taxpayers money. Half of the events at the Kansas Coliseum (12,000 seats) have less than 3,000 people attend’.” Now the “guaranteed $184.5 million price tag,” is history and the total cost for this deeply flawed project continues to grow and critical details remain up in the air.

“In our final item urging county voters to reject the sales tax hike to fund the arena, KTN’s flyer warned, ‘The build it and they will come syndrome sounds good but the money spent would be better utilized in YOUR pocket’,” Peterjohn said. “If the county’s sales tax for the arena was used to lower the county’s property tax, we could reduce the county’s mill levy by over 60 percent or roughly 20 mills for the duration of this tax.”

The arena tax hike was narrowly approved by just over 50 percent of voters in November, 2004. “If the voters had another chance at the arena issue at the ballot box, and taking the tax money that has already been collected and not yet spent, to be used to lower county property taxes and refunded to taxpayers, the downtown arena project would be terminated by the people,” Peterjohn said.

Arena tax hike advocates succeeded in forcing voters to approve this sales tax increase with the not-so-veiled threat that a property tax hike would otherwise occur. Sedgwick County commissioners unanimously approved a large property tax hike, in August 2006, funding higher county spending in addition to the arena sales tax hike.

Two of the three incumbent county commissioners seeking reelection in 2006 lost their seats in large part due to their support for raising property taxes in particular and all county taxes in general. The two incumbents, commissioners Burtnett and Sciortino, were defeated by challengers, Parks and Welshimer, who signed KTN’s Taxpayer Protection Pledge promising not to raise county taxes.

A public or private downtown Wichita arena, which is desirable?

(From October, 2004)

Image what our town could be like if the Wichita downtown arena vote fails and Sedgwick County Commissioners put aside for a moment their plans for the renovation of the Kansas Coliseum.

Suppose, instead, that arena supporters, along with those who would vote yes for the sales tax and anyone else who wants to, formed a corporation to build and own an arena.

Instead of having paid taxes to government, arena supporters would be investors. They would own something: their shares in the arena. They would have the pride and responsibility that comes with ownership. They would have a financial stake in its success. Even taxpayer-funded arena opponents might see merit in investing in a local business rather than paying taxes.

Instead of politicians and bureaucrats deciding what the people of our town want and need, a privately owned arena would be subject to the guidance and discipline of markets. It would either provide a valuable service to its customers and stay in business, or it would fail to do that and it would go out of business. Governments do not have such a powerful incentive to meet the needs of their constituents.

Instead of the bitter feelings dividing this town over the issue of a taxpayer-funded arena and other perceived governmental missteps, the arena corporation would act in the best interests of its shareholders and customers. Even if it didn’t, it wouldn’t be the public’s business, because after all, the corporation is formed of private individuals investing their own money.

When individuals invest in an arena they are nurturing the virtues of investment, thrift, industry, risk-taking, and entrepreneurship, Wichita having an especially proud tradition of the last. There is nothing noble about politicians spending someone else’s money on projects like a downtown arena, or a renovated Kansas Coliseum for that matter.

At this time in our town we have a chance to let private initiative and free markets work, or we can allow government to continue to provide for us in ways that few seem truly satisfied with. Writing about a public utility in England that was transferred to private enterprise, economist John Blundell observed:

When it was “public” it was very private. Indeed, it was totally captured by a small band of bureaucrats. Even members of Parliament struggled to find out what was going on. No proper accounts were produced, and with a complete lack of market signals, managers were clueless as to the correct course to take. The greatest casualty was a lack of long-term capital investment.

Now it is “private” and very public. Not just public in the sense of open, but also in the sense of accountable directly to its shareholders and customers. Copious reports and accounts are available and questioning citizens will find their concerns taken very seriously indeed.

If we allow the government instead of private enterprise to build a new arena or to renovate the Kansas Coliseum, this is the opportunity we lose.

Sedgwick County surrenders key tax advantage

Sedgwick County Surrenders Key Tax Advantage
By Karl Peterjohn, Executive Director, Kansas Taxpayers Network

Spirit Aerosystems CEO Jeff Turner defended the massive spending hike that was used as the primary justification for the county’s 8.8 percent property tax hike in his editorial August 9, 2006. Turner’s support for this increased government spending ignored some important ramifications behind this economically destructive vote.

Sedgwick County has an important fiscal advantage over 19 other Kansas counties. Sedgwick County has no community college and hence no community college property tax. That property tax is a major reason why this levy makes the total tax burden higher in Butler, Cowley, and Reno counties. The Wichita Area Technical College is becoming this community’s community college. This will mean increasing pressure to raise property taxes. This would be in addition to the current 1.5 mills left over from the old Wichita University days that the county charges.

Sadly, the Sedgwick County commission seems intent on creating another tax dependent entity here in this community. If Jeff Turner, Spirit Aerosystems and Turner’s former company Boeing want to promote property tax hikes, that is certainly their prerogative.

It is a public record that Boeing tied as the largest donor for the 2000 Wichita school bond issue with a five figure donation and Raytheon was the largest corporate donor in support of the Local Option Budget property tax hike for Wichita during that 1997 property tax referendum. Cessna’s CEO Jack Pelton spoke out in support of the county’s spending plans that required this property tax hike August 9.

On the other hand, when the news cameras are generally gone, these aircraft companies return to the city or the county and seek sizable, often 100 percent property tax abatements. So a small or medium sized business gets to pay a much higher proportion of say $100,000 worth of their commercial property than the largest public businesses in this community. This is not fair.

This distorts the overhead costs shifting the fiscal burden from the taxpayer subsidized onto the businesses without the tax breaks. It also shifts this burden onto homeowners and other taxpayers. Special tax breaks provides the subsidized firms with lower overhead costs so they can afford pay more for employees too. That places small and medium sized firms that lack the political clout and leverage, at a hiring disadvantage as well. If the non tax abated firms have out-of-state competitors their extra overhead costs hurts their ability to compete. However, tax abatements are a big help in cyclical industries that are in perpetual “hiring and firing” cycles and need to pay more because of this employment instability.

There is certainly a need for qualified workers for many Wichita area businesses. This $40 million county spending hike, that is well above per foot construction costs, ignores a bigger question. How much spending in the government school establishment is enough? Property tax hike advocates are ignoring the fact that well over $3/4 billion in taxes are going to be spent on the 10 public school districts in this county in 2006-07. This figure is growing rapidly in the age of judicial edicts and Montoy.

2004 Census data indicates that Kansas has the 14th highest property taxes in all 50 states as well as the highest property taxes per capita in our five state region. Soaring appraisals have been the primary cause of this situation but the county’s rising mill levy without getting voter approval is an insult to every county voter. In 1997 almost 90 percent of county voters wanted to retain the property tax lid on local government. County officials helped kill the property tax lid in 1999 and now will not let voters decide this property tax hike at the ballot box. Creating a new level of local government in Sedgwick County with higher property taxes will hurt and hinder overall economic growth here.

Government Charity in Sedgwick County

At the July 25, 2006 Sedgwick County Commission meeting, during the public hearing on the proposed 2007 Sedgwick County budget, a speaker said this in support of funding for mental health services: “I agree with the previous presenter and I’d be willing to forego a few cheeseburgers this year so that if I need to pay more taxes to help provide services, I’m willing to do that.”

It hardly seems necessary to remind this speaker that she may give whatever she wants of her time and money to any organization she wants. She doesn’t need the Sedgwick County Commission to do it for her.

This speaker may be thinking that if she agrees to pay a little more in taxes to support her cause, then everyone else will have to pay more, too. In this way, her small additional sacrifice is leveraged by the additional taxes everyone else must pay.

In fact, many people think this way. Everyone has their own ideas of what the government should do, and if by paying just a little more in taxes myself I can get the government to tax everyone else, why, that’s quite a good deal for me and my pet project!

The problem is that this government activity is wrong. The economist Walter E. Williams makes the case succinctly:

Can a moral case be made for taking the rightful property of one American and giving it to another to whom it does not belong? I think not. That’s why socialism is evil. It uses evil means (coercion) to achieve what are seen as good ends (helping people). We might also note that an act that is inherently evil does not become moral simply because there’s a majority consensus.

