Voice For Liberty

Tag: Tax increment financing

  • Kansas and Wichita quick takes: Monday October 31, 2011

    Wichita City Council. The Wichita City Council this week considers two items of interest. Spirit AeroSystems will ask for $15 million in IRBs. Spirit will purchase the bonds itself. It will receive a property tax exemption for ten years and exemption from sales tax. No dollar amount is given for the value of the exemptions. … Then, Southfork Investment LLC, a group headed by Jay Maxwell, is asking for the formation of a new tax increment financing (TIF) district. This item, if the council approves, will set December 6 as the date for a public hearing. The vote to form the district would be taken then. … 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. Sedgwick County and USD 259, the Wichita public school district each may pass ordinances objecting to the formation of the district. Sedgwick County did that regarding the Save-A-Lot TIF last year, and that project went ahead, despite the claims of the developer that TIF was necessary. USD 259 Superintendent John Allison has recently stated that the school district would not be participating in the formation of TIF districts in the future, as they lose revenue. This will be the first test of that. In 2008 John Todd and I testified that the district should not agree to the formation of a TIF district because of the lost revenue. Officials assured us that the Kansas school finance formula held them harmless, and it didn’t matter if a TIF district was formed. … There will also be a community improvement district (CID) with an additional sales tax of one cent per dollar. … As always, the agenda packet is available at Wichita city council agendas.

    Crony capitalism. The Occupy Wall Street protests, as well as the group that protested against Koch Industries on Saturday, seem to be opposed to capitalism. Their efforts would be better directed against business specifically, or crony capitalism in particular. There’s a huge difference. Capitalism is a system of absolute respect for property rights and free exchange in free markets. As Tom G. Palmer wrote in his introduction to the recently-published book The Morality of Capitalism, “Indeed, capitalism rests on a rejection of the ethics of loot and grab.” … As for free markets and enterprise Milton Friedman explained that business is not always in favor: “The great virtue of free enterprise is that it forces existing businesses to meet the test of the market continuously, to produce products that meet consumer demands at lowest cost, or else be driven from the market. It is a profit-and-loss system. Naturally, existing businesses generally prefer to keep out competitors in other ways. That is why the business community, despite its rhetoric, has so often been a major enemy of truly free enterprise.” Even one liberal New York Times columnist realizes this, as did Nicholas D. Kristof when he recently wrote “But, in recent years, some financiers have chosen to live in a government-backed featherbed. Their platform seems to be socialism for tycoons and capitalism for the rest of us. They’re not evil at all. But when the system allows you more than your fair share, it’s human to grab. That’s what explains featherbedding by both unions and tycoons, and both are impediments to a well-functioning market economy.” Kristof goes on to explain that capitalism means the freedom to fail as well as succeed: “Capitalism is so successful an economic system partly because of an internal discipline that allows for loss and even bankruptcy. It’s the possibility of failure that creates the opportunity for triumph. Yet many of America’s major banks are too big to fail, so they can privatize profits while socializing risk.” … While most want more regulation on Wall Street and banks, I think that it’s impossible for government to write effective regulations. Instead, markets — if allowed to work — provide the most effective regulation: if you fail, you fail. It’s as simple as that. But George W. Bush gave a bailout, and Barack Obama has followed along. The Dodd-Frank banking regulations, for example, make “too big to fail” an explicit policy.

    Kansas pensions. Do we know the true magnitude of Kansas’ unfunded pension problem? Do we want to know? Perhaps not, writes Paul Soutar at Kansas Watchdog: “Even though taxpayers in the rest of America eventually may find out what public pensions really cost them, Kansas school accounting practices and the way school retirement is funded may let school districts avoid reporting the true cost of district employee pensions. Some estimates show the unfunded actuarial liability of the Kansas Public Employees Retirement System will more than double from its current official $8.3 billion based on optimistic assumptions to more than $20 billion using the more realistic calculations.” The full story is School Districts May Get to Dodge Accounting Rules on Pensions . … State Budget Solutions, in a recent report (Report reveals aggregate state debt exceeds $4 trillion) made similar findings, writing that our unfunded pension liability is $21.8 billion, well over twice as high as the numbers used by most official sources. The difference: “The AEI figures estimate how large public pension liabilities would be if states used private sector market-valuation methods.” In other words, the real world.

    Global economics to be discussed in Wichita. This week’s meeting (November 4th) of the Wichita Pachyderm Club features Chris Spencer, Vice President, Regional Sales Manager Oppenheimer Funds, speaking on “Goliath vs Goliath — The global battle of economic superpowers.” The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club Upcoming speakers: On November 11th: 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?” … 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.

