In this episode of WichitaLiberty.TV: A look at some elements of Wichita’s legislative agenda for state government, in particular special tax treatment for special artists, problems with the city’s numbers regarding airfares, and why we should abandon the pursuit of passenger rail. Then, why are people not more involved in political affairs? View below, or click here to view at YouTube. Episode 67, broadcast December 7, 2014.
The City of Wichita wishes to preserve the many economic development incentives it has at its disposal.
The proposed legislative agenda for the City of Wichita holds this regarding economic development incentives:
ISSUE: The State of Kansas provides economic development incentives through a variety of programs.
RECOMMEND: The Wichita City Council supports the continuation of state economic incentive programs that assist local governments in their efforts to improve their local economies.
That’s all the agenda holds. In the presentation for the previous year, the request was more complete, naming specific programs. It’s useful to revisit that list, as Wichita leaders often complain that Wichita doesn’t have enough “tools in the toolbox” to compete effectively in economic development.
In a way, I don’t blame the city for omitting the list this year. Part of the campaign for the proposed sales tax was that Wichita doesn’t have enough incentives to compete for jobs. In making that argument, city leaders use a narrow definition of incentive that doesn’t count the programs listed below. Given the poor results of the city’s economic development machinery, you can see why city leaders minimize the number of incentive programs and the amounts of money that are available.
Wichita government spending on economic development leads to imagined problems that require government intervention and more taxpayer contribution to resolve. The cycle of organic rebirth of cities is then replaced with bureaucratic management.
As the City of Wichita prepares its legislative agenda for 2015, an issue arises for the first year. It seems that the success of government spending on development has created rising property values, which creates higher tax bills, and that is a burden for some. Here’s the issue the city has identified: “Cultural arts enterprises in certain areas are threatened by rising property values and the resulting tax burden.”
Here’s the solution the city proposes: “The Wichita City Council supports state legislation that would allow local governments to use innovative measures to protect cultural arts enterprises from circumstantial increases in property taxes. The intent is to nurture and preserve arts activity throughout the City of Wichita and the State of Kansas.”
What are the “innovative measures” the city wants to use? Nothing special; just allowing a special group of people to shirk paying the same taxes that everyone else has to pay. The city wants to be able to use tax abatements for up to ten years. The percentage of taxes that could be forgiven could be as high as 80 percent.
So there’s really nothing innovative to see here. The city merely wants to broaden the application of tax forgiveness. Which means the tax base shrinks, and the people who still find themselves unlucky enough to still be part of the tax base face increasing demands for their tax payments.
The city manager said that artists from Commerce Street came to the city looking for a solution to their problem. Which is about the same problem that everyone else has: high taxes.
Here’s the nub of the problem, as explained by the city manager: “The more successful that we are with the redevelopment, the higher the value of the properties, and therefore harder for them who are on thin margins to begin with to stay in the districts, so they lose their charm of being the artistic or art districts.”
The proposed solution, which will require a change to state law, is that a government bureaucrat will decide the boundaries of one or more cultural arts districts. The bureaucrat will also decide which types of business firms qualify for discounts on their taxes. Besides Commerce Street, the manager identified Delano, Old Town, and the Douglas Design District as possible districts where artists might receive 80 percent discounts on their property taxes.
After this, other taxpayers have to make up the lost tax revenue from the artists. That is, unless the city decides to reduce spending by the amount of the tax discounts. I’ve proposed that to the city in other similar circumstances, and the idea was rejected. I believe council members thought I was delusional.
There are many people and business firms that operate on the same “thin margins” that the city manager wants to help artists escape. We see them come to city hall seeking special treatment. As a result, the city plans and manages an increasing share of the economy, and economic freedom, entrepreneurship, and the potential for a truly dynamic economy decline.
Who will stake out the next frontier?
There are many problems with the idea the city is proposing.
One is that the city is asking poor people to pay their full share of property taxes while granting artists a discount. This is a serious problem of equity, which is that people in similar circumstances should be treated the same. Just because someone chooses art as a business or vocation doesn’t mean they should be treated specially with respect to the taxes they pay.
