Voice For Liberty

Tag: Subsidy

  • Wichita City Council bows to special interests

    Yesterday’s meeting of the Wichita City Council revealed a council — except for one member — totally captured by special interests, to the point where the council, aided by city staff, used a narrow legal interpretation in order to circumvent a statutorily required public hearing process.

    The issue was a downtown hotel to be developed by a team lead by David Burk of Marketplace Properties. The subsidies Burk wants, specifically tax increment financing (TIF), require a public hearing to be held. The city scheduled the hearing for September 13th.

    That schedule, however, didn’t suit Burk. In order to provide him a certain comfort level, the council agreed to issue a letter of intent stating that the council intends to do the things that the public hearing is supposed to provide an opportunity for deliberation.

    I, along with others, contend that this action reduces the September 13th public hearing to a meaningless exercise. This action is not good government, and it’s not open and transparent government, despite the claims of Mayor Carl Brewer. It goes against our country’s principle of the rule of law, part of which holds that our laws are more important than any single person.

    Several times council members — and once city attorney Gary Rebenstorf — explained that the letter of intent is non-binding on either party. But: No matter what information is presented at the September public hearing, no matter how strong public opinion might be against the incentives involved, is there any real likelihood that the council would not proceed with this plan and its incentives, having already passed a letter of intent to do so? I think there is very little possibility of that.

    Persuasive arguments will be made that since the city issued a letter of intent, and since the developers may have already taken action based on that letter, it follows that the city is obligated to pass the plan. Otherwise, who would ever vest any meaning in a future letter of intent from this city?

    During the discussion, no one was able to explain adequately why a letter of intent — if it is non-binding and therefore does not commit the city — was asked for by the developers. Despite the lawyerly explanation of Rebenstorf and council members — including the mayor — the letter does have meaning. Practically, it has such a powerful meaning that it makes the holding of the public hearing on September 13th a mere charade, a meaningless exercise in futility.

    It’s not just me and a handful of others who contend this. The Wichita Eagle’s Rhonda Holman, who is usually in favor of all forms of public spending on downtown, wrote: “Even though the letter of intent will be nonbinding, it risks making the Sept. 13 public hearing on tax-increment financing seem like a pointless afterthought.”

    In his remarks, City Manager Bob Layton explained that the meeting was the first time for council members to “formally vet this project and all of the incentives.”

    He added: “If the council were to say, for instance, there were two or three pieces of that that you had discomfort with, that would then put everyone on notice that the deal may not go forward.” He said this is the purpose of today’s action, and he added that the action is non-binding.

    I would suggest that since the council, with the exception of Council Member Michael O’Donnell (district 4, south and southwest Wichita), found no problems with issuing the letter of intent, it has no problems with the deal, and this is what makes the September public hearing, as Holman said, a “pointless afterthought.”

    Astonishingly, the manger said while this is “not intended to be the normal process,” he said that he “kind of like it” as it gave an initial opportunity to gauge the sentiment of council members.

    I’m glad the manager didn’t mention the sentiment of the public, as with little notice as to the content of the deal and its incentives, citizens had no meaningful opportunity to prepare.

    An example of the contorted logic council members use to justify their action: Council Member Jeff Longwell (district 5, west and northwest Wichita) explained that issuing letters of intent is a common practice in real estate deals. He confused, however, agreements made between private parties and those where government is a party. Private parties can voluntarily enter into whatever agreements they want. But agreements with government are governed by laws. Yesterday, the city council announced its intent to do something for which it is required to hold a public hearing. That didn’t violate the letter of the law, but it certainly goes against its spirit and meaning. Longwell said he has no problem with that.

    Their bureaucratic enablers helped out, too. Wichita Downtown Development Corporation President Jeff Fluhr, in his testimony, said we are working towards becoming a “city of distinction.” That we are, indeed — a city distinguished by lack of respect for the rule of law and its disregard for citizens in favor of special interests.

    A few observations from the meeting follow.

    Public investment

    In response to a question from the mayor, Allen Bell, Wichita’s Director of Urban Development, said that the ratio of private dollars to public dollars for this project is about 2.2 to 1. Whether these numbers are correct is doubtful. It will take an analysis of the deal to determine the true numbers, and the details have been available for only a short time. But if correct, this ratio falls well short of the stated goals. Two years ago, when agitation for a new round of downtown planing started, boosters spoke of a ratio of 15 to 1. Eventually planners promised a ratio of 5 to 1 private to public investment for downtown. This project, while of course is just a single project and not the entirety of downtown development, doesn’t reach half that goal.

    Order of events and media coverage

    During the meeting, Council Member Pete Meitzner (district 2, east Wichita) conceded that “the order of events is confusing.”

    Before that, Council Member Janet Miller (district 6, north central Wichita) claimed that there had been much media coverage of the proposed hotel, and that the public was actually getting two opportunities to talk about this project. She said that the media had published information about today’s meeting and the public hearing on September 13th.

    Miller is gravely mistaken. Until a Wichita Eagle article on Saturday, I saw no mention of the letter of intent, and no detail of the form of subsidies to be considered for this project. The city’s list of legal notices contains no mention of the action that was taken at this meeting.

    Questions not answered

    During my remarks to the council, I related how last year the Wichita Eagle alleged that David Burk, the managing member of this project — and I quote here: “Downtown Wichita’s leading developer, David Burk, represented himself as an agent of the city — without the city’s knowledge or consent — to cut his taxes on publicly owned property he leases in the Old Town Cinema Plaza, according to court records and the city attorney.”

    This Eagle article and a companion article went on to quote these people as having trouble with and being concerned, to varying degrees, with Burk’s acts: City Attorney Gary Rebenstorf; City Council member Jeff Longwell; City Council Member Lavonta Williams, now serving as vice mayor; then-Vice Mayor Jim Skelton, now on the Sedgwick County Commission; and City Manager Robert Layton.

    In particular, the manager said, according to the Eagle, that anyone has the right to appeal their taxes, but he added that ‘no doubt that defeats the purpose of the TIF.’”