It doesn’t matter how noble the cause. To take from one and give to another is wrong, even if it is to provide food or medical services to truly needy people.

Furthermore, this government “charity” deprives us of our ability to give true charity ourselves, and in the process, makes us less happy than we could be. Arthur C. Brooks, associate professor at Syracuse University’s Maxwell School of Public Affairs, in a commentary in the December 8, 2005 Wall Street Journal titled “Money Buys Happiness” tells us this:

In fact there is another explanation for unchanging happiness levels over time which is rather less supportive of income redistribution. As incomes rise, so generally do levels of government revenues and spending, and there is evidence that these forces work against personal income on the overall level of happiness. For example, a $1,000 increase in per capita income is associated with a one-point decrease in the percentage of Americans saying they are “not too happy.” At the same time, a $1,000 increase in government revenues per capita is associated with a two-point rise in the percentage of Americans saying they are not too happy. In other words, not only can money buy happiness, but it may be that the government can tax it away as well.

Mr. Brooks also tells us that donating money and time — that is, the giving of charity — illustrates the link between money and happiness: “Givers of charity earn substantial mental and physical health rewards, even more than do the recipients of charity — empirical evidence that it is indeed more blessed to give than to receive.”

The operative idea is “to give.” When government takes by taxation, it is not giving.

Eminent Doman and the Downtown Wichita Arena

Thank you to John Todd for this excellent material.


Testimony in Opposition to the County’s use of Eminent Domain for the Arena Project.

Dear Commissioners:

My name is John Todd. I am a real estate broker and developer and I come before you in opposition to the County’s proposed use of eminent domain for the downtown arena footprint.

On August 25, 2004 and prior to the arena vote in November of that year, I presented testimony before this Commission questioning the wisdom of building a downtown arena without knowing the exact location of the parcel(s) of land the project would be located on. I asked the questions, does the Commission know the exact location of the arena project? Is the needed land for sale? Are the property owners willing to selling their land? And, most importantly, has the County secured a contract option to purchase the needed land with an exact purchase price? I believed then and now that the taxpaying public needed to know the answers to those questions before making a decision on a $184.5 million dollar project in the voting booth. From what I have been reading in the news recently, it seems apparent to me now that County officials failed in their “due diligence” responsibility to the citizens of this county by not securing the land for the arena in advance, and should now be willing to authorize another “non-binding” or perhaps a “binding” and final public vote on the arena project.

There is precedence for another vote since a “non-binding” no vote in 1992 was ignored by local officials, and perhaps a third and perhaps this time a “binding” vote could be used to settle this matter for good, with the express stipulation that any sales tax money collected for the arena to date be used to reduce property taxes in the county through a reduced mil levy over the next 2 or 3 years. As you will recall, the fear of higher property taxes was the primary argument proponents for the arena used in securing their thin 48% to 52% yes vote in 2004. Perhaps the prospect of property tax reduction would appeal to the voters. And another vote on an arena could give the county commission an opportunity to avoid the confrontational use of their eminent domain power to involuntarily strip 22 property owners of their land and in some cases businesses.

I oppose the County’s use of their eminent domain power to correct the due diligence responsibilities to the citizens of Sedgwick County they missed when they failed to secure the arena footprint land in advance of any public vote for funding on the project.

Secure private property rights are the bedrock for all of our other rights. Eminent domain abuse damages people’s faith in their own government, and people who are not secure in their own possessions cannot plan for their own future. A healthy economy is best achieved when individuals are free to use their own resources as they see fit. When government decides how the individual uses his property, the resultant system works poorly because it necessitates the use of coercion. The protection of private property rights is therefore essential to a healthy economy.

Nobel Prize winning economists Milton Friedman says, “In an economically free society, the fundamental function of government is the protection of private property and the provision of a stable infrastructure for a voluntary exchange system. When a government fails to protect private property, takes property itself without full compensation, or establishes restrictions (and follows policies) that limit voluntary exchange, it violates the economic freedom of its citizens.”

Remarks to Wichita City Council Regarding the AirTran Subsidy on July 11, 2006

Mr. Mayor, Members of the City Council:

You may recall that I have spoken to this body in years past expressing my opposition to the AirTran subsidy. At that time we were told that the subsidy was intended to be a short-tem measure. Today, four years after the start of the subsidy, with state funding planned for the next five years, it looks as though it is a permanent fixture.

Supporters of the subsidy have made a variety of claims in its support: that the subsidy and the accompanying Fair Fares program are responsible for $4.8 billion in economic impact, that being a pioneer in subsidizing airlines is equivalent to the role that Kansas played in the years immediately prior to the Civil War, and that we would have a mass exodus of companies leaving Wichita if the subsidy were to end.

I believe there is no doubt that fares are lower than what they would be if not for the subsidy. That points to the subsidy’s true achievement: government-imposed price controls. Its effect is to force many airlines to price their Wichita fares lower than they would otherwise. If it didn’t do that, there would be no reason to continue the subsidy.

Economists tell us — and human behavior confirms — that when the price of any good is held lower than it would be in a free market, the result is a reduction in the quantity supplied.

We see this happening. Earlier this year the Wichita Eagle reported that there are fewer daily flights supplied to and from Wichita, from 56 last year to 42 at the time of the article. It has been explained that the financial woes of Delta and NWA are to blame for this reduction. This is demonstrably false, as NWA recently added a daily flight to Wichita, and both airlines have added (and dropped) flights on many routes while in bankruptcy. Furthermore, even though in bankruptcy, theses airlines still desire to operate as profitably as possible.

Now we learn that the legacy airlines — those established, older airlines that take pride in their comprehensive nationwide networks of routes — are revising their strategies. A Wall Street Journal article from earlier this year (“Major Airlines Fuel a Recovery By Grounding Unprofitable Flights” published on June 5, 2006) tells us that the legacy airlines are beginning to look at the profitability of each route and flight. They are not as interested as they have been in providing flights just for the sake of having a complete nationwide network.

When we couple this change in airline strategy with our local price controls, I believe that we in Wichita are in danger of losing more service from the legacy airlines. If AirTran — a new-generation airline with low labor costs — can’t earn a profit on its Wichita route at the fares it charges, how can the legacy airlines be expected to do so? And if they can’t earn a profit on a flight to or from Wichita, and if they are beginning to scrutinize the profitability of each flight, can we expect them to continue providing service in Wichita?

No government has ever been able to successfully impose price controls without the people suffering harmful consequences. As economist Thomas Sowell wrote in a 2005 column:

Prices are perhaps the most misunderstood thing in economics. Whenever prices are “too high” — whether these are prices of medicines or of gasoline or all sorts of other things — many people think the answer is for the government to force those prices down.

It so happens there is a history of price controls and their consequences in countries around the world, going back literally thousands of years. But most people who advocate price controls are as unaware of, and uninterested in, that history as I was in the law of gravity.

Prices are not just arbitrary numbers plucked out of the air or numbers dependent on whether sellers are “greedy” or not. In the competition of the marketplace, prices are signals that convey underlying realities about relative scarcities and relative costs of production.

Those underlying realities are not changed in the slightest by price controls. You might as well try to deal with someone’s fever by putting the thermometer in cold water to lower the reading.

This is my fear, that someday I will open the newspaper and learn that American, United, Delta, Northwest, or Continental has reduced or even ceased service to and from Wichita. That day, when it becomes difficult to travel to or from Wichita at any price, that is the day we will feel the harm the subsidy causes.

On a personal level, my job as software engineer requires me to make from ten to twenty airline trips each year. Some of the places I travel to — Jackson, Mississippi and Lexington, Kentucky, for example — are not served by AirTran. If I am not able to travel there, no matter what the price, I will either have to find a different job or move from Wichita.