    Progress, or not. Today’s Wichita Eagle carries a letter that laments the jobs lost due to self-serve checkout lanes, online bill payment, online banking, and online reservation services. Concluding, the letter asks readers to “consider how many jobs could be saved if all of us stopped demanding immediate service or answers.” This reminded me of a recent column by Donald J. Boudreaux, commenting on similar remarks by U.S. Rep. Barbara Lee (D-CA). He wrote: “Fred Barnes reports in the Weekly Standard that you refuse to use computerized checkout lanes at supermarkets (“Boneheaded Economics,” Oct. 24). As you — who are described on your website as ‘progressive’ — explain, ‘I refuse to do that. I know that’s a job or two or three that’s gone.’ Overlooking the fact that you overlook the lower prices on groceries made possible by this labor-saving technology, I’ve some questions for you: Do you also avoid using computerized (‘automatic’) elevators, riding only in those few that still use manual elevator operators? Do you steer clear of newer automobiles equipped with technologies that enable them to go for 100,000 miles before needing a tune-up? I’m sure I can find for you, say, a 1972 Chevy Vega that will oblige you to employ countless mechanics. Do you shun tubeless steel-belted radial tires on your car — you know, the kind that go flat far less often than do old-fashioned tires? No telling how many tire-repairing jobs have been destroyed by modern technology-infused tires. Do you and your family refuse flu shots in order to increase your chances of requiring the services of nurses and M.D.s — and, if the economy gets lucky and you and yours get seriously ill, also of hospital orderlies and administrators? Someone as aware as you are of the full ramifications of your consumption choices surely takes account of the ill effects that flu shots have on the jobs of health-care providers. You must, indeed, be distressed as you observe the appalling amount of labor-saving technologies in use throughout our economy. It is, alas, a disturbing trend that has been around for quite some time — since, really, the invention of the spear which destroyed the jobs of some hunters.”

    Business and politics. We often hear that government should be run like a business. But the two institutions are entirely different, explains Burton Folsom: “The differences between business and politics, however, is where our focus needs to be. In business, you hire people with your profits to make and sell your product. With those jobs, your employees earn money, spend money, and thereby create other jobs by their demand for houses, cars, iPhones, and household products. Wealth expands, new entrepreneurs get new ideas for products to make, and, if society is free, it becomes prosperous. In politics, you do hire people to run your campaigns and your administration once you’re in office; you do sometimes dole out jobs to build highways, snoop on business, or run the IRS. But almost all of those jobs require other people’s money (i.e. tax dollars) to continue. They take money out of the economy. For example, the jobs created by the Justice Department to check on the trading practices of corporations, the jobs created by the agriculture department to interact with farmers, or the thousands of jobs created to bring trillions of tax dollars each year to Washington are all jobs that take wealth out of the private sector. Looked at this way, the jobs created in business are the productive jobs, the ones that create wealth and give us the thousands of choices we enjoy in breakfast cereal, cars, clothes, and houses. By contrast, each job created in the political class subtracts a job that could be continued or created in the private sector.” … More at The Difference between Business and Politics.

  • Kansas and Wichita quick takes: Wednesday October 26, 2011

    Tax increment financing. “Largely because it promises something for nothing — an economic stimulus in exchange for tax revenue that otherwise would not materialize — this tool [tax increment financing] is becoming increasingly popular across the country. … ‘TIFs are being pushed out there right now based upon the but for test,’ says Greg LeRoy. ‘What cities are saying is that no development would take place but for the TIF. … The average public official says this is free money, because it wouldn’t happen otherwise. But when you see how it plays out, the whole premise of TIFs begins to crumble.’ Rather than spurring development, LeRoy argues, TIFs ‘move some economic development from one part of a city to another.’ … In Wichita, those who invest in TIF districts and receive other forms of subsidy through relief from taxes are praised as courageous investors who are taking a huge risk by believing in the future of Wichita. Instead, we should be asking why we have to bribe people to invest in Wichita. Much more on tax increment financing at Giving Away the Store to Get a Store: Tax increment financing is no bargain for taxpayers from Reason Magazine.

    Tax incentives questioned. In a commentary in Site Selection Magazine, Daniel Levine lays out the case that tax incentives that states use to lure or keep jobs are harmful, and the practice should end. In Incentives and the Interstate Competition for Jobs he writes: “Despite overwhelming evidence that state and local tax incentives are having little to no positive effect on promoting real economic growth anywhere in the country, states continue to up the ante with richer and richer incentive programs. … there are real questions as to whether the interstate competition for jobs is a wise use of anyone’s tax dollars and, if not, then what can be done to at least slow down this zero sum game?” As a solution, Levine proposes that the Internal Revenue Service classify some types of incentives as taxable income to the recipient, which would reduce the value and the attractiveness of the offer. Levine also correctly classifies tax credits — like the historical preservation tax credits in Kansas — as spending programs in disguise: “Similarly, when a ‘tax credit’ can be sold or transferred if unutilized it ceases to have a meaningful connection to state tax liability. Instead, in such circumstances the award of tax credit is merely a delivery mechanism for state subsidy.” In the end, the problem — when recognized as such — always lies with the other guy: “Most state policy makers welcome an opportunity to offer large cash incentives to out-of-state companies considering a move to their state but fume with indignation when a neighboring state uses the same techniques against them.”

