Voice For Liberty

Tag: Subsidy

  • Wichita Warren Theater IRB a TIF district in disguise

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Warren IMAX Theater Project

  • Amtrak, taxpayer burden, should not be expanded in Kansas

    Recently the Kansas legislature and governor decided to authorize the Kansas Secretary of Transportation to establish and implement a passenger rail service program in the state. This service would most likely be implemented through Amtrak, the federal passenger rail authority.

    This service, true to the nature of Amtrak, would require subsidy from taxpayers in order to survive. Most of the arguments of rail supporters boil down to “other things get subsidy, so we want ours too.” The proper response to this is to advocate for ending all subsidy to all forms of transportation. In this way, we can fully learn which forms of transport are truly valued, and by what relative margin. Then private sector investment can be channeled to where people — not politicians, government bureaucrats, and rail enthusiasts — value it most.

    Rail supporters — we should be accurate and call them taxpayer-funded rail supporters — argue that the total dollar volume of taxpayer funds redirected to support Amtrak is small. That, however, ignores the context of the passenger mile. In this context, government funding of rail travel is truly alarming.

    In 2008, a Cato Institute report stated “In 2006, subsidies to Amtrak totaled just over $1 billion, or about 22 cents per passenger mile.” The subsidy to highways was about one-half cent per mile.

    Subsidyscope, an initiative of the Pew Charitable Trusts, has a recent study about the taxpayer subsidy flowing into Amtrak. For the Heartland Flyer route, which runs from Fort Worth to Oklahoma, and is proposed by taxpayer-funded rail supporters to extend into Kansas through Wichita and Kansas City, we find these statistics about the finances of this operation:

    Amtrak reports a profit/loss per passenger mile on this route of $-.02, meaning that each passenger, per mile traveled, resulted in a loss of two cents. Taxpayers pay for that.

    But this number, as bad as it is, is totally misleading. Subsidyscope calculated a different number. This number, unlike the numbers Amrak publishes, includes depreciation, ancillary businesses and overhead costs — the types of costs that private sector businesses bear and report. When these costs are included, the Heartland Flyer route results in a loss of 13 cents per passenger mile, or a loss of $26.76 per passenger for the trip from Fort Worth to Oklahoma City.

    This isn’t the type of business we should import into Kansas for economic development purposes. Hopefully Kansans will realize the tremendous burden to taxpayers that is Amtrak.

  • Will the real robber barons please stand up?

    By Helen Cochran.

    At the April 13th meeting of the Wichita City Council a request from downtown developer Real Development will be made for an additional $2.2 million taxpayer subsidy for its condo project Exchange Place, located at Douglas and Market. With two weeks to go before this public hearing there is still time for council members to read The Myth of the Robber Barons by Burton Folsom. Folsom’s easy-to-read 134-page narrative lays out the case for entrepreneurship in America and can be read in one evening. It’s a history lesson worth reading by all.

    Folsom highlights two kinds of business developers: “political entrepreneurs” and ‘market entrepreneurs.” And while Folsom focuses on the larger-than-life entrepreneurs of the nineteenth and early twentieth century, the lessons gleaned have far reaching implications and relevance, even on a local level.

    According to Folsom, “political entrepreneurs” are those that seek government/taxpayer subsidy, public private partnerships, protective tariffs, special privileges, etc. Folsom makes a sound case that economic development fueled by political intervention invariably fails and undermines the very ideology it purports to serve.

    On the other hand “market entrepreneurs” are those that obtain their successes by producing a product that is better and of more value to the consumer, unbridled by the government controls and restrictions that come with subsidy. No one can argue that it is the market entrepreneurs that create the wealth in this country.

    Despite the anti-business rhetoric spewed by most historians and reinforced in school curriculums across this country, Folsom offers concrete evidence that the likes of Commodore Vanderbilt, John D Rockefeller, Andrew Mellon, the Scrantons of Pennsylvania, James J. Hill, and Charles Schwab should be revered because of the consumer benefits achieved when free markets are allowed to flourish without government involvement. Folsom contrasts these successes with failure-after-failure of those in the same respective industries that received government subsidy. Government cannot do it better and most certainly cannot do it cheaper.