Mr. Mayor and Council Members, I urge you to reconsider your support of the AirTran subsidy. Even though the legislature and governor have agreed to pay for most of the subsidy, I believe the subsidy is not in our long-term interest. We need to let the price system, operating in a free market, do its job in guiding the allocation of scarce resources for both producers and consumers. The result may be more expensive fares. The alternative, which is the very real possibility of greatly reduced service to and from Wichita, is much more harmful.

Other Voice For Liberty in Wichita articles on this topic:

The AirTran Subsidy and its Unseen Effects
As Expected, Price Controls Harm Wichita Travelers
AirTran Subsidy Is Harmful
Wichita City Council Meeting, April 19, 2005
Wichita Eagle Says “AirTran Subsidies Foster Competition”
AirTran Subsidy Remarks
The Downside of Being the Air Cap by Harry R. Clements. This article makes a striking conclusion as to why airfares in Wichita were so high.
Letter to County Commissioners Regarding AirTran Subsidy
Open Letter to Wichita City Council Regarding AirTran Subsidy
Stretching Figures Strains Credibility

What to do with others’ money

Writing from Pittsburgh, Pennsylvania

In a June 20, 2006 Wichita Eagle editorial, Rhonda Holman writes about the WaterWalk project in Wichita.

Evidently there is controversy over the public not knowing the name of the “destination restaurant” that is being courted and favored with a gift of $1 million. To me, the controversy is not the identify of the restaurant or when and how the city should conduct its negotiations, but that we are paying for a restaurant to be built.

We are not lacking for fine restaurants in Wichita. On both the east and west sides of town (and other parts, too), many excellent restaurants have been opened recently, and more are being built as I write. The Eagle has even reported on their astonishment at how many there are.

The problem is, I believe, that these restaurants were not built where Ms. Holman and our local government leaders feel they should have been built. But that’s not a problem, except to her and them.

The people who built these restaurants did so by investing their own money, or the money that others entrusted to them. These people did so voluntarily. They presumably built their restaurants where they thought they could earn the best return on their investment. And having invested several million dollars of their own money in the restaurant, they have a strong incentive to make the restaurant a success.

But that’s not good enough for Ms. Holman. Evidently she does not appreciate the sacrifice that people have made in order to accumulate the funds needed to make these spectacular investments. She may not be aware of — or maybe she does not respect or value — the tremendous effort and work it takes to run a successful restaurant.

Just because these people did not build their restaurants where she (and our local government leaders) thought they should have been built, she wants to tax them — and the rest of us, too — and give the proceeds of that tax to a new competitor.

Is this the type of behavior by our local government and our town’s leading newspaper that is likely to lead to other new private investment?

Ms. Holman’s editorial stance, along with the actions of our local government leaders, constitute a slap in the fact for those who have been foolish enough (we can now conclude this) to invest money in any industry in which the government is likely to set up their competitor.

This harmful attitude is summarized in this plea to get the WaterWalk project moving faster, “… so that citizens not only can see where their money is going but also soon start enjoying more of their investment.”

Making an investment, I might remind Ms. Holman, is something that people do voluntarily because they believe it is in their interest.

The WaterWalk project and the new downtown restaurant are being paid for by taxes. The expenditure is being made to serve the interests of politicians, subsidized developers, and people like Ms. Holman who believe they know best what to do with others’ money. There is a tremendous difference between the two.

The AirTran subsidy and its unseen effects

Writing from Natchez, Mississippi

In a June 16, 2006 column, Wichita Eagle editorial writer Rhonda Holman again congratulates local and state government for its success in renewing the AirTran subsidy, and for getting the entire state of Kansas to help for it.

We should take a moment to understand, however, that while the allure of the subsidy is undeniable, it may eventually extract a high price on Wichita. Currently, the legacy airlines provide service to Wichita and other small markets partly because they feel a duty to provide comprehensive, nationwide service. But that may be changing. In an article titled “Major Airlines Fuel a Recovery By Grounding Unprofitable Flights” from the June 5, 2006 Wall Street Journal, we learn that this may change:

The big carriers, which for decades have doggedly pursued market share at any cost, now are focusing just as aggressively on the profitability of each route and flight.

The so-called legacy carriers — those like American Airlines and Delta Air Lines, with big pension and other obligations that predate the industry’s deregulation in 1978 — have abandoned many of the tactics that have led to their cyclical weakness. They are increasingly unwilling to fly half-empty aircraft to stay competitive on a given route just for the sake of feeding their nationwide networks.

As I have written before, if AirTran — one of the newer airlines without the baggage of high costs that plague the legacy airlines — can’t earn a profit on its service to Wichita, it may be that other airlines are not, either. This article tells us that we may be in danger of losing the service of the legacy airlines. And, as I have written earlier, there are a great many destinations you can’t get to on AirTran.

(The same article also tells us that during much of the time of the subsidy, airfares were falling nationwide anyway: “… the Air Travel Price Index, a quarterly measure of changes in airfares, rose 9.1% in the fourth quarter of last year from a five-year low a year earlier.” So we might have had lower fares even without the subsidy. Of course, we can’t know that, just as subsidy advocates can’t know how much we’ve saved from the subsidy, no matter what they may say.)

Our local government leaders simply do not have the knowledge needed to successfully run a planned economy, which, in essence, is what they are doing when they apply price controls to the airfare market in Wichita. That’s right. The subsidy is a form of price controls. After all, if the subsidy didn’t serve to reduce the price of airfare, what would be its reason for existence?

No government has ever been able successfully impose price controls without the people suffering harmful consequences. As economist Thomas Sowell wrote in a 2005 column:

Prices are perhaps the most misunderstood thing in economics. Whenever prices are “too high” — whether these are prices of medicines or of gasoline or all sorts of other things — many people think the answer is for the government to force those prices down.

It so happens there is a history of price controls and their consequences in countries around the world, going back literally thousands of years. But most people who advocate price controls are as unaware of, and uninterested in, that history as I was in the law of gravity.

Prices are not just arbitrary numbers plucked out of the air or numbers dependent on whether sellers are “greedy” or not. In the competition of the marketplace, prices are signals that convey underlying realities about relative scarcities and relative costs of production.

Those underlying realities are not changed in the slightest by price controls. You might as well try to deal with someone’s fever by putting the thermometer in cold water to lower the reading.

Municipal transit used to be privately owned in many cities, until local politicians’ control of fares kept those fares too low to buy and maintain buses and trolleys, and replace them as they wore out. The costs of doing these things were not reduced in the slightest by refusing to let the fares cover those costs.

All that happened was that municipal transit services deteriorated and taxpayers ended up paying through the nose as city governments took over from transit companies that they had driven out of business — and government usually did a worse job.

The immediate effect of the subsidy is a drop in airfares. The long-term effects, the effects that we can’t really see right now (even though the number of daily flights to and from Wichita has decreased in the last year) are unknown, but are likely to be quite bad for our town. These unseen effects of a policy are important, and, being unseen, are hard to spot, even if you’re looking. Frederic Bastiat, in his pamphlet titled “That Which is Seen, and That Which is Not Seen” http://bastiat.org/en/twisatwins.html said this:

Between a good and a bad economist this cons
titutes the whole difference — the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, — at the risk of a small present evil.

Henry Hazlitt writes of the fallacy of unseen effects, but realizes they are often obfuscated by “the special pleading of selfish interests.”

Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine — the special pleading of selfish interests. While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for then plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.

We must hope that the legacy airlines choose to continue their service to and from Wichita, in spite of our government’s action.

Local economic development in Wichita

Writing from Memphis, Tennessee

Today’s Wichita Eagle (November 5, 2005) tells us of a new economic development package that our local governments have given to induce a call center to locate in Wichita. The deal is described as “one of the biggest the two-year-old economic development coalition [Greater Wichita Economic Development Coalition] has landed.”

There is an interesting academic paper titled “The Failures of Economic Development Incentives,” published in Journal of the American Planning Association, and which can be read here: www.planning.org/japa/pdf/04winterecondev.pdf. A few quotes from the study:

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 to attract new businesses makes a lot of sense. It’s a win-win deal, backers say. Everyone benefits. This is why it appeals so 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 article shows.