    The Moral Case Against Spreading the Wealth. From The Moral Case Against Spreading the Wealth by Leslie Carbone: “After two years, the results of President Obama’s wealth-spreading policies have confirmed centuries of economics, political philosophy, and common sense: Forced wealth redistribution doesn’t make things good for everybody; it makes things worse, both fiscally and morally.” Carbone explains the two reasons: Government-mandated wealth distribution does create prosperity, and it’s not a legitimate function of government. On the type of behavior we’d like to see in people, she writes: “Wealth redistribution discourages the virtuous behavior that creates wealth: hard work, saving, investment, personal responsibility.” After explaining other problems that progressive taxation — wealth redistribution — causes, she sounds a note of optimism; “Through Tea Parties and popular protests, millions of Peters and Pauls, and Joe the Plumbers are rejecting what F.A. Hayek so aptly called the fatal conceit of paternalistic government. Decades of federal expansion have demonstrated what history, economics, philosophy, and common sense have told us all along: People, working through the market, are the engines of prosperity, both moral and financial — but only if we get government out of their way.” Leslie Carbone is the author of Slaying Leviathan: The Moral Case for Tax Reform. That book expands on the ideas presented in this article.

    Political pretense vs. market performance. What is the difference between markets and politics or government? “There is a large gap between the performance of markets and the public’s approval of markets. Despite the clear superiority of free markets over other economic arrangements at protecting liberty, promoting social cooperation and creating general prosperity, they have always been subject to pervasive doubts and, often, outright hostility. Of course, many people are also skeptical about government. Yet when problems arise that can even remotely be blamed on markets, the strong tendency is to ‘correct’ the ‘market failures’ by substituting more government control for market incentives.” The article is The Political Economy of Morality: Political Pretense vs. Market Performance by Dwight R. Lee. Lee explains the difference between “magnanimous morality” (helping people) and “mundane morality” (obeying the generally accepted rules or norms of conduct). Markets operate under mundane morality, which is not as emotionally appealing as as magnanimous morality. But it’s important, as it is markets — not government — that have provided economic progress. There’s much more to appreciate in this article, which ends this way: “The rhetoric dominating the public statements of politicians and their special-interest supplicants is successful at convincing people that magnanimous morality requires substituting political action for market incentives, even though the former generates outcomes that are less efficient and moral than does the latter. The reality is that political behavior is as motivated by self-interest as market behavior is. … As long as there are people who cannot resist the appeal of morality on the cheap, the political process will continue to serve up cheap morality. And the result will continue to be neither moral nor cheap.”

    Increasing taxes not seen as solution. “Leaving aside the moral objection to tax increases, raising taxes won’t in fact solve the problem. For one thing, our public servants always seem to find something new on which to spend the additional money, and it isn’t deficit reduction. But more to the point, tax policy can go only so far, given the natural brick wall it has run into for the past fifty years. Economist Jeffrey Rogers Hummel points out that federal tax revenue ‘has bumped up against 20 percent of GDP for well over half a century. That is quite an astonishing statistic when you think about all the changes in the tax code over the intervening years. Tax rates go up, tax rates go down, and the total bite out of the economy remains relatively constant. This suggests that 20 percent is some kind of structural-political limit for federal taxes in the United States.’” From Rollback: Repealing Big Government Before the Coming Fiscal Collapse by Thomas E. Woods, Jr. Hummel’s article may be read at Why Default on U.S. Treasuries is Likely. A similar concept is Hauser’s Law.

  • 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.

    Thomas Sowell explains the problem in a passage from the first chapter of Applied economics: thinking beyond stage one:

    When we are talking about applied economic policies, we are no longer talking about pure economic principles, but about the interactions of politics and economics. The principles of economics remain the same, but the likelihood of those principles being applied unchanged is considerably reduced, because politics has its own principles and imperatives. It is not just that politicians’ top priority is getting elected and re-elected, or that their time horizon seldom extends beyond the next election. The general public as well behaves differently when making political decisions rather than economic decisions. Virtually no one puts as much time and close attention into deciding whether to vote for one candidate rather than another as is usually put into deciding whether to buy one house rather than another — or perhaps even one car rather than another.

    The voter’s political decisions involve having a minute influence on policies which affect many other people, while economic decision-making is about having a major effect on one’s own personal well-being. It should not be surprising that the quantity and quality of thinking going into these very different kinds of decisions differ correspondingly. One of the ways in which these decisions differ is in not thinking through political decisions beyond the immediate consequences. When most voters do not think beyond stage one, many elected officials have no incentive to weigh what the consequences will be in later stages — and considerable incentives to avoid getting beyond what their constituents think and understand, for fear that rival politicians can drive a wedge between them and their constituents by catering to public misconceptions.

    The economic decisions made by governing bodies like the Wichita City Council have a large impact on the lives of Wichitans. But as Sowell explains, these decisions are made by politicians for political reasons.

    Sowell goes on to explain the danger of stopping the thinking process at stage one:

    When I was an undergraduate studying economics under Professor Arthur Smithies of Harvard, he asked me in class one day what policy I favored on a particular issue of the times. Since I had strong feelings on that issue, I proceeded to answer him with enthusiasm, explaining what beneficial consequences I expected from the policy I advocated.

    “And then what will happen?” he asked.

    The question caught me off guard. However, as I thought about it, it became clear that the situation I described would lead to other economic consequences, which I then began to consider and to spell out.

    “And what will happen after that?” Professor Smithies asked.

    As I analyzed how the further economic reactions to the policy would unfold, I began to realize that these reactions would lead to consequences much less desirable than those at the first stage, and I began to waver somewhat.