    The manager’s quote is most directly damaging. Despite the fact that nearly all the property taxes Burk pays directly enriches himself and only him, he still doesn’t want to pay them. And according to the Wichita Eagle — not me — he engaged in deception in order to reduce them.

    None of the four people in the council chambers — Rebenstorf, Longwell, Williams, and Layton — explained their apparent change of mind with regard to Burk’s acts.

    Burk, who addressed the council immediately after I asked if he cared to explain his actions, decided to avoid the issue. In his shoes, I probably would have done the same, as there is no justification for the acts the Eagle accused him of doing. He, and his political and bureaucratic enablers in Wichita city hall, have to hope this issue fades.

    Campaign contributions

    Council member O’Donnell asked about a parking garage to be built at a cost of $6 million to the city: Will the city be putting this project out to competitive bid? Bell replied no, that is the developer’s request. City attorney Rebenstorf added that there is a charter ordinance that exempts these types of projects from bidding requirements.

    O’Donnell said that awarding the construction contract to a company that has made campaign contributions to all council members (except him) “seems a little questionable.”

    The company in question is Key Construction. Its principals regularly appear on campaign finance reports, making the maximum allowed contribution to a wide variety of candidates. Similarly, Burke and his wife also frequently make the maximum contribution to city hall candidates.

    O’Donnell is correct to publicize these contributions. They emit a foul odor. In our political system, many people make contributions to candidates whose ideology they agree with, be it conservative, liberal, or something else.

    But Burk and others routinely make the maximum contribution to all — or nearly all — candidates, even those with widely varying political stances. How can someone explain Burk’s (and his wife’s) contributions to liberals like Miller and Williams, and also to conservatives like Longwell, Meitzner, and former council member Sue Schlapp?

    The answer is that Schlapp and Longwell, despite their proclamations of fiscal conservatism, have shown themselves to be willing to vote for any form of developer welfare Burk and others have asked for. They create tangled webs of tortured logic to explain their votes. Meitzner, along with his fellow new council member James Clendenin (district 3, south and southeast Wichita), seems to be following the same path.

    Several council members and the mayor took exception to O’Donnell’s raising of this matter. Clendenin, for his part, objected and said that the public has had over 30 days to consider and take exception with this project. This contention, like Miller’s, isn’t supported by any facts that I am aware of. It appears that the first mention of any of the details of the plan and the subsidies is contained in a MAPC agenda that appears to have been created on July 29. Besides not being 30 days in advance, the MAPC agenda is an obscure place to release what Clendenin believes is adequate public notice.

    Regarding the issue of campaign contributions, the mayor — without mentioning his name — strongly criticized O’Donnell for bringing up this matter. Many people watching this meeting felt that the extreme reaction of Brewer and others to O’Donnell’s observation reveals a certain uneasiness regarding these contributions. I don’t believe the mayor and council members are taking illegal bribes, although when any city is enriching people with millions of dollars of developer welfare there is always that threat, and in some cities and states such practices are commonplace.

    The fact remains, however, that there is a small group of campaign contributors who — over and over — ask for and receive largess from city hall.

    The mayor’s criticisms

    In his comments, Mayor Brewer accused opponents of providing only partial facts about matters, because the full facts did not support their case. He was referring to my remarks that a lawsuit brought against the city by a party who felt the city had reneged on a letter of intent was litigated all the way to the Kansas Supreme Court. In my remarks I didn’t mention who won that case — the city did — and the mayor believes this is an example of slanting the facts.

    The mayor went on to make accusations of “grandstanding” from some of the public and “some council members” because there are cameras in the council chambers. He mentioned that news media are present at every meeting and that council meetings are broadcast on television.

    The mayor should take notice, however, that most people who care about public affairs and policy are severely disappointed with news media coverage of city hall events. The resources of news gathering agencies, especially newspapers, are severely depleted as compared to the past. In my coverage of a talk given by former Wichita Eagle editor Davis Merritt, I wrote this: “A question that I asked is whether the declining resources of the Wichita Eagle might create the danger that local government officials feel they can act under less scrutiny, or is this already happening? Merritt replied that this has been going on for some time. ‘The watchdog job of journalism is incredibly important and is terribly threatened.’ When all resources go to cover what must be covered — police, accidents, etc. — there isn’t anything left over to cover what should be covered. There are many important stories that aren’t being covered because the ‘boots aren’t on the street anymore,’ he said.” See Former Wichita Eagle editor addresses journalism, democracy, May 11, 2009.

    In addition, Bill Wilson, the reporter the Wichita Eagle sent to cover the meeting, has a documented bias against the concept of free markets, and against those who believe in them.

    The mayor, when delivering his criticism, does not use the names of those he criticizes. It would be useful if he did, but it would mean he has to take greater accountability for his remarks.

    Following are links to excerpts of testimony from the meeting — perhaps examples of the “grandstanding” the mayor complained about: John Todd, Shirley Koehn, and Bob Weeks.

  • Wichita city council to decide between rule of law, or rule by situation

    Tuesday’s Wichita City Council meeting will provide an opportunity for the mayor, council members, and city hall staff to let Wichitans know if our city is governed by the rule of law and proper respect for it, or if these values will be discarded for the convenience of one person and his business partners.

    Here’s the situation: a person wants to gain approval of a tax increment financing (TIF) district project plan. This requires a public hearing, which the city has scheduled for September 13th.

    But this schedule doesn’t suit the applicant. He has a personal business need — an expiring purchase option — and wants the city to issue a letter of intent stating that the city intends to do all the things that are the subject of the September public hearing.

    The letter of intent is not binding, city officials tell us. The council will still have to hold the September public hearing and vote on the incentives the developer wants. And the list of incentives is large, amounting to many millions of dollars. Whether to issue these incentives deserves discussion and a public hearing.

