Voice For Liberty

Tag: Tax increment financing

  • Kansas and Wichita quick takes: Wednesday December 7, 2011

    Wichita petitions. At yesterday’s meeting of the Wichita City Council, the invocation featured a Bible verse that contained the phrase “Petitions, prayers, intercession, and thanksgiving be offered for those in authority.” I don’t think the speaker was aware of the irony, since petitions were delivered to city hall just the day before. These petitions seek to overturn an action of the city council, and city leaders are not pleased that citizens took to the streets to gather signatures in opposition to the council’s action.

    Petitions being contested. Speaking of petitions, the developers of the Ambassador Hotel are calling those who signed the petition and asking them to rescind their signature. The signers are being read a script that claims a study by Wichita State University indicates that 978 jobs will be created by the project. At the time the hotel developers persuaded the Wichita City Council and other governmental units to grant them over $15 million in taxpayer subsidy, they claimed the project would create 100 to 120 jobs. More reporting by Bill Wilson of the Wichita Eagle at Clash over hotel incentives heating up. … Work started and continues on the hotel even though the subsidy targeted by the petition is in doubt, so it appears the hotel will open — and jobs be created — no matter what happens to the petition.

    AFP statement on peitition. “Activists with Americans for Prosperity and many other local organizations are firmly engaged in the public process, acting on our right to ask for a public vote on how our city doles out tax dollars to private interests,” said Susan Estes, AFP-Kansas grassroots coordinator and Wichita resident. “Certainly the opposition in this matter is acting on its right to fight our efforts. “However, from what we have heard from some of the recipients of recent phone calls, the actions of our opposition seem desperate, insulting and even intimidating to some. We find it interesting that an entity so concerned about receiving public incentives is so against allowing the public to vote on one portion of the approved incentive package. Great lengths are being taken — and at great expense — to prevent Wichitans from voting, even going so far as to have individuals from Colorado calling petition signers to sway their opinion about a Wichita issue.” … “The signature gathering process has simply been about one thing: providing the people of Wichita an opportunity to express support or opposition to this type of public tax policy. A campaign would allow both proponents and opponents to share their message with the people of Wichita. We believe his would be a healthy debate for our community. One that is needed, one that we hoped would be embraced by all. We are not afraid of this public debate, but apparently some are.”

    Smart Taxpayers Exposing Waste. An initiative of the American Beverage Association is exposing ways in which government is spending money to run attack ads on the beverage industry. The claim is that $230 million of federal stimulus money has been spent in this way. The Facebook page, located at Smart Taxpayers Exposing Waste (STEW), holds many examples.

    Planning grant to be topic of meeting. On Monday December 12th Americans for Prosperity Foundation will feature Sedgwick County Commission Member Richard Ranzau speaking on the topic “The $1.5 million dollar Regional Economic Area Partnership (REAP) HUD Sustainable Development Planning Grant: Economic Development or Economic Destruction?” Some background on this item may be found at Sedgwick County considers a planning grant. This free event is from 7:00 pm to 8:30 pm at the Lionel D. Alford Library located at 3447 S. Meridian in Wichita. The library is just north of the I-235 exit on Meridian. For more information on this event contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415.

    Kansas history writer to speak. This Friday (December 9th) the Wichita Pachyderm Club features Beccy Tanner, Kansas history writer and reporter for The Wichita Eagle, speaking on “The Kansas Sesquicentennial (150th) Anniversary.” The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. … Upcoming speakers: On December 16: Kansas Senator Garrett Love. The youthful legislator, just completing his first year in office, will be speaking on “Young people in politics.” … On December 23 there will be no meeting. The status of the December 30th meeting is undetermined at this time. … On January 6: David Kensinger, Chief of Staff to Kansas Governor Sam Brownback. … On January 13: Speaker of the Kansas House of Representatives Mike O’Neal, speaking on “The untold school finance story.” … On January 20: Sedgwick County Commissioner Karl Peterjohn.

    Wichita City Council. Some video from this week’s meeting of the Wichita City Council. First, my discussion of tax increment financing (TIF) districts. Then, click here for Clinton Coen and Wichita Mayor Carl Brewer’s discussion. Under the mayor’s leadership, things disintegrate. Finally, former council member Jim Skelton returns to Wichita city council chambers.

  • Wichita should reject tax increment financing

    Remarks delivered to the Wichita City Council, December 6, 2011, regarding the formation of a new tax increment financing (TIF) district in south Wichita. The measure passed with all members except Michael O’Donnell (district 4, south and southwest Wichita) voting in favor of creating the TIF district.

    Mayor, members of the council,

    No matter how much spin is put on this by its supporters and this council, TIF turns over taxation to private interests. To the extent we must have taxation, it should be for public purposes, to pay for things that everyone benefits from.

    What this council is considering today is turning over this public function to the benefit of one person. Some on this council believe that TIF is not really a benefit to the applicant, as they are going to pay property taxes in any case.

    That’s true — so far. But to properly represent the interests of this city, we need to look farther. We need to look at “stage two,” or “what happens next.” And when we look, we see that under TIF, the vast majority of the taxes paid are redirected away from the public treasury and back to one person’s interest.

    Some will bring up the “but-for” argument, which is to say that none of this will happen unless the TIF district is created. It’s easy to create scenarios that show government assistance is necessary. But we’ve seen examples lately where applicants stood before this council and told you that they must have some form of assistance, that it is impossible to proceed without it. But after being denied assistance, the projects proceeded. In fact, the current applicant made such a claim to this council regarding special property tax treatment through industrial revenue bonds. This council declined to offer the assistance, but the project moved ahead anyway.