    “And then what will happen?” Smithies persisted.

    By now I was beginning to see that the economic reverberations of the policy I advocated were likely to be pretty disastrous — and, in fact, much worse than the initial situation that it was designed to improve.

    Simple as this little exercise may sound, it goes further than most economic discussions about policies on a wide range of issues. Most thinking stops at stage one.

    We see stage one thinking all the time when looking at government. In Wichita, for example, a favorite question of city council members seeking to justify their support for government intervention such as a tax increment financing (TIF) district or some other form of subsidy is “How much more tax does the building pay now?” Or perhaps “How many jobs will (or did) the project create?”

    These questions, and the answers to them, are examples of stage one thinking. The answers are easily obtained and cited as evidence of the success of the government program.

    But driving by a store or hotel in a TIF district and noticing a building or people working at jobs does not tell the entire story. Using the existence of a building, or the payment of taxes, or jobs created, is stage one thinking, and no more than that.

    Fortunately, there are people who have thought beyond stage one, and some concerning local economic development and TIF districts. And what they’ve found should spur politicians and bureaucrats to find ways to move beyond stage one in their thinking.

    An example are economists Richard F. Dye and David F. Merriman, who 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. 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.

    In a different paper (The Effects of Tax Increment Financing on Economic Development), the same economists wrote “We find clear and consistent evidence that municipalities that adopt TIF grow more slowly after adoption than those that do not. … These findings suggest that TIF trades off higher growth in the TIF district for lower growth elsewhere. This hypothesis is bolstered by other empirical findings.”

    Here we have an example of thinking beyond stage one. The results are opposite of what one-stage thinking produces.

    Some city council members are concerned about creating jobs, and are swayed by the promises of developers that their establishments will employ a certain number of workers. Again, this thinking stops at stage one. But others have looked farther, as has Paul F. Byrne of Washburn University. The title of his recent report is Does Tax Increment Financing Deliver on Its Promise of Jobs? The Impact of Tax Increment Financing on Municipal Employment Growth, and 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.

    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 thinking beyond stage one, the effect on employment — considering the entire city — is negative.

    It’s hard to think beyond stage one. It requires considering not only the seen, but also the unseen, as Frederic Bastiat taught us in his famous parable of the broken window. But over and over we see how politicians at all levels of government stop thinking at stage one. This is one of the many reasons why we need to return as much decision-making as possible to the private sector, and drastically limit the powers of politicians and governments.

  • Ken-Mar TIF district, the bailouts

    Tomorrow the Wichita City Council handles two items regarding the Ken-Mar shopping center being redeveloped in northeast Wichita. These items illustrate how inappropriate it is for the city to serve as either entrepreneur or partner with entrepreneurs, and is another lesson in how Wichita needs pay-to-play laws.

    In August 2008 the city formed a tax increment financing (TIF) district to benefit the center. This allows $2.5 million of the center’s future property taxes to be earmarked for the district’s exclusive benefit. In January 2009 the city approved a development plan that specified how the public money would be spent, and how the development would proceed.

    The developer of the project is Reverend Kevass Harding, a former Wichita school board member who has announced future political ambitions.

    The first and most serious issue regarding this TIF district is that changes to the development plan mean that the district will not be able to meet its debt obligations. In the sobering words of the agenda report: “The TIF financial analysis indicates that the incremental tax revenue will not cover the debt service on City TIF bonds.”

    City staff is proposing to shift the debt to the city’s debt service fund, using money there to pay off the $2.5 million in temporary TIF financing bonds. Then, Ken-Mar will repay the debt service fund through the district’s incremental tax revenue over a period of 17 years, along with three percent interest.

    The original development plan from 2009 includes a table that specifies an interest rate of 4.91 percent for the TIF bonds. Now the city is replacing that with its own debt, and charging Harding and Ken-Mar just three percent interest. My calculations indicate this reduced interest rate will save Harding about $30,000 per year, or about $516,000 over the course of the loan.

    This action can only be characterized as a bailout, with all the negative connotations that accompany that word. It’s not the first time Wichita has had to create a bailout for a failing TIF district.

    The second item the council will deal with is a change to the development plan. The development agreement from 2009 contemplates that changes will need to be made, “with the approval of City Representative from time to time.”

    While the agreement doesn’t explicitly state that changes to the plan must be approved before proceeding, this is the only reasonable way to interpret the agreement.

    But in this case, Harding made changes before getting approval from the city. And he didn’t just use a different paint color or different flowers in the landscaping. Instead, he made a big change. He demolished a large portion of the structure that was to be renovated, according to the plan he agreed to.

    The world changes. No doubt about that. Changes to plans are necessary to accommodate changes in the world. But this is more evidence of how government is not prepared to serve as entrepreneur, or as partner with entrepreneurs.

    There was an agreement in place. Harding changed it, and only several months later is the city going to grant its approval. This places the city in the position of appearing not to care whether its agreements are followed. The council finds itself in the awkward position of approving an agreement to do something that’s already been done.

    (This is not an unusual position for the city, as recently it approved a letter of intent to do something for which it had yet to hold a public hearing.)