Bob Weeks and Bill Goffrier in the artist’s studio, Flatiron Building, Wichita, 1982Another problem is that the process of establishing arts districts will interrupt the dynamism of the way cities develop. Arts districts develop because artists want (or need) places with cheap rent. Unless they can persuade city hall to grant property tax discounts, this generally means artists rent space in “bad” parts of town, that is, parts of town that are run down, blighted, and may have high crime rates. Thus, cheap rent.
If things go well, that is, the artists are successful and a community develops, things get fixed up. Rents rise. Taxes rise. The artists can’t afford the higher rent and taxes and have to move on. Which means the cycle repeats. The artists on the cutting edge find other places to move to, and the cycle repeats. Other parts of the city are reborn — organically — through the benefits of markets, not government bureaucracy. This is good.
Except: The City of Wichita is proposing to end the cycle by granting discounts on taxes to artists so they may remain where they are.
We replace dynamism with stagnation by bureaucracy. The city says this is innovative.
When Kansas cities grant economic development incentives, they may also unilaterally take action that affects overlapping jurisdictions such as counties, school districts, and the state itself. The legislature should end this.
When Kansas cities create tax increment financing (TIF) districts, the overlapping county and school district(s) have an opportunity to veto its creation. These other jurisdictions do not formally have to give their consent to its formation; if they do nothing, it is assumed they concur.
But for some other forms of incentives, such as tax increment financing district redevelopment plans, property tax abatements, and sales tax abatements, overlapping jurisdictions have no ability to object. There seems to be no rational basis for not giving these jurisdictions a chance to object to the erosion of their tax base.
This is especially important for school districts, as they are often the largest tax consumer. As an example, when the City of Wichita offered tax abatements to a company in June, 47 percent of the abated taxes would have gone to the Wichita school district. But the school district did not participate in this decision. State law gave it no voice.
Supporters of economic development incentives may say that the school district benefits from the incentives. Even though the district gives up some tax revenue now, it will get more in the future. This is the basis for the benefit-cost ratios the city uses to justify incentives. For itself, the City of Wichita requires a benefit-cost ratio of 1.3 to one or better, although there are many loopholes the city can use to grant incentives when this threshold is not met. For the June project, city documents reported these benefit-cost ratios for two overlapping jurisdictions:
Sedgwick County 1.18 to one
USD 259 1.00 to one
In this case, the city forced a benefit-cost ratio on the county that the city would not accept for itself, unless it uses a loophole. For the school district, the net benefit is zero.
The legislature should look at ways to make sure that overlapping jurisdictions are not harmed when economic development incentives are granted by cities. The best way would be to require formal approval of the incentives by counties and school districts.
Two examples
In June the City of Wichita granted tax abatements for a new warehouse. City documents gave the benefit-cost ratios for the city and overlapping jurisdictions:
City of Wichita General Fund 1.30 to one
Sedgwick County 1.18 to one
USD 259 1.00 to one
State of Kansas 12.11 to one
It is not known whether these ratios include the sales tax forgiveness.
While the City of Wichita insists that projects show a benefit-cost ratio of 1.3 to one or better (although there are many exceptions), it doesn’t apply that standard for overlapping jurisdictions. Here, Sedgwick County experiences a benefit-cost ratio of 1.18 to one, and the Wichita school district (USD 259) 1.00 to one. These two governmental bodies have no input on the decision the city is making on their behalf. The school district’s share of the forgiven taxes is 47.4 percent.
City $81,272
State $3,750
County $73,442
USD 259 $143,038
The listing of USD 259, the Wichita public school district, is likely an oversight by the city, as the Spirit properties lie in the Derby school district. This is evident when the benefit-cost ratios are listed:
City of Wichita 1.98 to one
General Fund 1.78 to one
Debt Service 2.34 to one
Sedgwick County 1.54 to one
U.S.D. 260 1.00 to one (Derby school district)
State of Kansas 28.23 to one
Note that the ratio for the Derby school district is 1.00 to one, far below what the city requires for projects it considers for participation. That is, unless it uses a loophole.
A Wichita company asks for property and sales tax exemptions on the same day Wichita voters decide whether to increase the sales tax, including the tax on groceries.
This week the Wichita City Council will hold a public hearing concerning the issuance of Industrial Revenue Bonds to Spirit AeroSystems, Inc. The purpose of the bonds is to allow Spirit to avoid paying property taxes on taxable property purchased with bond proceeds for a period of five years. The abatement may then be extended for another five years. Additionally, Spirit will not pay sales taxes on the purchased property.