    Now if TIF provided a benefit, that would be one thing. But compelling research that no one on this council has controverted tells us two things.

    First, one study concludes this: “We find evidence that the non-TIF areas of municipalities that use TIF grow no more rapidly, and perhaps more slowly, than similar municipalities that do not use TIF.” So if we are concerned about the level of development in the entire city, we should reject TIF.

    Second, another tells of the impact of retail TIF districts on jobs. “TIF districts supporting retail development have a negative effect on municipal employment.” So if we are concerned about jobs for everyone, we should reject retail TIF districts.

    We might also look to a state that is perhaps the leader in the application of TIF, although they’re called redevelopment districts there: California Governor Jerry Brown is working to eliminate the use of TIF districts and close down those that exist. His reason: The state can’t afford them.

    We also need to look at the characteristics of this applicant. The Wichita Business Journal reported this regarding a company Mr. Maxwell owned: “Pixius proposes to repay, over a 10-year period, $1.3 million of a $6.4 million loan from the U.S. Department of Agriculture’s Rural Utilities Service, according to court documents. The loan was part of a 2002 Farm Bill pilot program that loaned more than $180 million to ISPs to expand Internet service to rural areas. ‘To my memory … Pixius is the only one (to receive a loan) that’s had to file bankruptcy to work out of its situation,’ says Claiborn Crain, USDA spokesman.”

    I would also note that at least one member of this council has accepted campaign contributions from Mr. Maxwell and his wife. Some jurisdictions have “pay-to-play” laws, which prohibit officeholders who have accepted campaign contributions from voting on measures that would enrich the contributor. We don’t have these laws in Wichita, although I hope that we will. But there’s no reason that this council can’t act as through such laws are in place.

  • Wichita turns taxation over to private interests

    In a free society with a limited government, taxation should be restricted to being a way for government to raise funds to pay for services that all people benefit from. But in the city of Wichita, taxation for private gain is overtaking our city.

    The Ambassador Hotel, part of a project known as Douglas Place, makes use of several of these private tax policy strategies. By private tax policy, I mean that the proceeds of a tax are used for the exclusive benefit of one person (or business firm), instead of used for the benefit of all. In one example related to this hotel, the Wichita City Council is allowing private parties to determine the city’s tax policy at their discretion, not the city’s.

    The tax in question is Wichita’s hotel guest tax. According to a description of the Tourism and Convention Fund in the city’s budget document, the goal of the guest tax is to “support tourism and convention, infrastructure, and promotion of the City.” Its priorities are to be “Fund priorities are: 1) debt service for tourism and convention facilities, 2) operational deficit subsidies and 3) care and maintenance of Century II.”

    But in the case of the Ambassador Hotel project, the city passed a charter ordinance that would route 75 percent of this tax directly back to the hotel owners for their own use. That’s not the proclaimed purpose of the guest tax.

    Instead, this is public taxation for private enrichment.

    Those who benefit from things like this and tax increment financing (TIF) districts say they aren’t really benefiting, as they are, in fact, paying taxes.

    But when taxes you must pay are routed back to you for your own exclusive use, what else can you call it except capture of a public function for your own personal use?

    Failure of Wichita city leadership

    If you need further evidence that Wichita is turning over taxation to private hands, consider this: The charter ordinance is subject to a protest petition. In the normal case, if sufficient signatures are gathered, the city council would have to either a) overturn the ordinance, or b) hold an election to let voters decide whether the ordinance takes effect. An effort that I have been involved with expects to turn in enough signatures this week to force this decision.

    Now, if this tax policy regarding the Ambassador Hotel is truly in the public interest, we would expect that the city council would decide whether to hold such an election and bear its costs itself. But that’s not the case. In the agreement between the city and the Douglas Place developers, we see this: “If Developer requests a special election solely for the purpose of passing the charter ordinance in the event a sufficient protest petition is submitted, Developer shall reimburse the City for the actual out of pocket costs and expenses of conducting such election.”

    In other words, the city is turning over to private interests the decision as to whether to have such an election, and also the responsibility for paying for it. This is a failure of Wichita city leadership to do the things that government, not private interests, should do.

    Private taxation funds political entrepreneurship

    In Wichita, especially in downtown, we see the rise of private tax policy, that is, the taxing power of government being used for private purposes. The above example is just one example. This private tax policy is pushed by Wichita’s political entrepreneurs. These are the people who would rather compete in the realm of politics rather than in the market.

    Examples of Wichita’s political entrepreneurs include the developers the Ambassador Hotel: David Burk of Marketplace Properties, and the principals of Key Construction.

    Competing in the political arena is easier than competing in the market. To win in the political arena, you only have to convince a majority of the legislative body that controls your situation. Once you’ve convinced them the power of government takes over, and the people at large are forced to transfer money to the political entrepreneurs. In other words, they must engage in transactions they would not elect to perform, if left to their own free will.

    In the free marketplace, however, entrepreneurs have to compete by offering products or services that people are willing to buy, free of coercion. That’s hard to do. But it’s the only way to gauge whether people really want what the entrepreneurs are selling. It’s also the way that wealth and prosperity are created. Government spending on business does not have this effect.

    One of the ways that political entrepreneurs compete is by making campaign contributions, and the developers of Douglas Place have mastered this technique. Key Construction principles contributed $13,500 to Mayor Carl Brewer and four city council members during their most recent campaigns. Council Member Jeff Longwell alone received $4,000 of that sum, and he also accepted another $2,000 from managing member David Burk and his wife.