    Pay-to-play lesson

    Underlying the story of Ken-Mar and Reverend Harding is a lesson on the need for pay-to-play laws in Wichita and Kansas. As reported in 2009, Harding and his wife made campaign contributions to Wichita City Council Member Lavonta Williams (district 1, northeast Wichita), who is presently serving as vice-mayor. 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 large contributions to Williams, who is the council member representing 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 the contributions and Harding asking the city council to grant him 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.

    An example is a charter provision of the city of Santa Ana, in Orange County, California, which states: “A councilmember shall not participate in, nor use his or her official position to influence, a decision of the City Council if it is reasonably foreseeable that the decision will have a material financial effect, apart from its effect on the public generally or a significant portion thereof, on a recent major campaign contributor.”

    In the absence of such laws, and with Harding and Williams unwilling to explain, we’re left with questions like these:

    If the Ken-Mar TIF district served a genuine public purpose, why did the Hardings make the campaign contributions to Williams?

    Must those who want to form a TIF district make contributions to the council member representing the district?

    If council member Williams is accessible to her constituents, why the contributions?

    Must those who receive money from the city offer a thank-you contribution?

    None of these reflect well on the reputation of Wichita.

  • At Wichita City Council, facts are in dispute

    Some Wichita City Council members, including Mayor Carl Brewer criticize people who speak at council meetings for using inaccurate information. Although most citizens who speak are willing to take questions at the time they present their testimony, most council members will not engage in dialog with them, instead choosing to level their criticism at a time when the speakers are not able to defend themselves.

    So let’s take a look at some of the statements made by city council members at the September 13th meeting, where the council approved by a six to one vote a package of incentives for the Douglas Place project, a downtown hotel.

    James Clendenin

    At the September 13th meeting, James Clendenin (district 3, south and southeast Wichita) said “I heard a lot of misinformation, and I heard a lot of good information.” He seemed to be most interested in the jobs that the hotel will create. Referring to the contention that the hotel will create 100 jobs, he said: “That’s all people ask me about — how many jobs. Just tell me jobs. I want to know jobs — jobs, jobs, jobs — people want to know jobs. I know that when Old Town was started 20 years ago, no jobs where in that part of the city. 20 years later we have jobs. … But I see people employed 20 years later that would never would have been employed unless a developer stepped up.”

    I can understand the concern for jobs and how council members want to be seen doing things that they believe will create jobs. But it’s difficult to see how this hotel will create new jobs, except perhaps on the several times each year that the hotel might be used to support the larger conventions the city hopes to draw.

    Instead, it’s much more likely that the hotel will simply draw most of its customers from the pool of people already planning to come to Wichita. And this hotel will have a big advantage in competing for these existing customers, especially those looking for a high-end hotel. As reported in the Wichita Eagle, the hotel developers said that without the city subsidy, the rooms would cost $250 per night. Their plans, however, are to offer the rooms for $150.

    So with the help of taxpayers, the developers get to offer a $250 product for $150. That’s quite a competitive boost. My research shows that currently there are four downtown Wichita hotels offering rooms at that rate or higher. I wonder how they will feel when undercut by a taxpayer-subsidized competitor? (First, the owners of these hotels will have to realize that they, too, have received substantial subsidy.)

    As to the impact of subsidies like Tax increment financing, or TIF: The important paper Tax Increment Financing: A Tool for Local Economic Development by Richard F. Dye and David F. Merriman comes to these conclusions:

    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)

    Later, the paper concluded: “TIF subsidies might be helping growth within the TIF district, but they are hurting growth outside the district by a larger amount.”

    This paper addresses economic growth, which is not, strictly speaking, equivalent to jobs, although the two are closely related. A paper that does address the impact of TIF on jobs is from Paul F. Byrne of Washburn University. The title of the report is Does Tax Increment Financing Deliver on Its Promise of Jobs? The Impact of Tax Increment Financing on Municipal Employment Growth, and in the 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)

    I would ask that council member Clendenin and the others read research like this before they come to their conclusions.

    Furthermore, we might ask the hotel developers if they are going to run their hotel as a jobs program, or are they going to seek to minimize the use of labor, employing only as much as is required to run the hotel the way they want? In a competitive marketplace, this is what businesses are forced to do, if they want to stay in business.

    Finally, the contention of Clendenin that there are people who are employed only because of Old Town is laughable.

    Pete Meitzner

    Newly-elected council member Pete Meitzner (district 2, east Wichita) seemed impressed and secure in that the hotel developers have agreed to personally guarantee any shortfall in property tax revenue below what is necessary to cover the payments on the bonds the city is issuing under tax increment financing.

    This guarantee is quite unlikely to ever be tapped, and is an example of offering something at little risk and no cost to the developers. Then, gullible city council members lap it up.

    Here’s how the arithmetic works: According to city documents, the projected debt service required to pay the TIF bonds in 2016 is $340,000. For the same year, the projected revenue from the hotel’s property tax that is applicable to the TIF bond repayments is $262,000. (Remember these property taxes are taxes the hotel must pay, no matter what they’re used for.)