City documents state that the property tax abatement will be shared among the taxing jurisdictions in these estimated amounts:
No value is supplied for the amount of sales tax that may be avoided. The listing of USD 259, the Wichita public school district, is likely an oversight by the city, as the Spirit properties lie in the Derby school district. This is evident when the benefit-cost ratios are listed:
City of Wichita: 1.98 to one
General Fund: 1.78 to one
Debt Service: 2.34 to one
Sedgwick County: 1.54 to one
U.S.D. 260: 1.00 to one (Derby school district)
State of Kansas: 28.23 to one
The City of Wichita has a policy where economic development incentives should have a benefit cost ratio of 1.3 to one or greater for the city to participate, although there are many loopholes the city regularly uses to approve projects with smaller ratios. Note that the ratio for the Derby school district is 1.00 to one, far below what the city requires for projects it considers for participation. That is, unless it uses one of the many available loopholes.
We have to wonder why the City of Wichita imposes upon the Derby school district an economic development incentive that costs the Derby schools $143,038 per year, with no payoff? Generally the cost of economic development incentives are shouldered because there is the lure of a return, be it real or imaginary. But this is not the case for the Derby school district. This is especially relevant because the school district bears, by far, the largest share of the cost of the tax abatement.
Of note, the Derby school district extends into Wichita, including parts of city council districts 2 and 3. These districts are represented by Pete Meitzner and James Clendenin, respectively.
The city’s past experience
Spirit Aerosystems is a spin-off from Boeing and has benefited from many tax abatements over the years. In a written statement in January 2012 at the time of Boeing’s announcement that it was leaving Wichita, Mayor Carl Brewer wrote “Our disappointment in Boeing’s decision to abandon its 80-year relationship with Wichita and the State of Kansas will not diminish any time soon. The City of Wichita, Sedgwick County and the State of Kansas have invested far too many taxpayer dollars in the past development of the Boeing Company to take this announcement lightly.”
Along with the mayor’s statement the city released a compilation of the industrial revenue bonds authorized for Boeing starting in 1979. The purpose of the IRBs is to allow Boeing to escape paying property taxes, and in many cases, sales taxes. According to the city’s compilation, Boeing was granted property tax relief totaling $657,992,250 from 1980 to 2017. No estimate for the amount of sales tax exemption is available. I’ve prepared a chart showing the value of property tax abatements in favor of Boeing each year, based on city documents. There were several years where the value of forgiven tax was over $40 million.
Boeing Wichita tax abatements, annual value, from City of Wichita.Kansas Representative Jim Ward, who at the time was Chair of the South Central Kansas Legislative Delegation, issued this statement regarding Boeing and incentives:
Boeing is the poster child for corporate tax incentives. This company has benefited from property tax incentives, sales tax exemptions, infrastructure investments and other tax breaks at every level of government. These incentives were provided in an effort to retain and create thousands of Kansas jobs. We will be less trusting in the future of corporate promises.
Not all the Boeing incentives started with Wichita city government action. But the biggest benefit to Boeing, which is the property tax abatements through industrial revenue bonds, starts with Wichita city council action. By authorizing IRBs, the city council cancels property taxes not only for the city, but also for the county, state, and school district.
The Wichita City Council will consider a proposal from a consultant to “facilitate a community conversation for the creation of a new economic development diversification plan for the greater Wichita region.” Haven’t we been down this road before?
This week the Wichita City Council will consider funding “the formulation of a new economic development strategy.” Here’s a summary provided by the city:
Wichita State University approached STARNet about developing a proposal to assist WSU, the Wichita Metro Chamber of Commerce and the community with the formulation of a new economic development strategy. Over a period of almost ten months STARNet will manage a four phase process that will lead to an integrated economic development strategy that will prioritize how and where to deploy resources. The process will include a comprehensive review of the region’s assets and issues, development of a common vision, identification of priorties [sic] and egagement [sic] of stakeholders committed to strategy implementation.
It sounds from this as though the city has not been engaging in economic development and strategizing. This reminds me of the $658 million in tax abatements Boeing received over several decades. Wasn’t that economic development? The answer from pro-sales tax forces was no, that wasn’t paid in cash. Also, even though Boeing has left Wichita, the facilities still generate $6 million in property taxes. So, it really worked after all, they say.