Close to Wichita we have the town of Lawrence, which has recently realized that it as been, well, bamboozled? A September 29, 2005 Lawrence Journal-World article (“Firms must earn tax incentives”) tell us: “Even with these generous standards for compliance, to have 13 out of 17 partnerships fail [to live up to promised economic activity levels] indicates that the city has received poor guidance in its economic development activities.” Further: “The most disconcerting fact is that Lawrence would probably have gained nearly all of the jobs generated by these firms without giving away wasteful tax breaks.”

On November 6, 2005, an article in the Lexington (Kentucky) Herald-Leader said this:

The Herald-Leader’s investigation, based on a review of more than 15,000 pages of documents and interviews with more than 100 people, reveals a pattern of government giveaways that, all too often, ends in lost jobs, abandoned factories and broken promises.

The investigation shows:

Companies that received incentives often did not live up to their promises. In a 10-year period the paper analyzed, at least one in four companies that received assistance from the state’s main cash-grant program did not create the number of jobs projected.

A tax-incentive program specifically for counties with high unemployment has had little effect in many of those areas. One in five manufacturing companies that received the tax break has since closed.

There is spotty oversight of state tax incentives. The state sometimes does not attempt to recover incentives, even when companies don’t create jobs as required.

Unlike some other states, Kentucky makes little information about incentives public. The Cabinet for Economic Development refuses to release much of the information about its dealings with businesses, citing proprietary concerns. The cabinet has never studied its programs’ effectiveness, and it blocked a legislative committee’s effort to do so.

The Herald-Leader’s examination of Kentucky’s business-incentive programs comes when, nationally, questions are mounting about the effectiveness and legality of expensive government job-creation efforts. The U.S. Supreme Court is expected to decide by spring whether trading tax breaks for jobs is legal or whether they amount to discrimination against other companies.

Meanwhile, states continue engaging in costly economic battles for new jobs, even though research strongly suggests that few business subsidies actually influence where a company sets up shop.

We might want to be optimistic and hope that our local Wichita and Sedgwick County leaders are smarter than those in Lawrence and Lexington. Evidence shows us, however, that this probably isn’t the case. Our own local Wichita City Council members have shown that they aren’t familiar with even the most basic facts about our economic development programs. How do we know this? Consider the article titled “Tax break triggers call for reform” published in the Wichita Eagle on August 1, 2004:

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

But perhaps there is hope. The Wichita Business Journal has recently reported this: “The city and county are getting $2 back for every dollar they spent over the past 18 months on economic development incentives, according to an analysis of GWEDC-supplied data. The report was presented at Thursday’s GWEDC investor luncheon at the Hyatt Regency by Janet Harrah, director of the Center for Economic Development and Business Research at Wichita State University.” Personally, I am skeptical. I have asked to see these figures and how they are calculated, but I have not been able to obtain them.

Consider carefully all costs of gambling in Wichita

In a free society dedicated to personal liberty, people should be able to gamble. But that’s not what we have, as in a free society dedicated to personal liberty, people wouldn’t be taxed to pay for the problems that others cause in the pursuit of their happiness.

How does this relate to the issue of casino gambling in or near Wichita?

There is a document titled “Economic & Social Impact Anlaysis [sic] For A Proposed Casino & Hotel” created by GVA Marquette Advisors for the Wichita Downtown Development Corporation and the Greater Wichita Convention and Visitors Bureau, dated April 2004. This document presents a lot of information about the benefits and the costs of gambling in the Wichita area. One of their presentations of data concludes that the average cost per pathological gambler is $13,586 per year. Quoting from the study in the section titled Social Impact VII-9: “Most studies conclude that nationally between 1.0 and 1.5 percent of adults are susceptible to becoming a pathological gambler. Applying this statistic to the 521,000 adults projected to live within 50 miles of Wichita in 2008, the community could eventually have between 5,200 and 7,800 pathological gamblers. At a cost of $13,586 in social costs for each, the annual burden on the community could range between $71 and $106 million.”

If all we had to do was to pay that amount each year in money that would be one thing. But the components of the cost of pathological gamblers include, according to the same study, increased crime and family costs. In other words, people are hurt, physically and emotionally, by pathological gamblers. Often the people who are harmed are those who have no option to leave the gambler, such as children.

Quoting again from the study: “While this community social burden could be significant, its quantified estimate is still surpassed by the positive economic impacts measured in this study.” The largest components of the positive economic impacts are employee wages, additional earnings in the county, and state casino revenue share, along with some minor elements. Together these total $142 million, which is, as the authors point out, larger than the projected costs shown above. But this analysis is flawed. Employee wages don’t go towards paying the costs of pathological gamblers, as employees probably want to spend their wages on other things. And the state casino revenue share is supposed to go towards schools.

The absurdity mounts as we realize that gambling is promoted, by none other than Governor Kathleen Sebelius, as a way to raise money for schools. Often the figure quoted for the amount of money gambling would generate for the state is $150 million per year. But here is a study concluding that the monetary costs to just the Wichita area would be a large fraction of that, and when you add the human misery, it just doesn’t make sense to fund schools with revenue from gambling.

Let profits save (or sink) Exploration Place

What must a business do to make a profit? It must deliver something that people want at a price they are willing to pay. It must deliver that product or service with costs lower than revenues, if it is to survive beyond the short-term.

If a business fails to do this it will become immediately aware, as it will be generating losses instead of profits. Since losses can’t be continued for very long before the business goes bankrupt, management has a very powerful motive to make corrections.

There are some who believe that making a profit is evil or immoral, that to make a profit you must be ripping off the customer. But profits are a signal that the business is doing something right. It must be satisfying customers’ desires, and doing it efficiently.

Governments, bureaucrats, and politicians, on the other hand, don’t have such a powerful motivating factor. They have, at least in their minds, a deep well of public money to spend. Through their power to tax they have the ability to keep money-losing institutions in place, no matter how inefficiently the institution operates, or how little demand there is for its product.

The simple fact is, and there is really no way to sugarcoat this, the people of Sedgwick County do not value the product that Exploration Place offers enough to pay what it costs to produce it.

Now if Exploration Place was privately owned, its owners would have the right to keep it in business and operating at a loss as long as they wanted or could afford to. But Exploration Place is asking the government to pay for its losses and keep it operating. That means that you and I — probably the very same people who thought Exploration Place didn’t provide a product we were willing to pay for — are asked to keep it in business.

Examine the incentives in place. Exploration Place operates at a loss. Instead of confronting the urgent and undeniable need to change, they receive a handout from the government. Considering the recent history of our local governments and other money-losing institutions, this is likely the first of a series of payments to be made.

Yes, I am aware that consultants are being dispatched to figure out how Exploration Place can change to avoid future losses, but I don’t have a lot of confidence that the right changes will be made. That’s because after changes are made — whatever they may be — Exploration Place will still undoubtedly lack the feedback mechanism of market signals that guide business managers to provide products and services that people actually value enough to buy.

Government leaders and newspaper editorial writers tell us that we cannot afford to lose such a wonderful place. But if it’s so wonderful, why won’t its customers pay what it really costs?

Thank You, Sedgwick County Commissioners

In an article in the May 12, 2005 Wichita Eagle titled “County plans no tax rate increase” we learn that “Sedgwick County’s property tax rates will stay the same next year and the county will be able to avoid layoffs and drastic cuts in programs, officials predicted Wednesday.”

Spending in next year’s budget will not contain “significant increases in spending.”

Before I go too overboard with thanks, I will remind readers that it was this commission that pushed for the sales tax increase for the downtown Wichita arena.

Sedgwick County Arena Sales Tax Ready to Pass

Following is a message from Karl Peterjohn, Executive Director Kansas Taxpayers Network, regarding the debate over SB 58, allowing Sedgwick County to raise its sales tax to pay for the downtown Wichita arena. I listened to the (as Karl rightly characterises it) “debate.” Karl’s reporting of the legislative action and the effects the sales tax will have is accurate. (Someone called the sales tax the “Western Butler County Improvement Act.”)