    But the letter of intent, in effect, circumvents the public hearing. It reduces the hearing to a meaningless exercise. No matter what information is presented at the September public hearing, no matter how strong public opinion might be against this project, is there any real likelihood that the council would not proceed with this plan and its incentives, having already passed a letter of intent to do so? I imagine that persuasive arguments will be made that since the city issued a letter of intent, and since the developers may have already taken action based on that letter, it follows that the city is obligated to pass the plan. Otherwise, who would ever vest any meaning in a future letter of intent from this city?

    And the developers are planning to take action based on this letter of intent. To them, the letter does have meaning. If it had no meaning, why would they ask for it?

    That bears repeating: If the letter of intent is non-binding, why issue it at all?

    The last time someone felt the city reneged on a letter of intent, it resulted in a court case that went all the way to the Kansas Supreme Court. I imagine the city is not anxious to repeat that experience.

    Part of the purpose of public hearings and their advance notice, usually 30 days or so, is to give interested parties time to prepare for the hearing. But citizens are given just a few days notice of the proposed letter of intent. The parties who will receive the subsidies, of course, have known about this for some time. Their bureaucratic and political enablers have, too.

    The issuance of the letter of intent on Tuesday, if the city council decides to do so, is an affront to the rule of law. It would be a powerful statement by the council that it intends to go ahead with the project and its subsides, public hearing — and citizens — be damned. It is a striking show of arrogance by the city and its political leadership, which is to say Mayor Carl Brewer.

    After Tuesday’s meeting we will know one thing. We will know if the Wichita City Council and city staff value the rule of law more than the needs of one small group of people. We won’t really know about individual city staff, but the council members and mayor will have to vote on this item. We’ll know exactly where each of them stands. Expect waffling.

    Tuesday provides citizens a chance to learn exactly how the mayor and each council members value the rule of law as compared to the needs of one person and his business partners. It is as simple as that.

    The project

    The project is the development of a new hotel in an existing building downtown. It sounds like a neat project and would be a great addition to Wichita. But — this project is a product of central government planning backed by massive government intervention in the form of millions of dollars of subsidy. Pretty much all the tools have been tapped in the proposed corporate welfare, even one form that will require the city to pass a special charter ordinance.

    The lead developer, David Burk, is well known in Wichita and has produced a number of successful projects. (We must qualify this as “seemingly successful,” as it seems as all of Burk’s projects require some sort of taxpayer involvement and subsidy. So we don’t really know if these projects would be successful if they had to stand on their own.)

    I’ve written extensively on the problems with government-directed planning and taxpayer-funded investment in downtown Wichita. See Downtown Wichita regulations on subsidy to be considered or Downtown Wichita revitalization for examples. This project suffers from all these problems.

    Furthermore, we see the problems of the public choice theory of politics at play here. Perhaps most prominent is the problem of concentrated benefits and dispersed costs. In this case Burk and his partners stand to garner tremendous benefit, while everyone else pays. This is why Burk and his wife are generous campaign donors to both conservative and liberal city politicians.

    Burk and past allegations

    The involvement of Burk in the project, along with the city’s response, is problematic. City documents indicate that the city has investigated the backgrounds of the applicants for this project. The result is “no significant findings to report.” Evidently the city didn’t look very hard. In February 2010 the Wichita Eagle reported on the activities of David Burk with regard to property he owns in Old Town. Citizens reading these articles might have been alarmed at the actions of Burk. Certainly some city hall politicians and bureaucrats were.

    The opening sentence of the Wichita Eagle article (Developer appealed taxes on city-owned property) raises the main allegation against Burk: “Downtown Wichita’s leading developer, David Burk, represented himself as an agent of the city — without the city’s knowledge or consent — to cut his taxes on publicly owned property he leases in the Old Town Cinema Plaza, according to court records and the city attorney.”

    A number of Wichita city hall officials were not pleased with Burk’s act.

    According to the Eagle reporting, Burk was not authorized to do what he did: “Officials in the city legal department said that while Burk was within his rights to appeal taxes on another city-supported building in the Cinema Plaza, he did not have authorization to file an appeal on the city-owned parking/retail space he leases. … As for Burk signing documents as the city’s representative, ‘I do have a problem with it,’ said City Attorney Gary Rebenstorf, adding that he intends to investigate further.”

    Council member Jeff Longwell was quoted by the Eagle: “‘We should take issue with that,’ he said. ‘If anyone is going to represent the city they obviously have to have, one, the city’s endorsement and … two, someone at the city should have been more aware of what was going on. And if they were, shame on them for not bringing this to the public’s attention.’”

    Council member Lavonta Williams, now serving as vice mayor, was not pleased, either, according to her quotations: “‘Right now, it doesn’t look good,’ she said. ‘Are we happy about it? Absolutely not.’”

    In a separate article by the Eagle on this issue, we can learn of the reaction by two other city hall officials: “Vice Mayor Jim Skelton said that having city development partners who benefit from tax increment financing appeal for lower property taxes ‘seems like an oxymoron.’ City Manager Robert Layton said that anyone has the right to appeal their taxes, but he added that ‘no doubt that defeats the purpose of the TIF.’”

    The manager’s quote is most directly damaging. In a tax increment financing (TIF) district, the city borrows money to pay for things that directly enrich the developers, in this case Burk and possibly his partners. Then their increased property taxes — taxes they have to pay anyway — are used to repay the borrowed funds. In essence, a TIF district allows developers to benefit exclusively from their property taxes. For everyone else, their property taxes go to fund the city, county, school district, state, fire district, etc. But not so for property in a TIF district.

    This is what is most astonishing about Burk’s action: Having been placed in a rarefied position of receiving many millions in benefits, he still thinks his own taxes are too high.

    Some of Burk’s partners have a history of dealing with the city that is illustrative of their attitudes. In 2008 the Old Town Warren Theater was failing and its owners threatened to close it and leave the city with a huge loss on a TIF district formed for the theater’s benefit. Faced with this threat, the city made a no-interest and low-interest loan to the theater. The theater’s owners included David Wells, who is one of Burk’s partners in the project being considered by the council for the letter of intent.

    Entrepreneurs are not always successful. Business failure, if handled honestly and honorably, is not shameful.