Here’s something else from the proposal summary: “Project Objective: Support formulation of a Wichita Economic Development Strategy that integrates existing initiatives (e.g. GWEDC and WSU); is supported by the majority of regional stakeholders and can be used to guide policy discussions for use of new City/County revenues for job formation.” (emphasis added)
I thought we already had a plan for the sales tax revenue, according to the city and the “Yes Wichita” group. Now we are told we need to start an expensive and lengthy planning process?
What about the cost and funding? “The total estimated cost of the project is $234,929. Funding partners include WSU, Wichita Metro Chamber of Commerce, Greater Wichita Economic Development Coalition, Wichita Downtown Development Corporation, the City of Wichita and Sedgwick County. The City of Wichita is being asked to contribute an amount not to exceed $42,986. The funding partners will have an agreement with WSU who, in turn, will hold the contract with STARNet.”
Here is the first thing that will be done, according to the proposal: “Secure Co-chairs to Lead Initiative: This regional initiative begins with the designation of at least two or more high level, objective, economic leaders agreeing to co–chair the on–going initiative. The co-chairs are often effective when chosen from an existing regional development group.”
This is written as through Wichita has been doing nothing in this regard. I wonder what the leaders of the Wichita Metro Chamber Leadership Council thinks of this? Here’s what the Chamber says about this council:
The Leadership Council is a think tank comprised of 100 top business, non-profit and public-sector CEO’s for the purpose of discussing and pursuing resolutions of major issues or projects to make the Wichita area competitive for job creation, talent attraction, capital investment and therefore long-term economic prosperity. Created by the Wichita Metro Chamber of Commerce, the Council is co-chaired by Charlie Chandler (Intrust Bank Chairman and CEO) and Jeff Turner (retired CEO of Spirit AeroSystems). The Council was formed in 2012 and held its first meeting in September of the same year.
So we’ve had two prominent Wichita business leaders shepherding an initiative for two years. Is this effort now discarded?
Here’s something to watch for. Proposals like this contain buzzwords — something new and exciting, something that leaders can use to show they’re on the cutting edge. So note this language in the proposal:
Moreover, economies don’t stop at municipal or county boundaries; they go where their residents drive to work—the “comutershed”. (Misused punctuation in the original.)
I wonder when city leaders start using this neologism — comutershed — if they will correct the spelling of one of its base words.
Claims of a reformed economic development process if Wichita voters approve a sales tax must be evaluated in light of past practice and the sameness of the people in charge. If these leaders are truly interested in reforming Wichita’s economic development machinery and processes, they could have started years ago using the generous incentives we already have.
At a conference produced by Kansas Policy Institute on Friday September 19, a panel presented the “nuts and bolts” of the jobs portion of the proposed Wichita sales tax that voters will see on their November ballots. I asked a question:
Listening to at least two of the three speakers, it sounds like Wichita’s not been using incentives. Two-and-a-half years ago when Boeing announced it was leaving Wichita, Mayor Brewer angrily produced a document saying since 1980, we’ve given Boeing $658 million in tax forgiveness. Last year the city and the state were somehow able to come up with $84,000 per job for 400 jobs here at NetApp. So we’ve been using a lot of incentives, haven’t we? What are we going to do different now, that hasn’t worked for us, clearly, in the past.
One of the panelists, Paul Allen, provided this answer:
I’m not sure that I agree that it hasn’t worked for us in the past. In fact, Boeing is still one of the largest taxpayers in the city. It has $6 million of real estate taxes paying a year. The Boeing facilities are still paying taxes in this community. Again, the jobs aren’t here, but Boeing on its rebates paid those back, those are on incremental property that it invested that came back on the tax rolls over time, and I think 6 million is the correct number last I looked there is still on the tax rolls in this city. So you have got pay back. And NetApp? NetApp is a win for the city. If you look at the economic models measuring the results of those 400 jobs and the fact that now the NetApp relationship likely to happen on the campus of Wichita State, that’s economic growth. Those are the kinds of jobs you need to attract. What are we going to do differently? We’re going to look at infrastructure more, we’re looking at a more integrated program across the spectrum. WSU is certainly a big part of that program, we’re going to get serious about diversification. We only talk about diversification in the city when the economy is down. We need to be a long-term program for diversification, taking the skills we have and looking at those skills and attracting companies here, helping our companies to expand. We need to invest in our work force, whether it’s at college level or particular to the technical colleges. Again those are the kinds of investments that are going to create a workforce that becomes attractive. It’s just one component, I think if we said it’s one tool in the toolbox. That’s a very important tool. And we are up against communities like Oklahoma City that has $75 million sitting in a fund and believe me that’s a lot more than we’ve invested in the last 10 years. And we will continue to get beaten in the competition if we don’t get more serious about being able to fight for the jobs and you can ask most business owners, particularly manufacturing, they’re called constantly from other communities trying to recruit then out of this community. And that competition is only going to get more intense, in my opinion. So we’ve got to be prepared to wisely invest our money.