After a relatively brief and lackluster debate, the 1 cent sales tax hike for the downtown arena in Wichita received preliminary approval in the Kansas house March 21 on a voice vote. SB 58 will be voted upon for final action tomorrow in the Kansas House of Representatives. This odious bill should have been amended but a bipartisan group of Wichita legislators worked hard and were successful in keeping it “clean” so there weren’t any amendments. An amendment would have required a conference committee and a delay in enacting this tax. SB 58 will be passed easily and signed by the governor within the next couple of weeks.

The closest amendment to getting added to this bill was a “prevailing wage,” amendment offered by Democrat Minority Leader McKinney that failed on a division vote (no roll call) with over 40 yes votes. Prevailing wage would require union wages for the construction of this project but even the Democrats did not press this very hard since they did not even bother forcing a roll call vote on this amendment.

After some desultory comments by proponents, Rep. Huebert offered an amendment to address the uniformity issue but then withdrew it following Rep. Wilk’s opposition and promise that the tax committee that Wilk chairs would take up this issue shortly.

Your tax dollars were hard at work lobbying. Two tax funded lobbyists from Sedgwick County along with Sen. Carolyn McGinn were there to follow the vote. Wichita had its contract lobbyist as well as city employee Jeanne Goodvin was there. Other tax funded organizations like Ed Wolverton from the Wichita Downtown Development Corporation, Bob Hanson from the Sports Commission, and another sports commission board member Joe Johnston had lobbied the house members as they entered the chamber. A number of other business and labor lobbyists supporting the arena were also monitoring the desultory debate.

Huebert was the only member to oppose the bill during this “debate.” Steve spoke about his district’s opposition (2-to-1) and how this vote, where the county segment was opposed while the Wichita area was supportive (both voted 54-46 on their respective sides last November) might relate to a consolidation of government bill in Shawnee County’s vote on their city-county consolidation issue. The retroactive tax authorization WAS NOT EVEN MENTIONED in the debate.

Steve Brunk, who serves on the tax committee, “carried” the bill on the floor. Mario Goico, Brenda Landwehr, Jo Ann Pottorff, and Nile Dillmore all praised this measure in a form of Sedgwick County bipartisanship. Goico liked the eco-devo aspect while Pottorff praised the downtown revitalization with the waterwalk boondoggle for economic growth.

I have been told privately that there has been commitments for vote trading on this issue and other issues coming before the house that are of concern to non-Sedgwick County legislators. While there will certainly be a number of no votes cast on final action tomorrow, the final outcome is now clear. July 1 the sales tax rate in Sedgwick County will rise to 7.3% with the exception of Derby where it will rise to 7.8%. In a couple of years there will be a brand new pigeon coop, that lacks an anchor tenant, in downtown Wichita to add to the succession of money losing boondoggles that already litter the area.

If the Senator Hensley’s of the world prevail (he is the senate minority leader who issued his statewide tax hike plan last week), the 2005 legislature will soon pass a statewide sales tax hike and he would add at least another .2% to the figures cited in the previous sentence. The governor favors a statewide tax hike and there is talk of “rounding up” to say, an even 6 percent statewide. If that happens, there are parts of this state that will have total (state and local)sales tax rates approaching 10 percent.

The new millionaires who will be created through the prices the county will pay for the land it wants downtown for this boondoggle project will provide an interesting (but expensive) source of amusement in the near future too. It will also be interesting to see what portion of the construction labor used is “union” versus non union. Dale Swenson praised prevailing wage and other mandatory union wage rates like the federal government’s Davis-Bacon Act during the debate on that amendment.

As a frame of reference, New York City has a 8.625% sales tax rate. New York City does NOT tax groceries. I’ll let you decide, regardless of whether Kansas raises state rates or not, how we compare with a sales tax rate of 7.3%-or as much as-8.0%. If one of the tax raising legislators had not taken ill in the senate, the odds of a statewide tax hike raising the sales tax to 6.0% is not out of the question. Sedgwick County will have a high sales tax rate.

The only suggestion for Sedgwick County taxpayers that I can think of is that most of the cities in Butler County only have a 1/2 cent local sales tax, so their total is 5.8%. If you live in eastern Sedgwick County and want to save on grocery purchases, there is a Dillons at Andover Road and Kellogg. You should be able to save $1.50 on the purchase of $100 worth of groceries after July 1 based upon the variable local sales tax rates between Sedgwick and Butler counties.

I look forward to fulfilling my promise and including the recorded vote on final passage of SB 58 into the 2005 Kansas Taxpayers Network’s vote rating. Every legislator who cast an affirmative vote for SB 58 will have to bear some responsiblity for this looming boondoggle. The next battle will be trying to get this odious sales tax removed because a fiscal “crisis” in government will certainly appear before this tax expires. Rep. Huy was absent.

Letter to County Commissioners Regarding AirTran Subsidy

March 18, 2005

Board of Sedgwick County Commissioners

Dear Commissioner:

I am writing to explain my opposition to Sedgwick County funding the AirTran subsidy.

My primary reason for opposing this subsidy is that it distorts the market process through which individuals and businesses decide how to most productively allocate capital.

Aside from that, it seems to me that the argument that many Fair Fares supporters make is flawed. They are grossly — I would say even speciously — overstating the importance of the airport to our local economy.

As an example, Mr. Troy Carlson, then Chairman of Fair Fares, wrote a letter that was published on September 16, 2004 in the Wichita Eagle. In that letter he claimed $2.4 billion economic benefit from the Fair Fares program ($4.8 billion for the entire state). I was curious about how these figures were derived. Through correspondence With Mr. Steve Flesher, air service development director for the city of Wichita, I learned that the basis for them is a study by the Center for Economic Development and Business Research at Wichita State University that estimates the economic impact of the airport at $1.6 billion annually. In this study, the salaries of the employees of Cessna and Bombardier, because these companies use the airport’s facilities, are counted as economic impact dollars that the airport is responsible for generating.

To me, this accounting doesn’t make sense on several levels. For one thing, if we count the economic impact of the income of these employees as belonging to the airport, what then do we say about the economic impact of Cessna and Bombardier? We would have to count it as very little, because the impact of their employees’ earnings has been assigned to the airport.

Or it may be that someday Cessna or Bombardier will ask Sedgwick County for some type of economic subsidy, and they will use these same economic impact dollars in their justification. But these dollars will have already been used, as they were attributed to the airport.

Or suppose that Cessna tires of being on the west side of town, so it moves east and starts using Jabara Airport. Would Cessna’s economic impact on Sedgwick County be any different? I think it wouldn’t. But its impact on the Wichita airport would now be zero. Similar reasoning would apply if Cessna built its own runway.

An article I wrote titled Stretching Figures Strains Credibility provides more information, including a link to the Center for Economic Development and Business Research study.

I would be happy to speak to the County Commission as a group if you think they would be interested.

I thank you for your time and consideration.

Sincerely,

Bob Weeks

SB 58 Testimony from Kansas Taxpayers Network

More testimony opposing SB 58, the bill to allow Sedgwick County to increase its sales tax to pay for the downtown arena.


Testimony Opposing SB 58
By Karl Peterjohn, Executive Director, Kansas Taxpayers Network

SB 58 is a flawed bill that should either be re-drafted or defeated in its current form, Let me outline the major problems with this legislation.

1) This bill does not address the serious flaws already contained within KSA 12 187 that cry out for correction. This is a grossly non uniform statute that should be made, uniform covering all local government units. Today, cities may, and some already have, opt out of this statute using their home rule powers because of this statute’s non uniform condition. County home rule requires a change in statutes for the lid on local sales taxes (see KSA 19 101a). At some point in time the cities may opt out of this statute in a way that negates any requirement for voter approval at an election. It will be a sad day for Kansas government when the voter approval requirement within this statute gets voided within a municipality. This is only a matter of when, not a matter of if

It may surprise this committee that the Kansas Taxpayers Network (KTN) supports removing this local sales tax Ed under limited circumstances. The circumstances are straightforward. KTN strongly supports requiring voter approval before taxes are raised. KTN has repeatedly testified in front of both legislative tax committees in support of this principle. We strongly urge this committee to broaden this voter approval requirement to extend to city, county, and local property tax millage hikes. KTN would also like to see a requirement added to this statute that would extend this principle of voter approval of tax hikes to extend to all local taxes. Currently, Missouri, Colorado, and Oklahoma require voter approval before property taxes can be raised in those three states. In Colorado and Missouri this requirement for voter approval currently covers all local taxes.