    For the hotel owners to become in a position where they would have to pay to cover a shortfall, the value of the hotel would have to drop by 23 percent. That’s not likely to happen, and if something like that did, it would be a signal of severe problems across the entire city, or country, for that matter.

    Jeff Longwell

    Speaking from the bench when he could not be rebutted by citizens, Council Member Jeff Longwell criticized citizens who testified, saying they are using “wrong numbers.” Longwell’s criticisms deserve scrutiny.

    During the council meeting, there were several ratios presented as a way to evaluate the hotel, and Longwell confused them. He said: “You can argue if it’s 6 to 1, or 5 to 1, but I’ll tell you, even if it’s as low as 2.6 to 1 return, folks, that’s a great investment.”

    The 6 to 1 ratio is the ratio of private investment to public investment, as calculated by the city.

    The 2.6 to 1 return is a payback to the city, based on expected increased tax revenues compared to the city’s cost. This is calculated by the Wichita State University Center for Economic Development and Business Research.

    The 6 to 1 ratio is based on balance sheet concepts. It refers to assets.

    The 2.6 to 1 ratio is a calculation from an income statement. It refers to income relative to expenses.

    The only conclusion to draw is that Longwell is sorely confused. Perhaps worse, Allen Bell, Wichita’s Director of Urban Development had just explained these numbers in response to a question by Meitzner. But Bell didn’t correct Longwell. Neither did the city manager, who undoubtedly knows the difference between the two sets of numbers.

    Besides this, the 6 to 1 ratio is calculated using an extremely narrow view of the city’s investment in the project, and an overly expansive assessment of the developer’s investment. It ignores many subsidies being provided to the developers, some at city expense, and also at the expense of state and federal taxpayers.

    Further, for that ratio to make any sense, you have to assume city ownership of the hotel. “We” — meaning the city of Wichita — don’t own the “6” part of the ratio. The hotel developers do. It’s not a public asset.

    Janet Miller

    Like Clendenin and Longwell, Council Member Janet Miller (district 6, north central Wichita) criticized the inaccurate information presented by citizens: “A lot of the information that was shared this morning was not accurate. … I’m not going to be able to address everything.”

    Here’s an example of the reasoning of Miller. Referring to the issue of tax money being diverted to the Douglas Place project, she said: “Other taxes, such as the historic and federal tax credits are not property taxes, they’re not sales taxes, those are credits toward income taxes. So unless you’re paying the income taxes those are not your taxes.”

    Here Miller is ignoring the effect of tax credits on the budgets of states and the federal government. Tax credits reduce the revenue of the issuing body by the amount of the credit. So when the state of Kansas issues $3,800,000 in tax credits to the Douglas Place project, it reduces revenue to the state by that same amount.

    Now if the state were to reduce its spending by that same amount, specifically based on the issuance of this tax credit, we’d be left with no impact on the state’s budget.

    But the state isn’t going to to that — it never has. So taxpayers across the state must make up the difference — directly contradicting Miller’s contention that “those are not your taxes.”

    The same reasoning applies to the federal tax credits of $3,500,000 that this project is seeking.

    Miller also contended that the guest taxes paid by this hotel are “not your taxes.” According to the city’s budget, the purpose of the Tourism and Convention Fund, which is funded by the guest tax, is to “support tourism and convention, infrastructure, and promotion of the City.” Its outlined priorities are to be “debt service for tourism and convention facilities, operational deficit subsidies, and care and maintenance of Century II.”

    So, yes, I would say that the guest tax is “our” tax. There are those who are asking for millions to renovate Century II. Since this hotel’s guest tax — most of it — will not be going to that goal, someone else has to pay.

    Further, to the extent that the new hotel draws guests from other hotels, that guest tax is being diverted away from the Tourism and Convention Fund. (Of course, we have to remember that many other hotels have a similar deal to benefit from their guest taxes. Last year the city gifted the Fairfield Inn & Suites Wichita Downtown, part of the heavily subsidized WaterWalk project, $2,500,000, to be paid back by the hotel’s guest tax receipts.)

    Miller also took issue with those who contend that the original plan called for Key Construction to build the parking garage: “While there was a general contractor, and that part of the project would not have been bid out, the rest of it would have been bid thorough the city’s process. So the vast majority, except for about 6 percent of the project, would have been bid out through the city’s bid project.”

    Miller is specifically contradicted by the letter of intent that she voted for at the August 9th meeting of the council. The letter states: “Douglas Place LLC, will acquire and rehabilitate the Douglas Building and will construct the parking garage and urban park.”

    Does she think that the principals of Key Construction — who are part of the development team of the Douglas Place project, and who have made heavy campaign contributions to Miller and others — would let someone else build the garage?

    Furthermore, at the same meeting City Attorney Gary Rebenstorf said it was the developer’s preference that the garage be built without competitive bidding — again contradicting Miller’s contention that the garage would be bid on.

    And if we take Miller’s statement at face value — “the vast majority, except for about 6 percent of the project, would have been bid out” — does this imply that 94 percent of the project will be bid out? This would imply that the hotel itself would be placed for public bid, and I don’t think there’s been any consideration of that.