(Paul Allen was Chair of Greater Wichita Economic Development Coalition for 2011, and Chair of Wichita Area Chamber of Commerce in 1998. The Wichita Chamber selected him to present the case for the sales tax at this conference.)
Allen’s pushback at the idea that the Boeing incentives were a failure produced a few gasps of astonishment from the audience. I’m sure that if any of Wichita’s elected officials had been in attendance, they would also have been surprised.
In January 2012, when Boeing announced it was leaving Wichita, people were not happy. Mayor Carl Brewer in a written statement said “The City of Wichita, Sedgwick County and the State of Kansas have invested far too many taxpayer dollars in the past development of the Boeing Company to take this announcement lightly.” Kansas Representative Jim Ward, who at the time was Chair of the South Central Kansas Legislative Delegation, issued this statement regarding Boeing and incentives: “Boeing is the poster child for corporate tax incentives. This company has benefited from property tax incentives, sales tax exemptions, infrastructure investments and other tax breaks at every level of government. These incentives were provided in an effort to retain and create thousands of Kansas jobs. We will be less trusting in the future of corporate promises.” (See Fact-checking Yes Wichita: Boeing incentives)
But now an icon of Wichita’s business community says that since Boeing is paying $6 million per year in property taxes, it really was a good investment, after all. Today, however, no one is working in these buildings. No productive economic activity is taking place. But, government is collecting property taxes. This counts as an economic development success story, according to the people who support the proposed Wichita sales tax.
Another important thing to learn from this conference, which is hinted at in Allen’s answer, is that sales tax supporters are not recognizing all the incentives that we have in Wichita. One speaker said “It would be a travesty for you to do nothing.” (He was from out of town, but the Wichita Metro Chamber of Commerce selected him to speak and presented him as an expert.) But as we know from the premise of my question, we have many available incentives, and in large amounts, too.
Another problem is Allen’s disagreement that what we’ve done has not been working. This is contrary to the evidence the Wichita Chamber has been presenting, which is that we have lost thousands of jobs and are not growing as quickly as peer cities. That is the basis of their case for spending more on economic development.
Allen also spoke of a $75 million fund in Oklahoma City, saying it is much larger that what we’ve invested. I’m sure that Allen is not including all the incentives we’ve used. There were some years, for example, when the value of the abated taxes for Boeing was over $40 million. Last year the city initiated a process whereby NetApp saved $6,880,000 in sales tax, according to Kansas Department of Commerce documents. These tax abatements are more valuable than receiving the equivalent amount as a cash payment, as the company does not pay income taxes on the value of abated taxes.
“Yes Wichita” websiteWichita voters will also want to consider the list of things Allen said we will do differently in the future. He spoke of concepts like infrastructure, an integrated program, diversification, investing in our work force, attracting companies, and helping existing companies expand. He told the audience “So we’ve got to be prepared to wisely invest our money.” There are two things to consider regarding this. First, these are the things we’ve been talking about doing for decades. Some of them we have been doing.
Second, the people saying these things — promising a new era of economic development in Wichita — are the same people who have been in charge for decades. They’ve been chairs of the Wichita Metro Chamber of Commerce, Greater Wichita Economic Development Coalition, Visioneering Wichita, Wichita Downtown Development Corporation, and Go Wichita Convention and Visitors Bureau. They’re the members of the leadership committee the Chamber formed.
These people are Wichita’s business establishment. They’ve been in charge during the time the Wichita economy has fallen behind. Now, they promise reform. We will do things differently and better, they say. Now, we will prepare to invest wisely, Allen told the audience.