This would correct the pro tax raising bias that exists in current law. Local sales tax hike proponents raise local sales taxes in a way I’ll describe ‘in three words: “carrot and stick.” The “carrot” approach to raising sales taxes is how Sedgwick County originally got their 1 cent local sales tax 20 years ago, “Vote for this local sales tax and we’ll lower your property tax.” That’s how Pottawatomie County got their local sales tax raised last year.

The “stick” approach was used by arena proponents in narrowly getting voter approval during the advisory vote November 2, 2004 in Sedgwick County. “If you don’t vote for this temporary sales tax hike we’ll raise your property taxes.” Arena proponents’ flyers and advertising said, “Vote No. And a 20 year property tax buys a facelift for the aging Kansas Coliseum… ” So it all comes down to: higher sales or higher property taxes would the condemned prefer to be hung or shot?

2) SB 58 is a slap in the face for taxpayers by making an advisory vote retroactively into a binding vote. This is an affront to the rule of law. The county knew they had no authority to raise the local sales tax under current state law. Now they want you to retroactively provide them with this approval. I wrote an editorial ‘in the Wichita Eagle last August that publicly informed them that they had no legal authority under Kansas law to impose this tax. They arrogantly proceeded anyway and now want the legislature to grant retroactive authorization.

Now I’m not saying that you can’t add retroactivity into Kansas tax law. That has occurred in the past nationally and fairly recently. In 1993 then President Clinton proposed adding retroactive provisions to federal tax code as part of his tax raising bill. This was enacted, it was litigated and the U.S. Supreme Court ruled that retroactive tax law was constitutional. This was bad federal tax law in 1993 and Kansas should not adopt this retroactively principle in 2005.

Now let me demonstrate how a taxpayer would be a second class citizen in Kansas if you enact SB 58 in its current form. If I decided as a citizen that I would no longer be bound by the portions of the tax law I’d like to see changed, and then proceeded to ignore the law, I would be in violation of the law and could be penalized under this law. Apparently, that is not a problem if the legal entity happens to be a local government, like Sedgwick County in Kansas. If I then had the arrogance to proceed to ask you as legislators to retroactively change state law to help me out of my own violation of state law, you would not take my request seriously. Today, you are taking the county’s request very seriously and if recent press reports are correct, a majority of you have already decided to vote for this bill. If this bill passes it will clearly establish the fact that taxpayers are second or perhaps even third class citizens behind local units of government in Kansas.

This bill would be a gross violation of the rule of law in this state. In fact, the legislature rarely provides retroactive provisions in state law and usually enacts statutes that only take effect at a future date.

3) Since the November 2 vote was advisory *in nature, the fact that arena opponents were outspent is an abuse of taxpayer funds but is not critical under current Kansas law. Arena opponents raised over $20,000 in private funds in the unsuccessful advisory election November 2, 2004. We were outspent by a greater than 2 to I margin by city, county, and state funded tax dollars spent by tax funded organizations.

This included city property taxes, city hotel/motel taxes, county tax funds, and state turnpike and regents tax dollars. This statute should be amended to ban the use of state and local tax funds in tax referendum elections. It is now clear that Kansas has already descended upon the slippery slope where tax dollars are being spent to promote higher taxes.

4) If the legislature does not act upon SB 58 or any similar legislation then one of two events will occur. The county could follow the usual practice and get KSA 12 187 changed so a binding election could occur. The city of Wichita, which also strongly backs this tax hike, could exercise their home rule option in this matter or also seek a change in this statute to hold a binding election in the future. The rule of law could be preserved even if this important principle is contained within this flawed and non uniform statute.

SB 58 is flawed and should be rejected by this committee. KTN has intentionally not discussed the merits of the downtown arena since that is an issue for a binding election and not for this committee or the legislature to consider. The legislature must make state law for all the citizens and all of the local units. SB 5 8 makes a bad statute worse.

A better approach would be to extend the principle of voter approval of local sales taxes to cover all local taxes in Kansas. Then you could remove the caps, terminate the “carrot and sticks,” tax raising strategy, delete the non uniformities, and allow the Kansas economy to begin to be able to compete with our neighboring states that have already empowered their citizens with mandatory tax referendums at the ballot box.

Legislative Delegation, Saturday February 5, 2005

On Saturday February 5, 2005 I attended the meeting of the local legislative delegation regarding the arena tax. Representative Tom Sawyer chaired the meeting. The audience wrote questions on notecards, and Representative Brenda Landwehr read them. To the best of my recollection, the people allowed to answer questions were Sedgwick County Commissioner Tom Winters, Sedgwick County Assistant County Manager Ron Holt, Sedgwick County Director of Finance Chris Chronis, Wichita Mayor Carlos Mayans, and Wichita Downtown Development Corporation President Ed Wolverton. All of these are arena supporters. No one with an opposing view was allowed to speak, except for near the end when Kansas Taxpayers Network Executive Director Karl Peterjohn spoke from the audience for a moment.

The news that was made during this event was that it was totally scripted by arena supporters, and except for Mr. Peterjohn’s brief remarks from the audience, there was no balance.

I created a handout for the legislators. A link to it is here.

From John Todd: Testimony regarding Senate Bill No. 58

February 3, 2005

Members
Senate Assessment and Taxation Committee
State Capitol
Topeka, Kansas 66612

Subject: Testimony in OPPOSITION TO SENATE BILL #58 (Sales Tax Increase For The Proposed Wichita/Sedgwick County Arena).

My name is John Todd. I am a self-employed real estate broker from Wichita, and I come before you in opposition to the enabling legislation that would allow Sedgwick County to raise the local sales tax 1% to fund a new Downtown Arena.

The reason why I am here in opposition to this government driven plan is my basic belief that individuals know best how to spend their own money, and that they should be allowed the freedom to spend the fruit of their own labor as they wish, and not as government dictates, particularly when it involves mandatory spending for an elective entertainment venue like the proposed downtown arena.

If the need for a Downtown Arena were market driven, the private sector would already be building it, and the taxpayers would be left out of the loop. Obviously, it is not, and so the proponents want the taxpayers to build it and absorb the losses. I believe their plan calls for over $20 million in operational losses. This does not count the business property that will be taken off the tax rolls for a county owned facility. If the Wichita Eagle’s pre-election numbers of $40 million in property value was correct, those losses in real estate taxes could amount to $1 million more in lost taxes per year, and I would bet that that shortfall will be spread back over the other real estate property taxpayers.

How did we ever get the idea that the road to prosperity is built on government spending and the heavy taxation of our people? How far from the truth can this be?

Anyone who has read the Eagle in recent months can attest to the massive number of so called “economic development” projects in downtown Wichita that are losing money, and that the taxpayer is being asked to cover. One only needs to read of the $1.00 per year 99 year leases that are being awarded for the millions of dollars taxpayer owned land and the $7 million dollars needed to lure a second or third choice anchor retailer downtown to grow disenchanted with local government’s ability to “manage” anything, particularly if it is related to real estate development.

And why should anyone be concerned with these boondoggles? We can’t continue to take $184.5 million here and $140 million there, and $100 million yonder out of our economy and hope to favorably compete with other cities, counties, and states in our region.

There are numerous excellent examples of free market economics at work in our city. One only needs to look north and south on Rock Road in Wichita to observe the benefits of this privately funded system that expands the tax base, creates jobs, and is indeed true “economic growth”, and best of all, the taxpayer is not liable if any of these business ventures fail. Will a 1% sales tax that will remove $184.5 million from the Sedgwick County economy hurt these local businesses? Absolutely! And according to an article in the March 2001 issue of “FedGaxette,” published by the Federal Reserve Bank of Minneapolis entitled “Stadiums and convention centers as community loss leaders” contains this quote:

“Current research indicates that stadiums and arenas have a particularly bad track record when it comes to delivering on promises of community economic windfalls. University researchers Mark Rosentraub and Mark Swindell found that three decades worth of studies ‘lead to the inescapable conclusion that the direct and indirect economic impacts of sports teams and the facilities are quite small’ and do not create much in the way of new jobs or economic development.”