    All told, Burk and his wife contributed at least $7,500 to city council candidates who will be voting whether to give Burk money. 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: Burk will be asking these people for money.

    Wichitans need to rise against these political entrepreneurs and their usurpation of a public function — taxation — for their own benefit. The politicians and bureaucrats who enable this should realize they should be serving the public interest, not the narrow and private enrichment of the few at the cost of many.

  • Crony capitalism and social engineering: The case against tax-increment financing

    A report published earlier this year by urban planning expert Randal O’Toole of the Cato Institute gives a good overview of tax increment financing (TIF) districts and the harm they cause. O’Toole discusses the research that shows that TIF has an overall negative effect on communities that use it. He also addresses the issue of crony capitalism, which is well documented in Wichita, with TIF developers handing out a continuous stream of campaign contributions to those politicians who vote their way. Following is the executive summary of O’Toole’s report, followed by a link to the full document.

    Tax-increment financing (TIF) is an increasingly popular way for cities to promote economic development. TIF works by allowing cities to use the property, sales, and other taxes collected from new developments — taxes that would otherwise go to schools, libraries, fire departments, and other urban services — to subsidize those same developments.

    While cities often claim that TIF is “free money” because it represents the taxes collected from developments that might not have taken place without the subsidy, there is plenty of evidence that this is not true. First, several studies have found that the developments subsidized by TIF would have happened anyway in the same urban area, though not necessarily the same location. Second, new developments impose costs on schools, fire departments, and other urban services, so other taxpayers must either pay more to cover those costs or accept a lower level of services as services are spread to developments that are not paying for them.

    Moreover, rather than promoting economic development, many if not most TIF subsidies are used for entirely different purposes. First, many states give cities enormous discretion for how they use TIF funds, turning TIF into a way for cities to capture taxes that would otherwise go to rival tax entities such as school or library districts. Second, no matter how well-intentioned, city officials will always be tempted to use TIF as a vehicle for crony capitalism, providing subsidies to developers who in turn provide campaign funds to politicians.

    Finally, many cities use TIF to persuade developers to build “new-urban” (high-density, mixed-use) developments that are supposedly greener than traditional designs but are less marketable than low-density suburbs. Albuquerque, Denver, Portland, and other cities have each spent hundreds of millions of dollars supporting such developments when developers would have been happy to build low-density developments without any subsidies.

    TIF takes money from schools, fire departments, libraries, and other urban services funded by property taxes. By eliminating TIF, state legislatures can help close current budget gaps and prevent cities from taking even more money from these urban services in the future.

    The entire report is available at the Cato Institute at Crony Capitalism and Social Engineering: The Case against Tax-Increment Financing.

  • Kansas and Wichita quick takes: Monday November 28, 2011

    FHA risk. Today a Wall Street Journal Review & Outlook piece notes a government housing agency that has deteriorating finances. From What Housing Risk? The FHA says there’s nothing for taxpayers to worry about. Oh-oh. “Mr. Gyourko notes that while the FHA’s loan exposure has grown to more than $1 trillion this fiscal year from $305 billion at the end of 2007, the agency hasn’t “increased its capital reserves commensurately.” Sure enough, the Department of Housing and Urban Development recently reported that the FHA’s capital reserves are 0.24%, a far cry from the 2% statutory minimum.” The FHA itself disagrees, saying its books are “sound.” … FHA wants to expand into offering prime loans, the mortgages made to people with good credit, and it has been doing that. But this is an area that is served by traditional, private sector lenders, and now a government agency wants to compete. … Concluding, the Journal writes: “Far from making ‘spurious’ claims, Mr. Gyourko is doing a public service by chronicling the FHA’s reckless expansion at a time when the housing market needs less government intervention, not more of it. The fury of the FHA’s response shows that he’s onto something.”

    Boeing in Wichita. The Wichita Eagle runs down the details on the possible exit of Boeing from Wichita in Analysts: Loss of Boeing would hurt city, region. A few points of discussion: Is Boeing raising the possibility of departure as a ploy for economic incentives? … “With looming defense budget cuts, the threat of plant closures makes politicians more aware of what’s at stake, he [aerospace analyst Richard Aboulafia] said. It will help Boeing win allies in Congress working against the cuts.” He also mentioned the “threats of defense cuts.” But we ought to be welcoming cuts in defense spending. It means that resources will be freed for other things that people really want. … I also wonder: Are aerial refueling tankers a relic of a different era of warfare, the Cold War? And is defense spending a good economic development policy for Wichita, or any city?

    Wichita City Council. Wichita City Council will not meet this week, as it is the fifth Tuesday of a month. … Next week’s meeting will take up a proposal by Southfork Investment LLC, a group headed by Jay Maxwell, asking for the formation of a new tax increment financing (TIF) district. … According to city documents, the project is near 47th Street South and I-135. It is planned for 50 acres and one million square feet of retail, hotel, restaurants and office space. For comparison, Towne East Square has slightly less than 1.2 million square feet of space. There will be a medical park on an additional 22 acres. … It appears that all the TIF financing will be pay-as-you go, which is a recent revision to the Kansas TIF law. No bonds would be sold. Instead, the increment in property tax would be refunded to the developer as it is paid. There’s also a joining of TIF and special assessments, where TIF revenue will be used to pay special assessment taxes. … Only a simply majority vote is needed to form the TIF district after the December 6 public hearing. There will have to be redevelopment plans approved after that, and those require a two-thirds majority.