    In Wichita, Real Development is one of several downtown “political entrepreneurs.” What was originally a $27.8 million project with an approved $9.3 million subsidy from the City of Wichita is now a $51.5 million project seeking an additional $2.2 million subsidy from the City. Real Development boasts that with approved additional City subsidy they will be able to qualify for a $30 million loan from the U.S. Department of Housing and Urban Development — a government guaranteed loan. This “guarantee” is none other than you and me. Our taxpayer dollars are lost if this project fails.

    According to Goody Clancy, the City’s downtown development consultant, there is a market for downtown development in Wichita. Specifically, Goody Clancy consultants found that downtown Wichita demand for residences is 1,000 units over the next five years.

    If such a market truly exists where are the market entrepreneurs and why are they not clamoring to develop? Why are local banks not willing to loan these political entrepreneurs money without a government guarantee? Michael Elzufon, one of the principals of Real Development, states this is a “low risk deal.” Yes, it’s a low risk deal for Elfuzon but I suggest it is a very high-risk deal for the taxpayer.

    The Wichita City Council, as with as many city councils nationwide, continues to insist that economic development in downtown Wichita requires government subsidy. Fear mongering becomes a tactic used when justifying subsidies offered to private enterprise to locate or expand here: “Everyone else is offering them” or “If we don’t subsidize, Company X will go elsewhere or relocate” or “Without subsidy this won’t happen.” Millions of taxpayer dollars have been invested in the name of economic development or downtown revitalization and when projects fail, millions more are spent in an attempt to salvage the project.

    Development succeeds when market entrepreneurs perceive a need and are willing to risk their own capital for success. Anything short of that has historically failed.

    The Myth of the Robber Barons is a must read for anyone interested in the writing on the wall but especially for those with the power to commit taxpayer money to projects that are better left to market entrepreneurs.

  • Kansas makes unwise bet on passenger rail

    Last week Kansas Governor Mark Parkinson signed into law HB 2552, which enacts the Midwest Interstate Passenger Rail Compact. This act will promote improvements to passenger rail service and the development of plans for long-range high speed rail service in the Midwest, according to the governor’s press release.

    “Passenger rail service in Kansas would create economic opportunities for the future, but the planning must begin now,” said Parkinson in a press release. “A strong public infrastructure system helps attract businesses and jobs to our state, and a high speed rail service is another piece in furthering our economic recovery. I am pleased to sign these two bills that will set the gears in motion for increased avenues of transportation in Kansas and the entire Midwest.”

    The governor also signed SB 409, which authorizes the Kansas Secretary of Transportation to establish and implement a passenger rail service program in the state.

    In Kansas, the Northern Flyer Alliance has promoted this legislation as a way to return passenger rail service to Kansas, specifically from Kansas City through Wichita to Oklahoma City and Fort Worth. It’s a bad idea. Any expansion of Amtrak, which is how this service would be implemented, is bad public policy.

    Consider some of the recent history of Amtrak. In 2001, the Cato Institute Policy Analysis Help Passenger Rail by Privatizing Amtrak contained this in its summary:

    Amtrak has failed to secure an increasing portion of America’s growing transportation market. It carries only about three-tenths of 1 percent of all intercity passengers. Its on-time performance on most routes is terrible, and it covers up this fact by measuring punctuality at a limited number of stops and building in lots of extra time before those stops.

    Many of Amtrak’s trains run much more slowly today than did trains on the same routes earlier this century. Moreover, Amtrak uses creative accounting to disguise its financial problems. For example, Amtrak receives many subsidies from government agencies and has recently abandoned standard accounting practices to hide operating expenses as capital costs.

    In the recent Cato Institute briefing paper High-Speed Rail Is Not “Interstate 2.0”, author Randal O’Toole provided this summary:

    The administration has likened President Obama’s high-speed rail plan to President Eisenhower’s Interstate Highway System. Yet there are crucial differences between interstate highways and high-speed rail.

    First, before Congress approved the Interstate Highway System, it had a good idea how much it would cost. In contrast, Congress approved $8 billion for high-speed rail without knowing the total cost, which is likely to be at least $90 billion.

    Second, highway users paid for interstate highways, whereas high-speed rail will be almost entirely subsidized by general taxpayers who will rarely use it.