The proponents of this Bill here today will tell you that 52% of the voters voted for the arena. That is true; however, they ignore the fact that our County elected officials were less than forthcoming in advising voters that the arena vote was an advisory election only, and is not binding. The County is not authorized to raise sales taxes without first obtaining legislative approval prior to any vote. Sedgwick County broke state law! The legislature is now faced with the dilemma of passing enabling legislating, and making it retroactive to the November 2, 2004 election and calling that election binding. This is wrong, and you should not let it happen. At the very least, if you pass the enabling legislation, a subsequent public vote should be required before allowing the County to raise the sales tax.

Before you pass this Bill into law, several matters need to be considered.

1. Is the $184.5 million dollar price tag excessive?

2. What is the real impact of taking $184.5 million dollars out of the private economy in terms of retailer profits and potential job losses?

3. The arena vote was won by a narrow margin. Rural Sedgwick County voters voted against the arena as did voters in the less affluent neighborhoods. Perhaps the sales tax should be optional at the check out stand. Those who want to pay the arena tax could and those who don’t could simply ‘opt out’.

4. What will happen to the Sedgwick County economy if the Legislature or the Supreme Court mandates a statewide sales tax to meet the Court’s requirements for school financing?

5. What is the specific location for the proposed arena? Who owns the land? Is the land going to cost $1.00 per square foot or $20.00 per square foot? And is the $20 million for land acquisition going to cover the actual cost, or will it be double or triple that amount? Would not an astute “private” investor already own the land or control the price under an option to purchase contract? If the Legislature allows the County to fill its checkbook, will not the price of land double or triple?

6. No one knows what the proposed arena will look like since it has not been designed. Should not the taxpayers have known what they are voting for?

7. Before you authorize giving the Sedgwick County Commission a blank check with $184.5 million of taxpayer money deposited in it, perhaps you need to consider placing some “controls” over how they spend the money?

8. Will the people who contributed to the pro arena campaign be allowed to bid on the construction work, participate in the design work, earn commissions for the sale/purchase of the land, or will these be considered a “conflict of interest”?

9. Will the Sedgwick County commissioners be required to explain why they voted for a $55 million dollar renovation for the Kansas Coliseum and then decided that it was too expensive? What did they do with the long-term capital improvement fund(s) that should have been earmarked for this project? And how do they explain that only $25 million in private funds were needed to renovate a similar size arena at Wichita State University? Does it always cost the public sector twice the amount to do the work as the private sector? Perhaps we need to enlist the business acumen of the private sector to build the arena for half of the proposed cost?

10. Perhaps our voters need better information in order for them to make an informed decision regarding a new arena or a renovated Coliseum? Property taxes were made an issue in the arena campaign. Many votes expressed their frustration to me that they were not given the opportunity to vote for “none of the above”, and since they were more opposed to property taxes than sales taxes, they were forced to vote for the arena. Perhaps the legislature needs to enact legislation requiring a public vote before local governments can raise local property taxes?

11. Are not government directed projects like the arena the antitheses of the free market system? Does anyone else tire of working until April or May of each year to pay his or her taxes? Is government really the answer?

Too many questions need to be answered before you decide pass this Bill into law. A non-binding public vote for a downtown arena in 1993 failed to pass by a wide margin. Since the 1993 vote was ignored, you have the necessary precedence and current state law on your side to ignore this vote, and at the very least amend this Bill to require another public referendum.

Thank you for allowing me to speak. I would be glad to answer questions.

Sincerely,

John R. Todd

Written testimony regarding Senate Bill No. 58 (Wichita downtown arena tax)

Written testimony of Bob Weeks regarding Senate Bill No. 58, an act concerning sales taxation; relating to countywide retailers’ sales tax in Sedgwick County.

February 3, 2005

Members
Senate Assessment and Taxation Committee
State Capitol
Topeka, Kansas 66612

Honorable Senators:

Thank you for allowing me to present this written testimony.

I realize that the voters in Sedgwick County voted for the arena sales tax increase. I believe, however, there is ample reason why you should vote against the tax. The idea of the taxpayer-funded arena came about so fast in the summer of 2004 that there was little thought given to the underlying issues. I wish to present what my research has uncovered.

WSU Study Not Complete

On of the main arguments advanced for having all the residents of Sedgwick County pay to build the arena was a study prepared by the Center for Economic Development and Business Research at Wichita State University. The study claimed a large economic benefit from the arena. It is because of this economic benefit that arena supporters say the entire community should pay to build the arena. This study, however, is incomplete in two important areas: its lack of depreciation accounting, and it ignores the substitution effect.

No Depreciation Accounting

Government Accounting Standards Board Statement 34 requires governments to account for the cost of their assets, usually by stating depreciation expense each year. Through a series of email exchanges with Mr. Ed Wolverton, President of the Wichita Downtown Development Corporation, I have learned that the WSU Center for Economic Development and Business Research was not aware of this requirement when they prepared their study. Mr. Wolverton admitted this after checking with the study authors. Furthermore, Mr. Chris Chronis, Chief Financial Officer of Sedgwick County, in an email conversation told me that the county will take depreciation expense for the downtown arena. I do not know what a figure for depreciation expense would be, but it would likely be several million dollars per year, and it would materially and substantially change the arena’s financial footing.

No Substitution Effect Allowed For

In a television new story reported by Mr. Erik Runge of KWCH Television on October 25, 2004, I was interviewed, and I mentioned the substitution effect. This is the term used to describe what research has found: that much of the new economic activity such as bars and restaurants that might appear around a downtown arena would be bars and restaurants that have moved from other parts of the city. There is little or no new economic activity, just movement of existing activity. Mr. Runge interviewed Mr. Ed Wolverton, President of the Wichita Downtown Development Corporation, who said “In WSU’s report they felt like there definitely could be some substitution effect.” The reporter explained “But how much was never studied. Downtown development backer Ed Wolverton says mostly due to time restraints.”

These two glaring omissions of materially important facts by the WSU study should warn us to question its other findings. Other than the report on KWCH, I saw no reporting of these two matters.

Claimed Economic Benefit is Not Realized

Arena supporters say that everyone should pay to build and operate the arena because it will generate economic impact that everyone will benefit from. The economic benefit claimed by arena supporters, however, has not been found to materialize in other cities. In the March 2001 issue of “FedGazette,” published by the Federal Reserve Bank of Minneapolis, an article titled “Stadiums and convention centers as community loss leaders” contains this quote:

“Current research indicates that stadiums and arenas have a particularly bad track record when it comes to delivering on promises of community economic windfalls. University researchers Mark Rosentraub and Mark Swindell found that three decades worth of studies ‘lead to the inescapable conclusion that the direct and indirect economic impacts of sports teams and the facilities are quite small’ and do not create much in the way of new jobs or economic development.”

In a paper titled “Professional Sports Facilities, Franchises and Urban Economic Development” (UMBC Economics Department Working Paper 03-103) by Dennis Coates and Brad R. Humphreys of the University of Maryland, Baltimore County we find this quote:

“Siegfried and Zimbalist (2000) recently surveyed the growing literature on retrospective studies of the economic impact of sports facilities and franchises on local economies. The literature published in peer-reviewed academic journals differs strikingly from the predictions in ‘economic impact studies.’ No retrospective econometric study found any evidence of positive economic impact from professional sports facilities or franchises on urban economies.”

Arena Tax Requires Everyone to Subsidize the Interests of a Few

Since, as current research has found, arenas do not generate the positive economic impact that their supporters claim, the arena tax instead becomes the public as a whole subsidizing the leisure activities of a relatively small number of people. The people who do use the arena, moreover, are quite easy to identify: they purchase tickets to events, or they pay to rent the arena. It is these people who should pay the full cost of the arena construction and operation.