    Harm of public-sector unions. “Mr. Siegel observes that public-sector unions have ‘become a vanguard movement within liberalism. And the reason for that is it’s the public sector that comes closest to the statist ideals of McGovern and post-McGovern liberals. And that is, there’s no connection between effort and reward. You’re guaranteed your job. You’re guaranteed your salary increase. There’s a kind of bureaucratic equality.’ In turn, he continues, ‘this vanguard becomes in the eyes of many liberals the model for the middle class. Public-sector unions are what all workers should be like. Their benefits are the kind of benefits everyone should get.’” … Much more in the Wall Street Journal at The New Tammany Hall: The historian of the American city on what Wall Street and the ‘Occupy’ movement have in common, and how government unions came to dominate state and local politics.

    Rep. Hedke, author of new book, to speak. This Friday (December 2nd) the Wichita Pachyderm Club features Kansas Representative Dennis Hedke speaking on “Energy and environmental policy.” Hedke is the author of the just-published book The Audacity of Freedom, described as an “unequivocal challenge to the Socialist-Marxist-Communist principles being pushed upon freedom loving Americans by entities and individuals both within and outside the United States.” In his forward to the book, Speaker of the Kansas House of Representatives Mike O’Neal writes: “Dennis Hedke’s The Audacity of Freedom is a timely and welcome “from the heart” wake-up call for those who value freedom and America. Unapologetically, Hedke does not mince words in describing the combination of crises that threaten our country. His irrefutable and precise recitation of compelling facts and refreshingly candid faith and patriotism are infectious. He exhorts us not to stand by and suffer any longer the fools who have been insulting our collective intelligence and bringing us dangerously close to a socialistic irrelevance in the world. His book, in short, is important.” The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. … Upcoming speakers: On December 9: Beccy Tanner, Kansas history writer and reporter for The Wichita Eagle, speaking on “The Kansas Sesquicentennial (150th) Anniversary.” … On December 16: David Kensinger, Chief of Staff to Kansas Governor Sam Brownback. … On December 23 there will be no meeting. The status of the December 30th meeting is undetermined at this time. … On January 6: Kansas Senator Garrett Love. … On January 13: Speaker of the Kansas House of Representatives Mike O’Neal, speaking on “The untold school finance story.” … on January 20: Sedgwick County Commissioner Karl Peterjohn.

    Even quicker. Brownback prepares K-12 funding overhaul … Brownback tweet tattling a national story. Example from CNN: The girl who dared to tweet about Gov. Brownback. … The Chevy Volt: Detroit’s Hottest Car: “Industry watchers are preparing for the Volt to undergo a recall to fix whatever problem the car’s lithium-ion battery pack has that seems to be causing the vehicles to spontaneously burst into flames.” … The Bipartisan War on Liberty: “Liberal and conservative elites agree on one thing: Americans are too free for their own good.” … FDA Considers Mandatory Salt Reductions: “As I noted last month in a Cato podcast with interviewer Caleb Brown, the FDA’s new initiative plunges it deeper into social engineering than it has gone in the past. It’s one thing to limit adulteration or contamination of foods, or the use of mysterious chemical additives; it is another to order the reformulation of recipes to reduce intake of a substance that 1) occurs naturally in virtually all foods; 2) is beneficial to health in many circumstances; and 3) has been sought out and purposely added to the human diet through recorded history.” … Camera experiments to start soon in federal courts in Kansas.

    Myth of spending cuts. Nick Gillespie of Reason says that only by “obscuring and obfuscating basic math” can we be told there will be spending cuts.

  • TIF and other subsidies harm Wichita

    Everyone who cares about Wichita — the entire city, not just special interests — ought to be opposed to the continued use of tax increment financing (TIF) districts and other forms of subsidy that direct benefits to a small group at the expense of everyone else.

    Proponents of these programs such as Wichita Eagle editorial writer Rhonda Holman, most elected officials, and nearly all bureaucrats, need to justify these incentives. They make their case, of course, but the case is shallow. We need to look at research that studies these programs. We need to consider the effect of these programs on the city as a whole, and on the civic attitudes of Wichitans. When we do, we find that these programs just don’t deliver what they promise, unless you focus only on the special interest groups that feed off these programs. We also see that these programs contribute to the cynicism that is destructive to a civil society where people exist and trade harmoniously.

    What is the purpose? Development? Jobs?

    Some people want TIF because it promises development that otherwise would not happen. Others want the jobs that they see TIF create.

    The problem is that both promises are false — if you are able to look beyond stage one. There’s no doubt that things happen in TIF districts, usually. Buildings are built or renovated. Businesses open. People go to work.

    This simple analysis appeals to elected officials and newspaper editorial writers. But if we are concerned about the overall prosperity of our city, we need to look beyond the borders of the TIF district. When we do that, we come to a different assessment.

    Regarding the effect of TIF on overall development, economists Richard F. Dye and David F. Merriman have studied tax increment financing extensively. Their article Tax Increment Financing: A Tool for Local Economic Development states in its conclusion:

    TIF districts grow much faster than other areas in their host municipalities. TIF boosters or naive analysts might point to this as evidence of the success of tax increment financing, but they would be wrong. Observing high growth in an area targeted for development is unremarkable.