    Third, interstate highways connect all 48 contiguous states and major metropolitan areas. The FRA’s high-speed rail plan consists of six unconnected networks that reach only 33 states and less than two-thirds of the nation’s 100 largest urban areas.

    Fourth, the average American traveled 4,000 miles on interstates in 2007. High-speed rail proponents optimistically estimate that the average American would ride the FRA’s high-speed rail system less than 60 miles per year.

    Finally, interstate highways improved social welfare by increasing highway safety. In contrast, far from saving energy and reducing pollution, high-speed rail would actually increase energy consumption and greenhouse gas emissions.

    For all these reasons, the United States government should not fund high-speed rail. The $8 billion in high-speed rail stimulus funds should be invested in safety improvements, not in new trains and new routes that will add to future taxpayer obligations.

    Amtrak also has problems with transparency and accountability, and has troubles complying with provisions of the federal Inspector General Act. A recent investigation concluded: “… contrary to the requirements of the IG Act, the OIG’s independence at Amtrak has been diminished and threatened by recent policies and practices at Amtrak affecting OIG investigations and giving the appearance that OIG is subordinate to the Law Department. The involvement by the Law Department in OIG investigations both impermissibly and unnecessarily restricts the OIG’s access to document and information …”

    Amtrak is a federal agency that should be disbanded immediately, not expanded.

    In testimony before the Kansas House Transportation Committee on March 3, advocates for the Northern Flyer project gave several reasons for supporting it. One reason is that other states are getting federal money for similar projects, and Kansas residents are “donating to what other states will receive.” The point was made that fares will offset some of the operating expenses, but that this rail services will not be profitable. Rail should not be expected to operate without subsidy, proponents said. Many other forms of transportation are subsidized, too, and the amount of money spent on rail subsidy is small.

    But when compared to other forms of transportation, rail is subsidized at a much higher rate. According to the Bureau of Transportation Statistics, in 2002, highway use was subsidized at the rate of negative $1.00 per thousand passenger miles. “Negative numbers show user charge payments to the federal government in excess of cost responsibility,” explains the report, meaning that highway drivers are subsidizing other forms of transportation.

    Commercial aviation was subsidized at the rate of $6.18 per thousand passenger miles, with general aviation racking up subsidy at the rate of $91.42 (2001 figures.)

    Railroad received $210.31 per thousand passenger miles. It’s a very expensive way to travel.

  • Kansas historic preservation tax credits: the hearing

    On Wednesday, the Taxation Committee of the Kansas House of Representatives heard testimony on HB 2496, which would expand the historic preservation tax credit program. This program provides tax credits to qualified historic preservation projects. I testified at the hearing, and my written testimony is at Kansas historic preservation tax credits should not be expanded.

    The idea of tax credits confuses some people. Some may confuse credits with a tax deduction. Some may believe that tax credits are given out at no cost to the state. But in fact, the tax credits are quite costly. As I told the committee members, if the state grants a tax credit, and then does not reduce state spending by the amount of the tax credit, other taxpayers in Kansas have to make up the difference.

    That’s one of my core reasons for opposing the tax credits. Since the state does not — and is not likely to — reduce spending by the amount of credits granted, the result is a transfer of money from Kansas taxpayers to the recipients of the credits. But even if the state did reduce its spending, the result would still be a implied decision by the state that it can better decide how to spend money than its citizens can.

    Besides this, the arguments of those in favor of the historic preservation tax credits are self-serving and in some cases misleading. Some of the conferees are involved in projects that were to receive tax credits. They are not happy now that they may not get them.

    Other conferees were local units of government such as Dale Goter, lobbyist for the City of Wichita. Wichita has a big stake in the tax credits, as the renovation of the Broadview Hotel is on hold because the developers may not receive the tax credits. The developers and the city claim that the project is not economically feasible without the tax credits. We don’t really know whether this is true. When government subsidy is available, people have a way of designing project budgets in a way the requires the subsidy. Why would someone turn down free money?

    It should also be noted that the tax credits the Broadview developers are seeking — perhaps $3 million to $4 million — are on top of many millions in subsidy the city has already approved.

    The arguments of other conferees must be questioned. Brenda Spencer of Wamego, who owns a preservation consulting business, told of a project in Leavenworth that will house a company employing 400 people. This results, she said, in an annual payroll of $26 million, with resultant tax dollars flowing to the state and local government.