If these leaders are truly interested in reforming Wichita’s economic development machinery and processes, they could have started years ago using the generous incentives we already have.
The case of Beechcraft and economic development incentives holds several lessons as Wichita considers a new tax with a portion devoted to incentives.
In December 2010 Kansas Governor Mark Parkinson announced a deal whereby the state would pay millions to Hawker Beechcraft to keep the company in Kansas. The company had been considering a purported deal to move to Baton Rouge, Louisiana. (Since then the company underwent bankruptcy, emerged as Beechcraft, and has been acquired by Textron.) The money from the state was to be supplanted by grants from the City of Wichita and Sedgwick County.
At the time, the deal was lauded as a tremendous accomplishment. In his State of the City address for 2011, Wichita Mayor Carl Brewer told the city that “We responded to the realities of the new economy by protecting and stabilizing jobs in the aviation industry. … The deal with Hawker Beechcraft announced last December keeps at least 4,000 jobs and all existing product lines in Wichita until at least 2020.”
The nearby table shows data obtained from the Kansas Department of Commerce for Hawker Beechcraft. “MPI” means “Major Project Investment,” a class of payments that may be used for a broad range of expenses, including employee salaries and equipment purchases. SKILL is a program whereby the state pays for employee training. The MPI payments have been reduced below the $5 million per year target as the company has not met the commitment of maintaining at least 4,000 employees.
Besides these funds, the City of Wichita and Sedgwick County approved incentives of $2.5 million each, to be paid over five years at $500,000 per year (a total of $1,000,000 per year). The company has also routinely received property tax abatements by participating in an industrial revenue bond program.
It’s unfortunate that Beechcraft employment has fallen. The human cost has been large. But from this, we can learn.
First, we can learn it’s important to keep the claims of economic development officials and politicians in perspective. Mayor Brewer confidently claimed there would be at least 4,000 jobs at Beechcraft and the retention of existing product lines in Wichita. As we’ve seen, the promised employment level has not been maintained. Also, Beechcraft shed its line of business jets. The company did not move the production of jets to a different location; it stopped making them altogether. So “all existing product lines” did not remain in Wichita — another dashed promise.
Second, Wichita officials contend that our city can’t compete with others because our budget for incentives is too small. The figure of $1.65 million per year is commonly cited. As we see, Beechcraft alone received much more than that, and in cash. Local economic development officials are likely to say that the bulk of these funds are provided by the state, not by local government. I doubt it made a difference to Beechcraft. The lesson here is that Wichita officials are not truthful when telling citizens the amounts of incentives that are available.
Third, this incident illuminates how incentives are extorted from gullible local governments. In his 2011 address, the Wichita mayor said “We said NO to the State of Louisiana that tried to lure Hawker Beechcraft.” (Capitalization in original.) But a Baton Rouge television station reported that the move to Louisiana was never a possibility, reporting: “Today, Governor Bobby Jindal said the timing was not right to make a move. He says Hawker could not guarantee the number of jobs it said it would provide.”
The Associated Press reported this regarding the possible move to Louisiana: “They [Hawker Beechcraft] weren’t confident they could meet the job commitments they would have to make to come to Baton Rouge so it just didn’t make sense at this time.”
The threat the mayor said Wichita turned back with tens of millions of dollars? It was not real. This is another lesson to learn about the practice of economic development.
Supporters of the proposed Wichita sales tax contend that the millions in incentives Boeing received were not cash. That’s true — they were more valuable than cash.
At a forum on the proposed Wichita sales tax on September 9, 2014, “Yes Wichita” co-chair Jon Rolph told the audience “The Boeing incentive thing? The city never gave Boeing incentives. They didn’t take our incentive money and run.” As explained at Fact-checking Yes Wichita: Boeing incentives, the claim that the “city never gave Boeing incentives” must be astonishing news to the Wichita city officials who dished out over $600 million in subsidies and incentives to the company.
“Yes Wichita” Facebook page.In response, “Yes Wichita” posted this on its Facebook page: “Those who were at the event understand that the conversation was about cash incentives not about IRBs. Boeing never received cash incentives from the City.”
First, it’s interesting that the person commenting on behalf of “Yes Wichita” was able to read the minds of the audience members. That’s a neat trick. But let’s talk about something more important — the confusion that often surrounds economic development incentives.