Local Officials Not Entirely Truthful

Sedgwick County Commissioners stated that if the downtown arena sales tax did not pass, they would borrow money to renovate the Kansas Coliseum. If we do the math on the figures they quoted, that is to borrow $55 million and pay it back at $6.1 million a year for 20 years, we find that the interest rate is 9.17%, which is a terribly high interest rate for a government to pay. The county commissioners told us they were ready to pay this much if the arena tax didn’t pass.

I wrote to Sedgwick County Commissioner Tom Winters, asking him for an explanation. He replied that the interest rate is really 7.5% for this reason: To the $55.3 million cost of the renovations, we must add $6.5 million for capitalized interest during the construction period, and $.9 million for debt issuance costs. So yes, Commissioner Winters is correct about the 7.5% rate, but this also means that the cost of the Coliseum renovations should be stated as $62.7 million instead of $55 million. But even 7.5% interest is too high to pay.

What is troubling is that local government officials are not being truthful with the public.

Unintended Economic Effects

A paper titled “An Assessment of the Economic Impact of a Multipurpose Arena” by Ronald John Hy and R. Lawson Veasey, both of the University of Central Arkansas, (Public Administration & Management: An Interactive Journal 5, 2, 2000, pp. 86-98) looked at the effect of jobs and economic activity during the construction of the Alltel Arena in Pulaski County, Arkansas. This arena cost $50 million. It was funded in part by a one percent increase in the county sales tax for one year (1998). The sales tax generated $20 million.

In the net, considering both jobs lost and jobs gained due to sales tax and construction effects, workers in the wholesale and retail trades lost 60 jobs, and service workers lost 52 jobs. There was a net increase of 198 jobs in construction.

The fact that jobs were lost in retail should not be a surprise. When a sales tax makes nearly everything sold at retail more expensive, the supply curve shifts to the left, and less is demanded. It may be difficult to estimate the magnitude of the change in demand, but it is certain that it does change.

Workers in these sectors, should the sales tax increase take effect, may want to reconsider their career plans. How many retail and service workers can make the transition to construction work is unknown. It is certain, however, that when workers lose their jobs it imposes benefits costs on the government — and the taxpayers.

The population of Pulaski County in 2000 was 361,474, while Sedgwick County’s population at the same time was 452,869, so Sedgwick County is a somewhat larger. Our sales tax will last 2.5 times as long, and our proposed arena is about three times as expensive. How these factors will impact the number of jobs is unknown, but I feel that the number of jobs lost in Sedgwick County in retail and services will be larger that what Pulaski County experienced.

It is interesting to note that the authors of this study, while measuring a positive net economic impact for the Alltel Arena, make this conclusion:

“The primary reason for this positive economic impact is that the state of Arkansas contributed $20 million to the construction of the arena. As a result, the economic impact of building the arena in Pulaski County is greater than it would be if the county had funded the arena by itself. A vast majority of the jobs that will be created will be in the service sector that frequently offers lower wages than jobs in other sectors of the economy.”

The proposed downtown Wichita arena does not have the advantage of having 40% of its cost paid for by outsiders. It may be that we feel even more strongly the negative impacts of the sales tax.

The Difference Between a Publicly-Owned and Privately-Owned Arena

Instead of the government building an arena, suppose that arena supporters, along with those who voted yes for the sales tax and anyone else who wants to, formed a corporation to build and own an arena.

Instead of having paid taxes to the government, arena supporters would be investors and they would own something: their shares in the arena. They would have the pride and responsibility that comes with ownership. They would have a financial stake in its success. Even taxpayer-funded arena opponents might see merit in investing in a local business rather than paying taxes to a government.

Instead of government bureaucrats deciding what the people of our town want and need, a privately owned arena would be subject to the guidance and discipline of free markets. It would either provide a valuable service to its customers and stay in business, or it would fail to do that and it would go out of business. Governments do not have such a powerful incentive to succeed.

Instead of the bitter feelings dividing this town over the issue of a taxpayer-funded arena and other perceived governmental missteps, the arena corporation would act in the best interests of its shareholders and customers. Even if it didn’t, it wouldn’t be the public’s business, because after all, the corporation is formed of private individuals investing their own money.

When individuals invest in an arena they are nurturing the virtues of investment, thrift, industry, risk-taking, and entrepreneurship, Wichita having an especially proud tradition of the last. There is nothing noble about a politician taxing and spending someone else’s money on projects like a downtown arena, or a renovated Kansas Coliseum for that matter.

At this time in our town we have a chance to let private initiative and free markets work, or we can allow the government to continue to provide for us in ways that few seem truly satisfied with. Writing about a public utility in England that was transferred to private enterprise, economist John Blundell observed:

“When it was ‘public’ it was very private. Indeed, it was totally captured by a small band of bureaucrats. Even members of Parliament struggled to find out what was going on. No proper accounts were produced, and with a complete lack of market signals, managers were clueless as to the correct course to take. The greatest casualty was a lack of long-term capital investment.

Now it is ‘private’ and very public. Not just public in the sense of open, but also in the sense of accountable directly to its shareholders and customers. Copious reports and accounts are available and questioning citizens will find their concerns taken very seriously indeed.”

If we allow the government instead of private enterprise to build a new arena or to renovate the Kansas Coliseum, this is the opportunity we lose.

Abuse Of Tax Funds Must Stop

The following is from the Kansas Taxpayers Network. It shows how government-funded organizations participated in the campaign to increase Sedgwick County taxes.

Taxpayers’ funds are being used to promote higher taxes in Kansas. Tax funds are also being used to lobby for higher taxes (see VI. and 1. above). This is an egregious mess that the legislature should stop. Tax funds are also used for “informational” campaigns by taxpayer funded groups. This includes a variety of local units like school boards but is not limited to any local units.

How bad is this problem? Public campaign donation and expense records show that $45,907.85 was contributed to the “Vote Yea” committee from organizations that are partially or fully funded by tax funds. Here’s how the money is broken down in this advisory election:

1) Greater Wichita Convention and Visitors Bureau contributed $10,000. The Greater Wichita Convention and Visitors Bureau is almost entirely funded by the City of Wichita through its hotel/motel bed tax. In 2004 budgeted expenditures were $1,122,510.

2) Greater Wichita Sport Commission contributed $25,000. The Sports Commission operates out of the Convention and Visitors Bureau offices. City, county, and state tax funds in the form of $5,000 a year memberships finance this office. The state funds pay for Wichita State University’s membership.

3) Wichita Downtown Development Corporation contributed $2,324. This city sponsored organization for helping downtown is primarily funded with a four mill city property tax within its downtown area boundaries.

4) Kansas Turnpike Authority contributed $3,583.85. This contribution by a state organization listed an “Inkind” contribution of a “loaned executive,” for the “vote yea” campaign.

5) The Hyatt Regency Wichita contributed $5,000. The Hyatt Regency operates this city owned and money losing hotel adjacent to the Wichita Century II complex. Since this corporation has a contract to operate this hotel this is another city related and funded contribution, albeit through this back door donation.

These five contributions were more than twice the entire amount of the vote no campaign that spent just over $21,000 in their unsuccessful effort to defeat this advisory proposal. This spending does not include $5,000 more in 5016 funds for the tax hike campaign. Similar charitable donations in tax elections have also been reported in northeast Kansas. All these tax and 5016 expenditures should cease. However, these contributions and expenditures were probably a good deal less than the money spent by tax funded organizations to lobby the legislature. Some of these local units register as lobbyists (see lobbyist list for cities, counties, schools, and other entities) and some do not, like lobbyists for Regents Institutions.

Tax funds are being misused to litigate for higher taxes. School districts that spend tax funds to sue the state over school finance are biting the hand that feeds them and already provides the bulk of their entire budgets. The state school finance formula should have an adjustment to penalize school districts that are suing the state over school finance. The perpetual school litigation machinery needs to be turned off at the statehouse.