    The problems with this illustration of the purported success of the historic preservation tax credit program are these: Would the jobs not have been created unless there was a historic property to house the workers? Could the workers work somewhere that wouldn’t require tax credits? These jobs: are they new jobs? Were the workers formerly unemployed, or did they leave other jobs to work in the historic building? To the extent that happened, the jobs, with their tax payments to the state, can’t be counted as new.

    Christy Davis, owner of another preservation consulting firm, testified that since 2001, the tax credit program has leveraged $264 million in private dollars, which she said is a 400% return on investment for the state. The problem with this analysis (it was made by others, too) is that it assumes that none of the projects would have proceeded if not for the tax credits. It credits the program as being the only reason why this activity took place. This is undoubtedly false.

    Further, this analysis treats the state as though it were the owner of these properties. That isn’t true, either.

    Davis also testified that since work on historic buildings is 50% more labor intensive than new construction, the tax credit program has the effect of a jobs creation program. I doubt that the developers of historic preservation projects see creating a lot of jobs as a benefit. To business, workers are a cost to be controlled, not a benefit to be expanded. If the state wants to view historic preservation as a jobs creation program — meaning that more jobs are better than fewer jobs — let the state mandate that, say, power tools can’t be used on these projects. Then even more workers will be needed.

    Can we also agree that owners of firms that profit from a government program qualify as a special interest?

    Goter, Wichita’s lobbyist, also stated in his written testimony: “The return on investment for the public dollar spent on historic renovation is totally recovered in a 10 year span from increased property taxes alone. That return is shared by local and state governments through their respective mill levies.”

    This statement reveals the flaw in the reckoning used by government in making economic development calculations. To government, the return is in the form of increased tax revenue. Many citizens don’t view things the same way. For government to make an investment of taxpayer funds just so it can receive even more tax revenue is appealing to government bureaucrats and politicians who want to expand their sphere of influence and control. But not so much for everyone else.

    For me a lesson I learned from the hearing is how easily those who consider themselves fiscal conservatives can become derailed by programs like this. Olathe Representative Arlen Siegfreid, a member of the Taxation Committee as well as Speaker Pro Tem of the Kansas House of Representatives, offered written and oral testimony in favor of this bill.

    Support of this bill is at odds with his stated positions. On his personal website, under the heading “Fiscal Responsibility” appears this sentence: “However, particularly in times of economic peril, sometimes the ‘wants’ we’ve fertilized with ample resources grow to become ‘needs’ and our well intentioned investments in promising ideas and programs become the dangerous government growth that each candidate swears to defend against at all costs on the campaign trail.”

    The historic preservation tax credit program, as reported in an audit recently completed by the Legislative Division of Post Audit, has grown tremendously from its initial cost. The audit, titled Kansas Tax Revenues, Part I: Reviewing Tax Credits, identifies the historic preservation tax credit as a program that the legislature may want to re-evaluate, as the program is significantly more expensive than originally planned. The fiscal note that accompanied the tax credit legislation when passed in 2001 and revised in 2002 reported an estimated annual cost of $1 million. In 2007, the actual cost was $8.5 million.

    This is an example of a government spending program growing out of control — the type of “dangerous government growth” Siegfreid mentioned above.

    Siegfreid’s website also states: “My subsequent re-elections affirm that notion, and I’m now more committed than ever to reducing the strain government and it’s [sic] failed policies are placing on individual taxpayers — and our local businesses.”

    As mentioned above, when the state grants tax credits, other Kansas taxpayers have to pay more taxes to make up the shortfall in revenue. This is an example of the type of strain Siegfreid says he is against.

    Finally, Siegfreid has authored a tax simplification bill, stating that “Kansas tax policy is too complicated.” Tax credits are an example of increasing complexity of the state’s tax code.

  • Kansas historic preservation tax credits should not be expanded

    Testimony to be delivered to the Kansas House Taxation Committee.

    The Kansas historic preservation tax credit system should not be expanded beyond its current limit.

    We must recognize that a tax credit is an appropriation of Kansans’ money made through the tax system. If the legislature is not comfortable with writing a developer a check for over $1,000,000 — as in the case with one Wichita developer — it should not make a roundabout contribution through the tax system that has the same economic impact on the state’s finances.