    So TIFs are good for the favored development that receives the subsidy — not a surprising finding. It’s what self-serving elected officials, bureaucrats, and newspaper editorial writers can see and focus on. But what about the rest of the city? Continuing from the same study:

    If the use of tax increment financing stimulates economic development, there should be a positive relationship between TIF adoption and overall growth in municipalities. This did not occur. If, on the other hand, TIF merely moves capital around within a municipality, there should be no relationship between TIF adoption and growth. What we find, however, is a negative relationship. Municipalities that use TIF do worse.

    We find evidence that the non-TIF areas of municipalities that use TIF grow no more rapidly, and perhaps more slowly, than similar municipalities that do not use TIF. (emphasis added)

    So if we are concerned about overall growth in Wichita, we need to realize that TIF simply shifts development from one place to another. The overall impact, according to uncontroverted research, is negative: less growth, not more.

    What about jobs? Paul F. Byrne of Washburn University authored a recent report titled Does Tax Increment Financing Deliver on Its Promise of Jobs? The Impact of Tax Increment Financing on Municipal Employment Growth. In its abstract we find this conclusion regarding the impact of TIF on jobs:

    Increasingly, municipal leaders justify their use of tax increment financing (TIF) by touting its role in improving municipal employment. However, empirical studies on TIF have primarily examined TIF’s impact on property values, ignoring the claim that serves as the primary justification for its use. This article addresses the claim by examining the impact of TIF adoption on municipal employment growth in Illinois, looking for both general impact and impact specific to the type of development supported. Results find no general impact of TIF use on employment. However, findings suggest that TIF districts supporting industrial development may have a positive effect on municipal employment, whereas TIF districts supporting retail development have a negative effect on municipal employment. These results are consistent with industrial TIF districts capturing employment that would have otherwise occurred outside of the adopting municipality and retail TIF districts shifting employment within the municipality to more labor-efficient retailers within the TIF district. (emphasis added)

    While this research might be used to support a TIF district for industrial development, TIF in Wichita is primarily used for retail development. And, when looking at the entire picture, the effect on employment is negative.

    Verge of corruption

    The ability and willingness of local elected officials to dish out TIF and other forms of subsidy places them, as Randal O’Toole has written, “on the verge of corruption.” In Wichita, David Burk and the principals of Key Construction make extensive use of political campaign contributions, and have benefited handsomely from TIF and other forms of subsidy. A recent analysis of campaign contributions by these parties to Wichita City Council members showed just how prevalent are these contributions.

    In Wichita city elections, individuals may contribute up to $500 to candidates, once during the primary election and again during the general election. As you can see in this table complied from Wichita City Council campaign finance reports, spouses often contribute as well. So it’s not uncommon to see the David and DJ Burk family contribute $2,000 to a candidate for their primary and general election campaigns. That’s a significant sum for a city council district election campaign cycle. Click here for a compilation of campaign contributions made by those associated with the Douglas Place project, a recent collaboration between Burk, Key Construction, and others.

    Council Member Jeff Longwell (district 5, west and northwest Wichita), in his second term as council member and with his heart set on becoming the next mayor, leads the pack in accepting campaign contributions from parties associated with the Douglas Place project. For his most recent election, he received $4,000 from parties associated with Key Construction, and $2,000 from David Burk and his wife. Total from parties associated with the Douglas Place project: $6,000.

    Lavonta Williams, (district 1, northeast Wichita), who is also vice mayor, received $5,000 from parties associated with Douglas Place: $4,000 from parties associated with Key Construction, and $2,000 from David Burk and his wife.

    Mayor Carl Brewer received $4,000 from parties associated with Douglas Place: $3,500 from parties associated with Key Construction, and $500 DJ Burk, David Burk’s wife.

    Council Member Janet Miller (district 6, north central Wichita) received $3,500 during her 2009 election campaign from parties associated with Douglas Place: $1,500 from parties associated with Key Construction, and $2,000 from David Burk and his wife.

    For his 2011 election campaign, newly-elected Council Member Pete Meitzner (district 2, east Wichita) received $2,500 from parties associated with Douglas Place: $1,500 from parties associated with Key Construction, and $1,000 from David Burk and his wife.

    The people who make these contributions and the officeholders who receive them deny that they make any difference. That’s hard to believe. These donors don’t often contribute to candidates for the Kansas Legislature or U.S. Congress. That’s because these bodies don’t have the power to dish out the subsidies that the Wichita City Council does. I’d say these donors are acting rationally, in their self-interest.

    If you’re still not convinced, consider the case of Reverend Kevass Harding, who wanted to redevelop the Ken-Mar shopping center, and Wichita City Council member Lavonta Williams, (district 1, northeast Wichita), who is presently serving as vice mayor.

    As reported in 2009, Harding and his wife made campaign contributions to Williams. These campaign contributions, made in the maximum amount allowable, were out of character for the Hardings. They had made very few contributions to political candidates, and they appear not to have made many since then.

    But in June 2008, just before the Ken-Mar TIF district was to be considered for approval, the Hardings made contributions in the maximum allowable amount to Williams, who represents Ken-Mar’s district. Harding would not explain why he made the contributions. Williams offered a vague and general explanation that had no substantive meaning.

    The close linkage between these political contributions the awarding of money illustrates the need for pay-to-play laws in Wichita and Kansas. These laws impose various restrictions on the activities of elected officials and the awarding of contracts or other largesse to those who have made political contributions.

    Citizens become cynical when they feel there is a group of insiders — commonly called the “good ol’ boy network” — who get whatever they want from city hall at the expense of taxpayers. It’s surprising that the Wichita Eagle editorial board is either not aware of this, or doesn’t see it as a problem. In the meantime, our newspaper, along with those in the network of city hall insiders, continue to contribute to the destruction of civil society in Wichita.