    But when a business is already receiving taxpayer subsidy, and the response to failure is to demand even more from the taxpayer — that is shameful.

    Burk and Wells, by the way, played a role in the WaterWalk project, which has a well-deserved reputation as a failed development. In 2011 the city’s budget includes a loss of slightly over one million dollars for the TIF district that has benefited its owners to the tune of over $41 million.

    Burk has been personally enriched by city hall action before. An example from the same article: “A 2003 lease agreement gave Burk use of the retail strip at the front of the parking garage for $1 a year for the first five years.” Nearly-free property that you can then lease at market rates is a sweet deal.

    These gentlemen have had their bite at the taxpayer-funded apple. Now they want another bite, on their own schedule, without regard to rule of law and the public.

  • Despite allegations, Wichita’s Dave Burk remains favored

    As Wichita proceeds with the redevelopment of its downtown, one developer seems to be on the cutting edge of harvesting corporate welfare — despite his past behavior. Last year this person, Dave Burk of Marketplace Properties, acted in a way the Wichita Eagle described as deceptive in order to reduce his property taxes. Yet, Burk remains a favored developer at city hall, and he’s soon going to ask taxpayers to pay higher taxes for his benefit. These are the same taxes he himself doesn’t like to pay. The following article from February 2010 explains.

    Today’s Wichita Eagle contains a story about a well-known Wichita real estate developer that, while shocking, shouldn’t really be all that unexpected.

    The opening sentence of the article (Developer won tax appeal on city site) tells us most of what we need to know: “Downtown Wichita’s leading developer, David Burk, represented himself as an agent of the city — without the city’s knowledge or consent — to cut his taxes on publicly owned property he leases in the Old Town Cinema Plaza, according to court records and the city attorney.”

    Some might say it’s not surprising that Burk represented himself in the way the Eagle article reports. When a person’s been on the receiving end of so much city hall largess, it’s an occupational hazard.

    And when you’ve been the beneficiary of so much Wichita taxpayer money, you might even begin to think that you shouldn’t have to pay so much tax anymore.

    At the state level, you might seek over a million dollars of taxpayer money to help you renovate an apartment building.

    Burk has certainly laid the groundwork, at least locally. A registered Republican voter, Burk regularly stocks the campaign coffers of Wichita city council members with contributions. These contributions — at least for city council candidates — are apparently made without regard to the political leanings of the candidates. How else can we explain recent contributions made to two city council members who are decidedly left of center: Lavonta Williams and Janet Miller? Burk and his wife made contributions to their campaigns in the maximum amount allowed by law.

    This is especially puzzling in light of Burk’s contributions to campaigns at the federal level. There, a search at the Federal Election Commission shows a single contribution of $250 to Todd Tiahrt in 2005.

    It’s quite incongruous that someone would contribute to Tiahrt, Williams, and Miller. Except Williams and Miller can — and have — cast votes that directly enrich Burk. Politicians at the federal level don’t have the same ability to do that as do Wichita city council members. Well, at least not considering Wichita city business.

    So which is it: is Burk a believer in Republican principles, a believer in good government, or someone who knows where his next taxpayer handout will come from?

    Burk’s enablers — these include Wichita’s lobbyist Dale Goter, Wichita Downtown Development Corporation president Jeff Fluhr and chairman Larry Weber, Wichita City Manager Robert Layton, Wichita economic development chief Allen Bell, and most importantly Wichita Mayor Carl Brewer and various city council members — now have to decide if they want to continue in their efforts to enrich Burk. Continuing to do so will harm their reputations. The elected officials, should they run for office again, will have to explain their actions to voters.

    At the state level, the bill that will enrich Burk will likely be voted on in the Kansas Senate this week. Then, similar action may take place in the Kansas House of Representatives. Let’s hope they read the Wichita Eagle in Topeka.

  • Public-private partnerships: the problems

    As the City of Wichita undertakes the revitalization of downtown Wichita, we need to make sure we understand the many problems inherent in the “public-private partnership.” The following commentary by Fred L. Smith, Jr. President of the Competitive Enterprise Institute originally appeared on OpenMarket.org, and it does an excellent job explaining these problems. Some of these I and others have brought to the attention of the Wichita City Council.

    The Problem With Public-Private Partnerships

    by Fred Smith

    In our half-political, half-private world, there are a growing number of public-private partnerships. Almost nothing in the current world can be done without implicit or explicit permission by local, state, federal or (increasingly) global regulators. But the term, public-private is normally used to denote the joint funding and, sometimes, joint management of some “public” facility — streets, water systems, and so forth.

    The rationale for “public” investments is that they are “public” goods, whose benefits are not adequately captured by the provider. There are many problems with this concept — in practice, it means that someone wants something and nobody seems to be providing it. Note, from a Coasian/Schumpeterian free market perspective, these are exactly the “lures” that lead mankind to pursue the unexplored entrepreneurial paths to the future. Rushing in with government assistance distorts and preempts those creative forces.

    Sometimes, public-private partnerships can be a transitional step toward privatization. The concept of “corporatization” that is, reorganizing an activity now performed by some political agency so that its inherent economic realities become more understandable and transparent, may be a useful step in privatizing the activity.