    While I would not recommend writing checks to developers, this practice would be more efficient than the current system of subsidy through the tax system. Last month the Legislative Division of Post Audit (audit 10PA03.1) found that the system is not efficient: “Our review showed that, on average, when Historic Preservation Credits were transferred to generate money for a project, they only generated 85 cents for the project for every dollar of potential tax revenue the State gave up.”

    Furthermore, the Department of Revenue has not been tracking the tax credits accurately, significantly under-reporting the cost of the program to the legislature. The audit found that “Finding problems like these in a relatively small sample raises questions about the integrity of the Department’s tax credit information.”

    The confusing nature of tax credits leads citizens to believe that they have no cost to the state. A leader of an economic development group in Wichita recently asked questions of me that lead me to conclude that he did not understand the economic effect of tax credits.

    The program often ends up being welfare for the wealthy. In Wichita the tax credits have been used to renovate a building with condos selling for $300,000 to $950,000. A current case would have a developer in Wichita receive over $1,000,000 for rehabbing apartments that will rent for $1,000 to $2,000. Perhaps $3 million to $4 million will go to the developer of a hotel in downtown Wichita.

    We should recognize that living or working in a historic building is a premium amenity that one chooses, just like one might choose granite countertops in their kitchen. We shouldn’t expect others to pay for these voluntary choices.

    In Wichita, many of the projects where historic preservation tax credits are sought are already receiving other forms of subsidy, such as TIF financing and property tax abatements.

    Some have said that the tax credits put people to work on projects. I would suggest that when Kansans keep their own money — instead of subsidizing wealthy developers — they spend or invest it in ways that they feel best advances their position in life. This too is economic activity that creates jobs.

    I have more material about this issue at my website “Voice For Liberty in Wichita” at WichitaLiberty.org. Along the top, click on “Search” and search for historic tax credits for more information. Or, please contact me by email or telephone and I will send you articles.

  • Kansas sales tax exemptions don’t hold all the advertised allure

    Advocates of eliminating sales tax exemptions in Kansas point to the great amount of revenue that could be raised if Kansas eliminated these exemptions, estimated at some $4.2 billion per year. Analysis of the nature of the exemptions and the amounts of money involved, however, leads us to realize that the additional tax revenue that could be raised is much less than spending advocates claim, unless Kansas was to adopt a severely uncompetitive, and in some cases, unproductive tax policy.

    Tax exemption policy is an important economic policy matter. A recently-released study by the Kansas Legislative Division of Post Audit is titled Kansas Tax Revenues, Part II: Reviewing Sales Tax Exemptions. In its background discussion, the report noted “the U.S. Supreme Court’s opinion that tax exemptions and tax deductibility are a form of subsidy that is administered through the tax system. A tax exemption has much the same effect as a cash grant to the organization of the amount of tax it would have to pay on its income.”

    Sometimes these tax exemptions are issued to specific organizations. Others are issued to organizations that fall within certain categories. In this case, the exemption is like an entitlement, granted to any organization that falls within the scope of definition of the exemption. Some exemptions are for categories of business activity that shouldn’t be taxed.

    It’s this last category that is important, because of the large amount of economic activity that falls within its scope. An example is exemption 79-3606 (m), described as “Ingredient/Component parts: Of items manufactured or produced for sale at retail.” The audit report estimates that for 2009, this exemption cost the state $2,248.1 million in lost sales tax revenue.

    But this exemption isn’t really an “exemption,” at least if the sales tax is a retail sales tax designed to be levied as the final tax on consumption. That’s because these goods aren’t being sold at retail. They’re sold to manufacturers who use them as inputs to products that, when finished, will be sold at retail. Most states don’t tax this type of sales. If Kansas decided to tax these transactions, it would place our state’s manufacturers at a severe disadvantage compared to almost all other states.

    There are two other exemptions that fall in this category of inputs to production processes, totaling an estimated $461 million in lost revenue.

    Another big-dollar exemption is “items already taxed” such as motor fuel. This is an estimated $232.5 loss in revenue. Two other categories of exemptions are purchases made by government, or purchase made by contractors on behalf of government. Together these account for an estimated $449.9 million in lost revenue. If these two exemptions were eliminated, the government would be taxing itself.