    Additional Reading:

    • Wichita property taxes are high, leading to other problems: “An ongoing study by the Minnesota Taxpayers Association tells us that Wichita has high business property taxes. This may be a reason why the Wichita City Council feels it is necessary to offer relief from these taxes, but it is not an effective economic development strategy.”
    • Tax increment financing: The right tool for Wichita jobs?: “Tax Increment Financing (TIF) is an economic development tool that uses the expected growth (or increment) in property tax revenues from a designated geographic area of a municipality to finance bonds used to pay for goods and services calculated to spur growth in the TIF district. The analysis performed for this study found TIF does not tend to produce a net increase in economic activity; favors large businesses over small businesses; often excludes local businesses and residents from the planning process; and operates in a manner that contradicts conventional notions of justice and fairness. We recommend seeking alternatives to TIF and reforms to TIF that make the process more democratic and the distribution of benefits more fair to residents of TIF districts.”
    • Giving away the store to get a store: “Largely because it promises something for nothing — an economic stimulus in exchange for tax revenue that otherwise would not materialize — this tool is becoming increasingly popular across the country. Originally used to help revive blighted or depressed areas, TIFs now appear in affluent neighborhoods, subsidizing high-end housing developments, big-box retailers, and shopping malls. And since most cities are using TIFs, businesses such as Cabela’s can play them off against each other to boost the handouts they receive simply to operate profit-making enterprises.”
    • Wichita’s economic development strategy: rent seeking: “It is wealth, after all, that defines prosperity. Our goal ought to be to create an environment where everyone lives in an environment conducive to creating prosperity and wealth. But in a misguided effort, our city leaders, week after week, take actions that produce just the opposite.”
    • Wichita economic development: And then what will happen?: “Critics of the economic development policies in use by the City of Wichita are often portrayed as not being able to see and appreciate the good things these policies are producing, even though they are unfolding right before our very eyes. The difference is that some look beyond the immediate — what is seen — and ask “And then what will happen?” — looking for the unseen.
    • Wichita and its political class: “Discussion at a Wichita City Council meeting provided an opportunity for citizens to discover the difference in the thinking of the political class and those who value limited government and capitalism.”
    • Wichita on corporate welfare, again: “An award of $2.5 million by the City of Wichita to aircraft manufacturer Hawker Beechcraft to ward off a threatened move to Louisiana stands out as an example of corporate welfare given for its own sake, and not in response to any real threat.”
    • Wichitans mislead on Warren IMAX incentives: “With the possibility of another IMAX theater being built not too far from Wichita, we now know that Wichitans were mislead in awarding economic development incentives.”
    • Wichita again to bet on corporate welfare as economic development: “The Wichita City Council may take action that promotes corporate welfare and the city’s economic development policy.”
    • In Wichita and Kansas, economic development is not working: “The effort of Wichita and Kansas to retain Hawker Beechcraft, one of our leading employers and a Wichita institution, provides a lesson in the futility of corporate welfare as an economic development policy: Someone is usually willing to pay more. We would be much better off if we start transforming Kansas to a state where all companies are nurtured, not by bureaucratic and political oversight and handouts, but by a low taxing and spending environment, and a reasonable regulatory regime.”
    • Tax increment financing is not free money: “Cato Institute Senior Fellow Randal O’Toole has written extensively on the subject of urban planning, development, and tax increment financing (TIF) districts. The following article contains many points that the Wichita City Council may wish to consider as it considers expansion of a downtown Wichita TIF district at tomorrow’s council meeting.”

  • Tax increment financing: The right tool for Wichita jobs?

    The following document is from The Heartland Institute. Its original location is The Right Tool for the Job? An Analysis of Tax Increment Financing (Summary).

    As the Wichita City Council seems to have job creation as a primary goal, the council may wish to take notice of one of the article’s conclusions as it consider forming a new tax increment financing (TIF) district: “Job losses in areas surrounding each TIF district more than offset any increase in the number of jobs inside the TIF district, resulting in a rate of job loss greater than the citywide rate.”

    It’s easy to drive by a new store or project and observe people working there. Concluding one’s analysis there is an example of stopping the thinking process at stage one, as Thomas Sowell has said. We need elected officials and bureaucrats who look beyond the immediate, easy-to-see effects of their policies. See Wichita economic development: And then what will happen? for more about the effect of TIF on jobs.

    The Right Tool for the Job? An Analysis of Tax Increment Financing

    Developing Neighborhood Alternatives Project

    Tax Increment Financing (TIF) is an economic development tool that uses the expected growth (or increment) in property tax revenues from a designated geographic area of a municipality to finance bonds used to pay for goods and services calculated to spur growth in the TIF district. The analysis performed for this study found TIF does not tend to produce a net increase in economic activity; favors large businesses over small businesses; often excludes local businesses and residents from the planning process; and operates in a manner that contradicts conventional notions of justice and fairness. We recommend seeking alternatives to TIF and reforms to TIF that make the process more democratic and the distribution of benefits more fair to residents of TIF districts.

    Tax increment financing (TIF) is seldom evaluated from a community perspective.

    Tax Increment Financing (TIF) is an economic development tool that uses the expected growth (or increment) in property tax revenues from a designated geographic area of a municipality to finance bonds used to pay for goods and services calculated to spur growth in the TIF district. It is widely heralded as “one of the last remaining fiscal devices for repairing areas of the city afflicted by urban decay.” But TIF is also a controversial tool.