    In most cases, however, public-private partnerships are simply a means of using tax breaks, regulatory easing, taxpayer support and so forth to subsidize some private activity: stadia, light and heavy rail — mass transit generally, sometimes (for God’s sake) hotels and malls, downtown development districts. Where I live in Washington, D.C., businesses are allowed to add a “special tax” to pay for services the city supposedly pays for with normal tax revenues. Such public-private partnerships suffer from the full array of government failures:

    • Log-rolling and pork-barrel politics: I’ll vote for your PPP if you vote for my PPP.
    • Weakened market tests: resources are devoted to a project not because it benefits the citizenry but rather because it benefits a powerful interest group and/or because a creative referendum entices a majority of voters to support their special interests.
    • Weaker Management: Absent market tests, managers are less motivated to find that mix of services and creative array of financing tools to ensure that it proves “profitable” (that is, a rational allocation of capital). Roads, even charter schools, etc all have suffered here immensely.
    • Lack of innovation: No institution in the private world can allow itself to stagnate – the creative forces of destruction will soon make it obsolete. PPP managers face much weaker innovative forces — if things go wrong, they can always appeal to their “public” nature for taxpayer bailouts.
    • Corruption: Crony capitalism abounds in the PPP world.
    • Faddism: Markets sometimes go on kicks — the tech boom, for example — but these soon collapse. Governments go on kicks for many decades — “renewable energy” and “mass transit” being perhaps the best examples but “magnet” investments in downtown malls, stadia and convention centers are perhaps even more persistent ones. Before Walmart became a PPP, it did more for consumers than all the PPP malls in the world.
    • Crowding Out: Capitalism plays a critical role in allocating capital — planting the seeds for our future. That is a very difficult task, one made much more difficult by the existence of PPPs. Government already seizes a disproportionate amount of our wealth and the PPP concept allows it to further distort the allocation by market forces. I’ve argued that the genius of the Progressives in the late 19th century was to preempt or push large sectors of the emerging future (the environment, schools, electromagnetic spectrum, infrastructure, welfare, the medical world) into the political world. The PPP concept simply exacerbates this tendency.

    Our challenge is to find ways to expand the private sector and only very rarely does the PPP concept do that. It allows people to be sloppy — “That would never pay for itself but it obviously has value, thus, we need some government help. Let’s not make it an honest government function, let’s make it a Public-Private partnership and get the best of all possible outcomes!!”

    This Mixed Economy model is less honest than true socialism (government acting directly) for many reasons. If as is often the case, things go wrong, it will be capitalism — not government — that will be blamed. PPP activities are less subject to consumer sovereignty (look at airports or schools). The true costs of the activity don’t appear on government budgets — making it appear that PPP arrangements are “bargains.”

  • Pickens: It’s all about me, and MSNBC doesn’t notice

    Appearing on the MSNBC morning program Morning Joe, energy investor T. Boone Pickens let us know that despite his no-nonsense business-like approach to supporting what he believes to be in America’s best interests, it’s really all about him and what profits him. But program hosts Joe Scarborough and Mika Brzezinski didn’t catch that.

    Pickens appeared on the program to gain support for legislation he is seeking to pass through Congress. His bill is H.R. 1380: New Alternative Transportation to Give Americans Solutions Act of 2011, commonly referred to as the NAT GAS act. The bill would provide payments in the form of tax credits to encourage the use of natural gas as a transportation fuel.

    Host Scarborough said “It makes so much sense.” At the end of the segment, Brzezinski pleaded “Do us a favor. Please don’t give up.”

    Never once did either host bring up the facts that Daniel Indiviglio cites in his coverage for The Atlantic. Mike Barnicle was on the show but wasn’t helpful in this regard, either.

    The problem is this, according to Indiviglio: “At no point during the nine-minute interview on MSNBC did Pickens mention that he stands to make a significant financial gain if the bill he’s promoting succeeds and natural gas usage expands.”

    Pickens knows how to present his case in the best possible light, picking and choosing which fact to present, and which to stretch or ignore. He criticizes Koch Industries for its opposition to the bill. Koch has explained its opposition to subsidies for natural gas as a transportation fuel, just as it opposes all subsidies. In a statement on its Viewpoint website, Dr. Richard Fink, Executive Vice President of Koch Industries, explained the harm of government intervention, writing “Koch has consistently opposed subsidies that distort markets. We maintain that the marketplace, while not perfect, is the best mechanism for allocating resources to consumers. People deciding what fuels to purchase, instead of the government, is best for consumers and our country. Likewise, if natural gas vehicles are truly advantageous and economically efficient, then consumers will demand that they be developed without political mandates that exhaust more taxpayer dollars.”

    Pickens went on to criticize Koch for accepting subsides for ethanol production. Koch Industries, as a refiner of oil, blends ethanol with gasoline it produces in order to meet federal mandates on ethanol usage. Even though Koch opposes subsidies for ethanol, Koch accepts the subsidies. A company newsletter explains: “Once a law is enacted, we are not going to place our company and our employees at a competitive disadvantage by not participating in programs that are available to our competitors.”

    So the criticism of Koch by Pickens is unfounded. Now I wouldn’t really expect the program hosts to be aware of this, but they must have been aware that Pickens will profit, probably handsomely, if the NAT GAS act passes.

    In his coverage Indiviglio writes: “Essentially, Pickens criticizes Koch for preferring government subsidies to benefit Koch Industries. But is Pickens’ motivation for natural gas subsidies really any different?”

    It is different in an important way. Koch, as explained above, participates in a subsidy program that is available to all similarly situated companies. At the same time the company calls for its end for reasons of principle that the company and its owners have supported for many years. Pickens, on the other hand, wants to create a new program with new subsidies and new expansion of government intervention into free markets.

    Besides this, when you listen to Pickens, you realize it’s all about him and what he wants. “We have 250 million vehicles in America. So I’m going to take eight million heavy duty trucks — that’s it — and that will do it.” And then “I want a billion dollars a year for five years.”

    Large decisions about our country’s energy future shouldn’t be made by one person, or even by Congress and the president. We need to let the dynamic discovery process of markets harness and organize the tremendous diverse power of the human mind and reveal to us the best energy solutions.

  • Despite subsidy program, Wichita flights are declining

    Supporters of the Kansas Affordable Airfares Program are proud of the program’s success. But looking at the statistics uncovers a troubling trend that is obscured by the facts used to promote the program.

    The program provides taxpayer-funded grants to airlines so that they will provide low-cost service to cities in Kansas. The thought is that by propping up a discount carrier, other airlines will be forced to reduce their fares. By far the largest consumer of these subsidies is Airtran Airways in Wichita. For this goal, the program has worked, probably. We have to say “probably” because we can never know what would have happened in the absence of this program. But it is quite likely that fares are at least somewhat lower than would they would be otherwise.