    All told, these six exemptions account for $3,391.5 million of the total $4,234.2 million in exemptions for 2009. That’s about 80%.

    So $4.2 billion has shrunk to $842.7 million. That’s still a lot of money, but not near as much as spending advocates would like to have Kansans believe is lying in wait just for the taking.

  • Kansas historic preservation building tax credits discussed

    Sometimes on blogs people don’t take the time to read comments left to posts. Sometimes those comments provide valuable discussion and illumination of public policy issues. So here I take a moment to elevate a few comments left to a recent blog post.

    On Wednesday afternoon, a reader — we’ll call him “Larry” — left this comment to my post Kansas historic preservation tax credits should be eliminated. In that post, I argue that tax credits for the preservation of historic buildings are economically the same as a direct payment by the state to the developer, and that this practice is bad public policy that should be ceased. Here’s what Larry wrote:

    Bob, I want to understand your point of view. I do not claim to be an expert in this area so these are observations / questions.

    1. Wasn’t Wichita High School owned by the WATC and therefore tax exempt?

    2. If a developer puts, say $6M into the building to get it open the property with 68 units renting for $1000 to $2000 a month then I would assume it would have a value that in turn would generate higher taxes than the building now pays, correct?

    3. As I understand the Historic Tax Credit the person that put up the $6M and now has to pay the new property tax can take a credit of about 25% of the eligible construction cost (not all of the construction cost is eligible) against the new taxes he/she would pay to the state, correct?

    So if I have this right a building that is paying no taxes to the state has $6M spent on it and now is paying taxes into the state coffer but will pay 25% less in taxes than it would have if the building were not historic. Do I have it right? If so where is the payment you allude to being made by the state to the developer? Also don’t forget that when renovating a historical building you can not renovate it using the most economical methods but have to keep it “historically” correct and that in itself is more expensive.

    Then the reader “Pat” wrote this comment:

    Larry, you are correct in that there is no money given to the developer by the state. No payments. Typically, the tax credits are used as barter for a developer to sell the credits at a significant discount on the open market to those that need are in need of a “credit”. On historic projects, the money raised by the sale of the tax credits has to be used on certain eligible costs. The building will not pay property taxes on a reduced valuation but will pay taxes on its fair market value.

    Wednesday evening I left this comment:

    For Larry’s points 1 and 2, I’ll take his word that these are correct. I don’t think I’ve ever made a claim to the contrary.

    For point 3, the issue of the historic preservation tax credits and property taxes are entirely separate matters. The savings of 25% of building costs arising from the historic preservation tax credit is a one-time event, while property taxes are an ongoing event year after year.

    The payment made by the state to the developer is the tax credit itself, which might take the form of a document from the state containing language like “This certificate may be sent to the state of Kansas instead of a check for $1,000,000 in payment of taxes.”

    As Pat correctly notes, the recipient of such a certificate might keep it and use it to pay all or part of their taxes, or might sell it to someone at any price they mutually agree on. This ability to sell the tax credit document has been cited by WDDC president Jeff Fluhr as important.

    So how is issuing a tax credit not the same as making a payment to the developer?

    (By the way, Pat, if I knew I was getting a tax credit, I would immediately adjust my periodic tax payments to the state. It’s not necessary to wait until annual tax time to benefit from the credit.)

    Furthermore, the fact that the tax credit may be used for only certain purposes is a total red herring. If I gave you $100 on the condition that you could spend it only on a Monday, would you deny that I had enriched you by $100? Or would you contend that I had enriched you by something less than $100? I would think that you would simply shift your spending around and benefit fully from the $100 that I gave you.

    Finally, the fact that historic renovation is expensive is just like having granite countertops. It’s a premium amenity that is freely chosen by those who value it, it benefits those who choose it, and should be fully paid for by them.

    Interesting? Or not?

  • Randal O’Toole on Wichita’s WaterWalk and government planning

    As part of Randal O’Toole’s visit to Wichita, he recorded some remarks in front of a few of Wichita’s monuments to government planning. Paul Soutar of Kansas Watchdog recorded video and assembled the remarks. His reporting is Randal O’Toole on Wichita’s WaterWalk and Government Planning.