    Evaluations of TIF typically focus only on the number of new jobs thought to be created in the TIF district and how much property values rose. Such evaluations overlook what happens to community residents and to areas surrounding the TIF district. Were community residents given an opportunity to apply for the new jobs? Were these jobs genuinely new, or were they simply shifted into the district from surrounding areas? Did the jobs pay as well as the jobs that may have been displaced?

    Our work provides the basis for public understanding and discussion of TIF from a community standpoint. We studied five TIF districts in Chicago and the neighborhoods surrounding them to show how a community-centered analysis might be performed. The case studies included both qualitative data on neighborhood-wide changes and interviews with individuals and organizations affected by the TIF district. We also performed a policy analysis, examining TIF law to see what types of development TIF would best be able to facilitate, and what types it can perform only with great difficulty.

    TIF has only a limited impact on economic development.

    The five case studies found TIF increased land values. However, the case studies also found:

    • TIF did not consistently increase the number of businesses: Two of the three commercially oriented TIF districts and their surrounding areas experienced a net loss in businesses. The third had a net increase, but at a rate slower than the city average. The two residentially oriented TIF districts and their surrounding areas saw net increases in number of businesses above the city average.
    • TIF did not create a net increase in the number of jobs: Job losses in areas surrounding each TIF district more than offset any increase in the number of jobs inside the TIF district, resulting in a rate of job loss greater than the citywide rate.
    • TIF tended to increase residential property sales: Three of the five TIF districts and their surrounding areas saw dramatic increases in the number of residential sales, well above the citywide rate. Two reported small decreases.
    • TIF’s impact on housing prices was mixed: In some instances, median housing prices increased faster than the citywide median, in other cases slower. In the two residential TIF districts, the sale prices of the TIF-subsidized housing were considerably higher than the citywide median.

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  • Kansas and Wichita quick takes: Thursday November 10, 2011

    Occupy Wall Street. One of the most troubling things about OWS is the anti-semitism. FreedomWorks has a video which explains. Also from FreedomWorks, president Matt Kibbe contributes a piece for the Wall Street Journal (Occupying vs. Tea Partying: Freedom and the foundations of moral behavior.). In it, he concludes: “Progressives’ burning desire to create a tea party of the left may be clouding their judgment. Even Mr. Jones has grudgingly conceded that tea partiers have out-crowd-sourced, out-organized, and out-performed the most sophisticated community organizers on the left. ‘Here’s the irony,’ he said back in July. ‘They talk rugged individualist, but they act collectively.’ He and his colleagues don’t seem to understand that communities can’t exist without respect for individual freedom. They can’t imagine how it is that millions of people located in disparate places with unique knowledge of their communities and circumstances can voluntarily cooperate and coordinate, creating something far greater and more valuable than any one individual could have done alone. In the world of the contemporary Western left, someone needs to be in charge — a benevolent bureaucrat who knows better than you do. They can’t help but build hierarchical structures — a General Assembly perhaps — because they don’t understand how freedom works.”

    Johnson Controls. Rhonda Holman’s recent Wichita Eagle editorial criticized those who spoke against the award of a forgivable loan to Johnson Controls, specifically mentioning the claim by Sedgwick County Commissioner Richard Ranzau that Johnson was going to move these jobs to Wichita “no matter what.” No one has disputed Ranzau. I specifically asked at the commission meeting that someone from Johnson address this assessment. The Johnson people in the audience chose not to answer. It would be helpful if someone at the newspaper or county at least pretended as through they cared about the truth of these matters. … At one time newspapers might have objected to Commission member Jim Skelton voting on this matter due to a family member working at Johnson. True, Kansas law says he was eligible to vote on the matter. Sedgwick County has no code of ethics that prohibited it, either. But Skelton could have acted as though the county had a code of ethics, and a model code of ethics says Skelton should not have voted on this matter.

    Save-A-Lot store opens. Yesterday a Save-A-Lot grocery store opened in Wichita’s Planeview neighborhood. This is a store that was said to be impossible to build without subsidy in the form of tax increment financing (TIF) and an extra community improvement district (CID) sales tax of two cents per dollar. The Sedgwick County Commission exercised its veto power over the TIF district, and developer developer Rob Snyder canceled his plans for the store. But someone else found a way. Said Snyder at the time to the Wichita City Council: “We have researched every possible way, how do we make this project work with the existing funding that’s available to us. … We might as well say if for some reason we can’t figure out how to get this funding to go through, there won’t be a shopping center over there.” As part of his presentation to the council Allen Bell, Wichita’s Director of Urban Development explained that to be eligible for TIF, developers must demonstrate a “gap,” that is, an analytical finding that conventional financing is not sufficient for the project, and public assistance is required: “We’ve done that. We know, for example, from the developer’s perspective in terms of how much they will make in lease payments from the Save-A-Lot operator, how much that is, and how much debt that will support, and how much funds the developer can raise personally for this project. That has, in fact, left a gap, and these numbers that you’ve seen today reflect what that gap is.” … This episode has severely harmed the credibility of those who plead for incentives and subsidies, and also of the city hall bureaucrats who plead their cases for them. For more see For Wichita, Save-A-Lot teaches a lesson.