    But lower fares is not the only measure of success. The number of available flights is a measure, too, and a very important one for many people.

    The problem is that subsidy boosters state that the number of flights has increased. For example, on a page that is part of the Sedgwick County official website, the claim is made that the affordable airfares program “offers more flights to both east and west coasts.”

    In the agenda packet for the July meeting of the Regional Economic Area Partnership of South Central Kansas — that’s the body that administers the affordable airfares program — board members were presented this information: “In presenting its proposal Sedgwick County provided evidence documenting that low-fare air service to eastern and western U.S. destinations through Wichita Mid-Continent Airport had been successful in providing more air flight options, more competition for air travel, and affordable air fares for Kansas.”

    Later that document describes selection criteria for deciding which airlines will receive grants. The first goal listed is “more air flight options,” which is further described as the number of scheduled, daily nonstop and one-stop flights.

    Certainly enticing a new airline carrier to town by paying them a subsidy increases the number of flights that carrier will offer, as before the subsidy, they offered none. But the experience of Wichita shows that the affordable airfares program is causing an overall loss of flight options in Wichita.

    It’s true that when the airline subsidy started, funded at first only by the City of Wichita, the number of flights departing from Wichita increased. That’s not remarkable. That was the stated goal of the program, and if we paid AirTran a subsidy and they didn’t provide flights, that would have been a problem.

    But the history of flights before the subsidy program is not the only important measure, although supporters of the program like the Wichita Eagle’s Rhonda Holman make use of it when she recently wrote this about the program and an audit of it conducted by Kansas Legislative Division of Post Audit: “Even so, the audit put the return on the state’s investment at $2.32-to-$1, cited 38 percent growth in passenger counts between 2000 and 2009, and said ‘fares have decreased, while the number of passengers and the number of available flights have increased.’”

    Yes, the number of available flights increased upon the arrival of AirTran and the start of the subsidy payments. But the trend since 2005 — about the time the state got involved in the funding and the program matured — is not encouraging. As shown in the accompanying charts, that trend is continually on a downward trajectory. (The charts show two different sets of data for the number of departures from Wichita.)

    The decline in the number of available flights is important, because for some travelers, particularly business travelers, the availability of a seat on an airplane at any price is more important than being able to book a cheap flight a month in advance.

    People may disagree about the wisdom of the airline subsidy program. But we need to recognize that the availability of flights to and from Wichita is declining, and has been declining for a number of years.

    We often hear of the unintended consequences of government intervention. This is such an example. Compounding the problem is the refusal of the program’s supporters — both within and outside of government — to recognize it, at least publicly.

    Monthly departures from WichitaMonthly departures from the Wichita airport
    Number of daily departures from the Wichita airport by air carriers (excluding weekends)Number of daily departures from the Wichita airport by air carriers (excluding weekends)

  • Kansas and Wichita quick takes: Sunday July 10, 2011

    Wichita city council. This week the Wichita City Council considers these major items of interest: Capps Manufacturing, Inc. seeks to avoid paying property tax on an expansion of its plant. Under the city’s Economic Development Exemption (EDX) Program, the company, according to city documents, is eligible to avoid paying 80 percent of the property tax on the expansion for a period of ten years. The documents state: “Based on the 2010 mill levy, the estimated taxable value of exempted property for the first full year is approximately $38,387.” I believe this is incorrect; that figure is the amount of property tax that would be paid on the value of the property. If the council approves, Capps will be forgiven 80 percent of that tax — nearly $31,000 per year.

    Bombardier Learjet seeks issuance of $2,564,275 in Industrial Revenue Bonds. The benefit to the company is that the property purchased with bond proceeds is exempt from property taxes, which is estimated by the city to be worth $76,966 per year in taxes that Bombardier won’t be required to pay. Also, property purchased with bond proceeds isn’t subject to the sales tax. If all the items being purchased are taxable, this means Bombardier could escape paying $187,192 in sales tax. Under the IRB program, the city is not the lender and does not guarantee that bonds will be repaid.

    There will be a public hearing for a facade improvement program loan for a building at 1525 E. Douglas to house GLMV Architecture. This action will loan $500,000 for the purposes of sprucing up the outside of the building, with that amount, plus interest, to be paid back in the form of special assessments collected with the regular property tax. It’s similar to the special assessment financing used in new housing developments, but here applied to existing structures. Interestingly, the city documents proclaim a “gap,” meaning that “applicants show a financial need for public assistance in order to complete the project, based on the owner’s ability to finance the project and assuming a market-based return on investment.” In other words, private financing was not available, so the city steps in, and we have another example of the city investing in money-losing projects. Although it is likely the city will be paid back, the program also includes a $30,000 grant for this project. That, of course, is a gift from Wichita taxpayers made by the city council, and will not be paid back. In addition to assistance from Wichita and its taxpayers, GLMV also benefits from state and federal taxpayers, too. Its application for historic preservation tax credits has been approved. Under the state program, GLMV is eligible for tax credits of 25 percent of the $2 million cost of the project, so Kansas taxpayers will be giving this company $500,000.

    The council will be asked to receive and file the city manager’s budget. … As always, the agenda packet is available at Wichita city council agendas.

    Kansas news media criticized. Kansas University political science professor Burdett Loomis takes a look at Kansas news media, particularly its coverage of the Brownback administration, and finds it lacking. In his listing of Kansas news media, Loomis misses a few outlets, namely Kansas Watchdog and Kansas Reporter. This is in contrast to his characterization of Dome on the Range as a “serious attempt.” This is laughable. Dome on the Range, written anonymously, exists primarily to poke fun at conservatives, many times for reasons that have little to do with serious issues of public policy. After several posts in March, DOTR had no posts in May, and one each in June and July. This, combined with anonymity — meaning the author is not willing to be accountable — doesn’t qualify as serious. But DOTR meshes well with Loomis’ personal politics, and Kansas Watchdog and Reporter are sponsored by conservative groups. … Loomis is correct in his assessment of the Kansas Health Institute as a valuable resource for reporting. … The op-ed is at Insight Kansas: Covering Kansas Conservatism.