“Yes Wichita” contends that although Boeing received an estimated $657,992,250 in property tax abatements over several decades, this doesn’t count as “cash incentives” because it wasn’t given to Boeing in the form of cash.
“Yes Wichita” is correct, in a way. As a result of the City of Wichita’s issuance of industrial revenue bonds, Boeing didn’t receive cash from the city. Instead, the benefits the city initiated on Boeing’s behalf are more valuable to the company than receiving an equivalent amount of cash.
According to IRS guidelines, “tax incentives, whether in the form of an abatement, credit, deduction, rate reduction or exemption, simply reduce the tax imposed by state or local governments.” The IRS says these incentives do not count as income. Therefore, Boeing did not pay income taxes on these benefits, as it would have if the city gave the company cash.
The claim by the “Yes Wichita” group — that tax abatements don’t count as cash incentives — is characteristic of the way economic development incentives are justified. Instead of passing out cash, it’s more common that government uses abatements, credits, tax increment financing, investment in training and infrastructure, or exemptions. Many of these programs are confusing to citizens, and perhaps also to the elected officials who approve them. This allows government to shroud the economic realities of the transaction, and “Yes Wichita” is contributing to this confusion.
That’s all the agenda holds. In the presentation for the previous year, the request was more complete, naming specific programs. It’s useful to revisit that list, as Wichita leaders often complain that Wichita doesn’t have enough “tools in the toolbox” to compete effectively in economic development.
As the City of Wichita prepares its legislative agenda for 2015, an issue arises for the first year. It seems that the success of government spending on development has created rising property values, which creates higher tax bills, and that is a burden for some. Here’s the issue the city has identified: “Cultural arts enterprises in certain areas are threatened by rising property values and the resulting tax burden.”
Spirit Aerosystems is a spin-off from Boeing and has benefited from many tax abatements over the years. In a written statement in January 2012 at the time of Boeing’s announcement that it was leaving Wichita, Mayor Carl Brewer wrote “Our disappointment in Boeing’s decision to abandon its 80-year relationship with Wichita and the State of Kansas will not diminish any time soon. The City of Wichita, Sedgwick County and the State of Kansas have invested far too many taxpayer dollars in the past development of the Boeing Company to take this announcement lightly.”
It sounds from this as though the city has not been engaging in economic development and strategizing. This reminds me of the $658 million in tax abatements Boeing received over several decades. Wasn’t that economic development? The answer from pro-sales tax forces was no, that wasn’t paid in cash. Also, even though Boeing has left Wichita, the facilities still generate $6 million in property taxes. So, it really worked after all, they say.
This is written as through Wichita has been doing nothing in this regard. I wonder what the leaders of the Wichita Metro Chamber Leadership Council thinks of this? Here’s what the Chamber says about this council:
In January 2012, when Boeing announced it was leaving Wichita, people were not happy. Mayor Carl Brewer in a written statement said “The City of Wichita, Sedgwick County and the State of Kansas have invested far too many taxpayer dollars in the past development of the Boeing Company to take this announcement lightly.” Kansas Representative Jim Ward, who at the time was Chair of the South Central Kansas Legislative Delegation, issued this statement regarding Boeing and incentives: “Boeing is the poster child for corporate tax incentives. This company has benefited from property tax incentives, sales tax exemptions, infrastructure investments and other tax breaks at every level of government. These incentives were provided in an effort to retain and create thousands of Kansas jobs. We will be less trusting in the future of corporate promises.” (See Fact-checking Yes Wichita: Boeing incentives)
Another important thing to learn from this conference, which is hinted at in Allen’s answer, is that sales tax supporters are not recognizing all the incentives that we have in Wichita. One speaker said “It would be a travesty for you to do nothing.” (He was from out of town, but the Wichita Metro Chamber of Commerce selected him to speak and presented him as an expert.) But as we know from the premise of my question, we have many available incentives, and in large amounts, too.
According to IRS guidelines, “tax incentives, whether in the form of an abatement, credit, deduction, rate reduction or exemption, simply reduce the tax imposed by state or local governments.” The IRS says these incentives do not count as income. Therefore, Boeing did not pay income taxes on these benefits, as it would have if the city gave the company cash.
In January 2012, when Boeing announced it was leaving Wichita, people were not happy. 