    Teacher pay. A look at public school teacher pay by American Enterprise Institute finds that — opposite of the myth spread by school spending advocates — teachers are paid much more than they could earn in the private sector. While teachers are paid less than private sector workers with similar college degree attainment, the course of study for teachers is less demanding than most other fields. Fringe benefits for teachers are much higher than for private sector workers. Job security, even in the face of recent layoffs, is much greater for teachers and has a value: “Consider that one-fifth of the highest-performing public school teachers in Washington, D.C., recently declined to give up even part of their job security in exchange for base salary increases of up to $20,000.” … The authors note the study is based on averages: “Our research is in terms of averages. The best public school teachers — especially those teaching difficult subjects such as math and science — may well be underpaid compared to counterparts in the private sector.” But teachers have formed unions that ensure that all teachers are paid the same without regard to ability. See Public School Teachers Aren’t Underpaid: Our research suggests that on average — counting salaries, benefits and job security — teachers receive about 52% more than they could in private business. … Naturally, the best way to set teacher salaries is through voluntary exchange in markets. That doesn’t happen with public school teachers.

    Ranzau, Skelton to speak. This week’s meeting (November 11th) of the Wichita Pachyderm Club features Sedgwick County Commission Members Richard Ranzau and Jim Skelton, speaking on “What its like to be a new member of the Sedgwick County Board of County commissioners?” The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. … Upcoming speakers: On November 18th: Delores Craig-Moreland, Ph.D., Wichita State University, speaking on “Systemic reasons why our country has one of the highest jail and prison incarceration rates in the world? Are all criminals created equal?” … On November 25th there will be no meeting.

    Making economics come alive. On Monday November 14th Americans for Prosperity Foundation will show the video “Making Economics Come Alive” with John Stossel. Topics included in this presentation are Economics of Property Rights, Private Ownership and Conservation, Property Rights and the Status of Native Americans, Atlas Shrugged: Selfishness and the Economics of Exchange, Economics and the Military Draft, Regulation and Unintended Consequences, Regulation: Louisiana Florist, The Unintended Consequences of the Ethanol Subsidies, The Unintended Consequences of Minimum Wage Laws, Public Choice Economics and Crony Capitalism, Trade Restrictions and Crony Capitalism, Stimulus Spending and Crony Capitalism, and Political Versus Market Choices. This free event is from 7:00 pm to 8:30 pm at the Lionel D. Alford Library located at 3447 S. Meridian in Wichita. The library is just north of the I-235 exit on Meridian. For more information on this event contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415.

    Economics in two minutes. In two minutes, Art Carden explains the important ideas of economics in Economics on One Foot: “Individuals strive to achieve their goals in the best ways possible, every action has a cost, incentives matter, value is determined on the margin, profits and losses help gauge value creation and destruction, and government interventions often have unintended and undesirable consequences.” … This video is from LearnLiberty.org, a project of Institute for Humane Studies, and many other informative videos are available.

  • Giving away the store to get a store

    This article first appeared in Reason magazine and Reason.com at this link. It details many of the reasons why tax increment financing (TIF) districts are not a good economic development tool. Wichita will again chase the dream of “something for nothing” when it considers establishing a TIF district at its December 6th meeting.

    Giving Away the Store to Get a Store

    Tax increment financing is no bargain for taxpayers.
    By Daniel McGraw.

    If you’re imagining an attraction that will draw 4.5 million out-of-town visitors a year, the first thing that jumps to mind probably isn’t a store that sells guns and fishing rods and those brown jackets President Bush wears to clear brush at his ranch in Crawford, Texas. Yet last year Cabela’s, a Nebraska-based hunting and fishing mega-store chain with annual sales of $1.7 billion, persuaded the politicians of Fort Worth that bringing the chain to an affluent and growing area north of the city was worth $30 million to $40 million in tax breaks. They were told that the store, the centerpiece of a new retail area, would draw more tourists than the Alamo in San Antonio or the annual State Fair of Texas in Dallas, both of which attract 2.5 million visitors a year.

    The decision was made easier by the financing plan that Fort Worth will use to accommodate Cabela’s. The site of the Fort Worth Cabela’s has been designated a tax increment financing (TIF) district, which means taxes on the property will be frozen for 20 to 30 years.

    Largely because it promises something for nothing — an economic stimulus in exchange for tax revenue that otherwise would not materialize — this tool is becoming increasingly popular across the country. Originally used to help revive blighted or depressed areas, TIFs now appear in affluent neighborhoods, subsidizing high-end housing developments, big-box retailers, and shopping malls. And since most cities are using TIFs, businesses such as Cabela’s can play them off against each other to boost the handouts they receive simply to operate profit-making enterprises.

    A Crummy Way to Treat Taxpaying Citizens

    TIFs have been around for more than 50 years, but only recently have they assumed such importance. At a time when local governments’ efforts to foster development, from direct subsidies to the use of eminent domain to seize property for private development, are already out of control, TIFs only add to the problem: Although politicians portray TIFs as a great way to boost the local economy, there are hidden costs they don’t want taxpayers to know about. Cities generally assume they are not really giving anything up because the forgone tax revenue would not have been available in the absence of the development generated by the TIF. That assumption is often wrong.

    “There is always this expectation with TIFs that the economic growth is a way to create jobs and grow the economy, but then push the costs across the public spectrum,” says Greg LeRoy, author of The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation. “But what is missing here is that the cost of developing private business has some public costs. Road and sewers and schools are public costs that come from growth.” Unless spending is cut — and if a TIF really does generate economic growth, spending is likely to rise, as the local population grows — the burden of paying for these services will be shifted to other taxpayers. Adding insult to injury, those taxpayers may include small businesses facing competition from well-connected chains that enjoy TIF-related tax breaks. In effect, a TIF subsidizes big businesses at the expense of less politically influential competitors and ordinary citizens.

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