    The revolving door. Between government and lobbying, that is. Latest example: The Lawrence Journal-World through the Associated Press reports that Michael White, Chief of Staff for Kansas Senate President Steve Morris, is becoming a lobbyist for ITC Great Plains, an electric transmission company. The article says that White will oversee the company’s lobbying in Kansas and Oklahoma.

  • Kansas jobs creation numbers in perspective

    This week the administration of Kansas Governor Sam Brownback announced job creation figures that, on the surface, sound like good news. But before we celebrate too much, we need to place the job numbers in context and look at the larger picture, specifically whether these economic development wins are good for the Kansas economy.

    The governor’s office announced that since January 10th, almost exactly one-half year ago, the Brownback administration is taking credit for creating 3,163 jobs. These jobs, according to the governor’s office, are in companies that are moving to Kansas or expanding their current operations. Some of the jobs, like those in the recently-announced Mars Chocolate plant to be built in Topeka, won’t start for perhaps two years.

    To place this number on an annual basis, extrapolating to a full year, we get 6,326 jobs created during the first year of Brownback’s term.

    That sound like a lot of jobs. But we need to place that number in context. To do so, I gathered some figures from the Bureau of Labor Statistics, in particular figures for the gross number of jobs created in the private sector. According to BLS, “Gross job gains are the sum of increases in employment from expansions at existing units and the addition of new jobs at opening units.” In other words, jobs created — just like the governor’s definition.

    Looking at the numbers, we find that for the years 2000 to 2009, the Kansas economy created gross jobs in the private sector at the average rate of 293,335 per year. Of course, jobs are lost, too. In Kansas, again for 2000 to 2009, there was a net loss of 61,394 jobs in the private sector. Not a good number.

    Each year, then, many jobs are created and lost, nearly 300,000 per year in Kansas. This illustrates the dynamic nature of the economy. Each year many jobs are created, and many are lost. Even in 2009 — a recession year — the Kansas economy created 232,717 jobs in the private sector. That same year 294,111 jobs were lost. But in most years, the number of jobs created is pretty close to the number of jobs lost.

    Kansas job gains and lossesKansas job gains and losses

    Now we have context. If we compare the 6,326 jobs (the extrapolated annual rate) the state created through its economic development efforts to the average number of private sector jobs created each year, we find that number to be 2.2 percent.

    If we use a recession year (2009) figure for private sector job creation, the state’s efforts amount to 2.7 percent of the jobs created by the private sector economy.

    These numbers, I would say, are small. About one of 40 jobs created in Kansas is created through the efforts of the state’s economic development machinery. This assumes that these jobs would not have been created without government intervention, and I think that’s something we can’t assume one hundred percent.

    These jobs that Brownback takes credit for come at great cost. In the case of Mars, the incentive package is reported to be worth $9 million, or $45,000 for each of the 200 people to be initially hired. I haven’t asked the Department of Commerce for a full rundown of the incentives offered, but in my experience the press releases and news stories based on them understate the full cost of the incentives.

    But in any case, the incentives used by the state’s economic development efforts have costs. Some require the direct expenditure of state funds.

    Some incentives require that the state spend money through the tax system in the form of tax credits. These expenditures made through the tax system have the same fiscal impact on the state’s budget as if the legislature appropriated funds and wrote a check for the amount of the tax credit.

    Other incentives require that the state give up a claim to tax revenue that it would otherwise collect. This means that other taxpayers must make up the difference, unless the state were to reduce spending.

    The cost of these incentives is born by the taxpayers of the state of Kansas. This cost is a negative drag on jobs that would have been created or retained in companies that don’t receive incentives. The Brownback administration knows this, although it doesn’t recognize this job loss when it trumpets its accomplishments in creating new jobs through targeted economic development incentives. One of the major initiatives of Brownback is to reduce Kansas taxes, particularly the personal and corporate income tax, in order to grow the Kansas economy. The governor — correctly — recognizes that low taxes are good for economic growth.

    The governor also needs to recognize that targeted economic development incentives have a cost. That cost is paid in the form of taxes that someone else pays. That cost leads to foregone economic activity, and that leads to lost jobs.

    While the state’s wins in job creation are easy to see — there are government employees paid to make sure we’re aware of them — the lost jobs, however, are spread throughout the state. These job losses don’t often take the form of a large — or even small — business closing or moving to another state, although sometimes it does.

    Instead, the job loss occurs in dribs and drabs across the state. A restaurant manager finds his store is not as busy as last month, so he lets a server go. A small retail outlet finds it can’t quite keep up with its overhead, so it shuts down. These events don’t often make news. The jobs lost are difficult to detect — nearly invisible — although the cumulative impact is very real.

    Instead of relying on traditional, targeted economic development efforts, Kansas needs to follow the advice of Dr. Art Hall. He recommends policies to encourage as much business experimentation as possible. These policies, basically, call for low taxes for all business firms. Then, it is through markets, not the government’s economic development officials, that successful and productive firms are identified.

    Portions of Dr. Hall’s advice was incorporated in Governor Brownback’s economic development plan. Specifically, page 10 of the plan contains this language: “Over the decades, Kansas has enacted a variety of tax policies intended to advance economic development. Many of them provide a meaningful economic incentive to make new investments and create new jobs. Almost all of the policies provide a meaningful incentive to a small number of worthy businesses to the exclusion of tens of thousands of other worthy businesses. The initiatives in this plan seek to end the exclusion. They begin the process of fulfilling the vision that every business matters; they seek to replace the old vision of ‘targeting’ with a new vision of ‘dynamism.’”

    It’s time that the governor and his administration apply this advice. That’s going to be hard to do. The crowing over the Mars deal — the very type of targeted economic development “win” that the plan criticizes — shows that politicians love to be seen as actively pursuing and creating jobs. A dynamic, free market-based job-creating economy requires that politicians and bureaucrats keep their hands off — something that goes against their very nature.