    Miller also addressed the issue of special assessment financing. That is part of the Douglas Place project, with $1,500,000 to be used for facade improvement and lead paint and asbestos removal. Miller said: “Just as a reminder: The facade improvement and asbestos removal expenses, all of that — those dollars are being repaid through special assessments. For those of you who are critical of special assessment financing, I would encourage you to look at your annual tax bill and see if it says special assessment on there. If it does, we have loaned your developer money to put in public improvements around your property. There’s a very large share of Wichita’s outstanding debt that is developers’ specials. So if we want to be critical of developers specials, that’s gonna be a really big conversation that will include all the housing developers in this city and how those dollars are lent and repaid over years.”

    There’s a big distinction between the way special assessment financing is used for new development as compared to this project. On new developments, special assessment financing is used to pay for public improvements like streets, sewers, water mains, and storm water drainage. After they are built, these assets are then owned by the city. They become city assets, but were paid for by the developer.

    That’s not going to happen with this hotel. Its owners will not deed over the building’s facade to the city. It will remain a private asset.

    Furthermore, in new development, the assets that special assessment financing is used to pay for support development that generally ends up on the tax roles, providing the tax revenue stream that city council members promote as good. But not so with this hotel. Being in a TIF district, its property taxes — except for 30 percent — do not benefit the city, as they are used to benefit the developers.

  • In Wichita, private tax policy on the rise

    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. An example is police and fire protection. Even people who are opposed to taxation rationalize paying taxes that way. But in the city of Wichita, private tax policy is overtaking our city.

    The Douglas Place project, a downtown hotel to be considered tomorrow by the Wichita City Council, 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. And in at least one case, private parties are being allowed to determine the city’s tax policy at their discretion.

    The taxes collected by this private tax policy is still collected under the pretense of government authority. But instead of going to pay for government — things like police, fire, and schools — the tax is collected for the exclusive benefit of one party, not the public.

    In Wichita and across Kansas, one example of taxation being used for the benefit of one person or business is the Community Improvement District (CID). Under this program, the business collects an extra tax that looks just like sales tax. Except — the proceeds of the extra CID tax are funneled back for the exclusive benefit of the people who own property in the district. The Douglas Place project is asking to collect an extra tax of two cents per dollar for its own benefit.

    CIDs are a threat to unsuspecting customers who likely won’t be aware of the extra tax they’ll be paying until after they complete their purchases, if at all. Wichita decided against disclosing to citizens the amount of tax they’ll be paying with signage on stores. Instead, the city settled for a sign that says nothing except to check a city website for information about CIDs.

    CIDs also present the City of Wichita as a high-tax place to live and do business. It’s a risk to our city’s reputation. Especially when you consider the Jeff Longwell strategy, which is that since these taxes are often used by hotels and other businesses that cater to visitors, Wichitans don’t pay them as much as do visitors.

    Another example of private tax policy is when a tax such as Wichita’s hotel guest tax is redirected from its original goal. According to a description of the Tourism and Convention Fund in the city’s budget, 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 Douglas Place project, the city is asking for a charter ordinance to be passed that would route 75 percent of this tax directly back to the Douglas Place owners. That’s not the proclaimed purpose of the guest tax, unless we consider private hotels to be part of the city’s tourism infrastructure. (I think some people think that way.)

    At least in the case of Douglas Place the city is being more upfront with its citizens. The charter ordinance requires a two-thirds vote of the city council for passage, a higher bar than in the past. And, the city isn’t borrowing money to give to the hotel. That’s what the city has done in the past, as in the case of the Fairfield Inn & Suites Wichita Downtown that is part of the WaterWalk project. One of the many layers of subsidy going in to that hotel was that the city simply gifted the hotel $2,500,000, to be paid back by the hotel’s guest tax receipts.

    Some will say that’s not really a gift, as the hotel will pay back the loan. But the loan is being repaid with taxes the hotel — more properly, its guests — must pay anyway. This is public taxation for private enrichment.

    If you need further evidence that the city is turning over taxation to private hands, consider this: The charter ordinance is subject to a protest petition, and if sufficient signatures are gathered, the city council would have to either overturn the ordinance or hold an election to let the people decide.

    Now, if such a tax is truly in the public interest, the city would 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. At least the citizens of Wichita won’t have to pay for it, if such an election happens.

    Another example of private tax policy that the Douglas Place project is using is Tax increment financing, or a TIF district. This mechanism routes property taxes back to the development. In the case of Douglas Place, $3,325,000 of its own property taxes are being used to pay for its parking garage. That’s a deal most citizens can’t get.

    Normally property taxes are used for the general operation of government. Not so in TIF districts, another example of public taxation for private enrichment. Again, these are taxes that the property must pay anyway.

    Private taxation funds political entrepreneurship

    In Wichita, especially in downtown, we see the rise of private tax policy, that is, the taxation power of government being used for private purposes. 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 of Douglas Place: 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.

    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.

  • Kansas and Wichita quick takes: Monday September 12, 2011

    TIF not good for everyone, it seems. One of the criticisms of tax increment financing (TIF) is that it diverts tax revenue away from the general operations of government and into the hands of private concerns. Supporters of TIF deny this, using a variety of arguments. But as always, actions speak louder than words. In this case, examination of city documents finds that the Wichita Downtown Development Corporation, which is funded by a special property tax district, is exempt from the TIF district. (Actually, it’s the SSMID that’s exempt, but the only reason the SSMID exists, and the only thing it spends its tax revenue on, is the WDDC.) In other words, the city is willing to use TIF to divert money from police, fire, and schools, but not from the Wichita Downtown Development Corporation.