  • Kansas and Wichita quick takes: Friday July 1, 2011

    This Week in Kansas. On this week’s edition of the KAKE Television public affairs program This Week in Kansas, Ken Ciboski (Associate Professor of Political Science at Wichita State University), John D’Angelo (Arts & Cultural Services Manager for the City of Wichita), and myself join host Tim Brown for a discussion of arts and government funding in Kansas. This Week in Kansas airs in Wichita and western Kansas at 9:00 am Sundays on KAKE channel 10.

    Kansas taxes. A short report produced by Americans for Prosperity, Kansas shows some of the reasons why economic growth in Kansas has been sluggish: “Kansas’ state and local tax burden continues to be amongst the highest in the region.” Kansas has fewer private sector jobs than it did ten years ago. And in what should be a grave cause for alarm, Kansas was the only state to have a net loss of private sector jobs over the last year. … A table of figures illustrates that although Oklahoma kept its sales tax rate low and constant while Kansas increased its rate, tax revenue increased much more in Oklahoma. Download the report at AFP-Kansas Income Tax Policy Primer.

    Wichita sales tax. Speaking of sales tax and its harmful effect, Wichita seems to want to raise its rate. Proposals have been floated for a sales tax for economic development in general, for increased transit (bus) service, for drainage projects, and for downtown projects. Boosters cite the Intrust Bank Arena as an example of a successful project paid for by a sales tax that disappeared as promised. That’s despite the dreams of Sedgwick County Commissioner Tim Norton: “Then, as that tax was nearing its end, Norton ‘wondered … whether a 1 percent sales tax could help the county raise revenue.’ (‘Norton floats idea of 1 percent county sales tax,’ Wichita Eagle, April 4, 2007)” … Boosters of the arena promote it as a financial success, and there was the presentation to the county of a check for $1,116,442 as its share of the arena’s earnings. This figure, however, does not represent any sort of “profit” or “earnings” in the usual sense. In fact, the introductory letter that accompanies these calculations warns readers that these are “special-purpose financial statements” and “are not intended to be a presentation in conformity with accounting principles generally accepted in the United States of America.” In particular, Commissioner Karl Peterjohn has warned that these figures — and the monthly “profit” figures presented to commissioners — do not include depreciation expense. That expense is a method of recognizing and accounting for the large capital cost of the arena. In April the County released that number, and I believe it has not been reported by any news media. That may be because the number is pretty big — $4.4 million, some four times the purported “earnings” of the arena. … Without honest discussion of numbers like these, we make decisions based on incomplete and false information. Don’t look for many local government leaders and officials to talk about this number, and certainly not the Wichita Eagle editorial page.

    Koch criticism backfires — again. For those who follow the issue, it’s no surprise that Lee Fang, a reporter for the liberal think tank Canter for American Progress has come out with another attack on Charles and David Koch. Mark Hemingway of the Weekly Standard reports on this effort: “Think Progress reporter Lee Fang has a long history of being spectacularly wrong. However, there’s a seemingly unending thirst for his breathless demonization of the Koch brothers and other rants about corporate greed among the low IQ end of the liberal spectrum.” Fang disagrees with a recent U.S. Supreme Court decision, and he lambasts the litigators who brought the suit as “heavily financed by right-wing corporate money, particularly from Koch Industries and Walmart.” He also criticizes organizations for not dislosing their donors. Hemingway notes this: “In the case of the Koch brothers, they have been outspoken philosophical libertarians for decades. Their support of free speech over onerous campaign laws is entirely consistent and should not be surprising. However, in the case of Wal-Mart Fang is also astoundingly hypocritical. Because you know who else is a ‘Walton-Funded Group’? Lee Fang’s employer.” And the secret donations that Fang rails against so passionately? Hemingway again: “You know who else accepts ‘secret donations from individuals and corporations’? That’s right — the Center for American Progress.” … For another example of Fang’s reporting, see ThinkProgress and Lee Fang: wrong again.

    Tension on debt ceiling issue. In The Wall Street Journal Kimberly Strassel writes that the current debt and spending crisis may lead to an end to farm subsidies, something she described as a “sacred federal spending cow:” “For decades, the House and Senate agriculture committees have been the last redoubts of congressional bipartisanship, liberals and conservatives united in beating back any outside attempts to cut off tens of billions annually for price supports, crop insurance, weather assistance, conservation handouts and nutrition programs. The last real stab at reform was the mid-1990s Freedom to Farm bill. Most of the changes were obliterated by subsequent bailouts and new spending.” … She describes how Arizona Congressman Jeff Flake got a limit of farm subsidies through the Appropriations Committee, but House Agriculture Committee Chairman Frank Lucas used a maneuver to block Flake’s proposal. So much for that effort at reform, blocked by a Republican. Lucas’ website promotes a conservative message, with one post criticizing bailouts. But not for farmers, it seems. … Wichita’s Mike Pompeo is mentioned: “Mr. Pompeo is waiting to see what debt package emerges and says his vote will depend on whether it contains real ‘structural’ reform. But he also tells me he doesn’t intend to let parochial interests cloud his decision. ‘I came here to be a small-government guy every day, and not just when it is spending cuts in somebody else’s district,’ he says.” … Although not mentioned in this article, Tim Huelskamp, who represents the Kansas first district, has been upfront in discussing the need to reduce or eliminate farm subsides, and so far, many farmers seem to be accepting of that. Huelskamp’s district, which covers all of western Kansas (and more), is usually second on the list of congressional districts in terms of total farm subsidies received. For 2009, that figure was $369 million.

    Stossel: The Money Hole. A recent episode of John Stossel’s television program is now available on the free hulu service by clicking on The Money Hole. Writes Stossel in his introduction to the show: “We will soon spend ourselves into oblivion. But finally … movement! Budget slashing proposals from Paul Ryan, the Republican Study Committee, Ron Paul, Rand Paul and even Tim Pawlenty! But politicians and real people across the spectrum still resist change. What should government do? What’s its role? What have other countries done? The Money Hole tackles that.”