    Wichita City Council. The Wichita City Council in its Tuesday meeting considers these items: The largest item is the Douglas Place project, a downtown Wichita hotel being considered for many layers of taxpayer subsidy. … The council will also have a public hearing on water rates, described as “Citizen input will assist in determining whether the enhanced revenue should come from across-the-board increases or if the current imbalance should be gradually phased out, beginning with cost-based rate structure changes in 2012.” No rate changes will be contemplated at this meeting. … The council will also consider changes to regulations involving slab-on-grade construction standards for one and two family dwellings. There have been high-profile news stories about the failure of some such homes’ foundations. … The council will consider approval of a grant for a Regional Air Quality Improvement Program. … As always, the agenda packet — all 691 pages for this week’s meeting — is available at Wichita city council agendas.

    Williams lecture not noticed. Last Thursday about 650 people attended a lecture by an economist in Wichita, and traditional news media didn’t notice. Fortunately there are other sources: Williams: Constitutional Principles the Source of Fairness and Justice (complete video included in this story), Walter Williams: Government must stick to its limited and legitimate role, and Walter Williams on doing good.

    Energy and politics to be topic. This week’s meeting (September 19th) of the Wichita Pachyderm Club features Merrill Eisenhower Atwater, President of Fox Fuels, speaking on “Infrastructure, energy, and politics.” Atwater is great grandson of President Dwight D. Eisenhower. The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club … Upcoming speakers: On September 23, Dave Trabert, President of Kansas Policy Institute, speaking on the topic “Why Not Kansas: Getting every student an effective education.” … On September 30, U.S. Representative Mike Pompeo of Wichita on “An update from Washington.” … On October 7, John Locke — reincarnated through the miracle of modern technology — speaking on “Life, Liberty, and Property.” … On October 14, Sedgwick County Commission Members Richard Ranzau and James Skelton, speaking on “What its like to be a new member of the Sedgwick County Board of County commissioners?” … On October 21, N. Trip Shawver, Attorney/Mediator, on “The magic of mediation, its uses and benefits.”

    Pompeo on ideological internships. Have you heard of a government program called Environmental Justice (EJ) eco-Ambassadors? U.S. Representative Mike Pompeo of Wichita has. According to a press release from his office, the application process is tilted along ideological lines: “The requirements outlined the EPA’s stated desire to recruit and hire, at taxpayer expense, only those college students who are ideologically in line with the Obama Administration’s radical environmental policies.” He has introduced legislation to prevent “any paid internships or other student recruitment programs that discriminate based on ideology or policy viewpoint.” Said Pompeo: “At a time when millions of Americans cannot find work and are saddled with record deficits and crippling environmental regulations, spending $6,000 of taxpayer money per student to act as tools of this Administration’s radical policies is clearly not acceptable — nor is it ever the role of the federal government to indoctrinate.” … The legislation Pompeo introduced is H.R. 2876: To prevent discrimination on the basis of political beliefs by the Environmental Protection Agency in its student programs.

    Spending to create jobs. Burton Folsom: “How are jobs created? In the last hundred years, the U.S. has seen tens of millions of jobs created by entrepreneurs like Henry Ford, who put a car in every garage, Willis Carrier, who gave us air conditioning, and Chester Carlson, who invented and marketed the Xerox machine. These men created products people wanted to use, and therefore millions of jobs came into existence to hire people to make those products as cheaply as possible. How do we encourage people like Henry Ford, Willis Carrier, and Chester Carlson to take the risks that might create those jobs? We do that by limiting government, protecting property rights, and allowing entrepreneurs to keep most of what they earn. In other words, do not overregulate, do not overtax, and do not allow the federal government to create instability by intrusive meddling. … Thus, we have President Obama, a disciple of FDR and John Maynard Keynes, frustrated because his stimulus package failed, his bailout of General Motors failed, and his cash for clunkers failed. His Obamacare overhaul is also in the process of failing. Alas, the U.S. has a stagnant economy and is mired in more than 9 percent unemployment. What to do? Why, more stimulus spending, of course! Only it will now be labeled ‘investment’ — along with more targeted spending for green jobs and more small targeted tax cuts.” More at The Sad Story of Presidents Who Think They Can Spend to Create Jobs.

    Kansas education summit. On Thursday September 15th, Kansas Policy Institute is holding a summit on education in Kansas. In its announcement, KPI writes: “Kansas can expand educational opportunities for students in need — even in our current economic climate. Join a “Who’s Who” of the nation’s education reformers in a discussion on how Kansas can give every student an effective education. … Invited participants include Gov. Sam Brownback, the Kansas Department of Education, Kansas National Education Association, Kansas Association of School Boards, state legislators, and other public education stakeholders.” … KPI notes that we increased total aid to Kansas public schools by $1.2 billion between 2005 and 2011, that 25 percent of Kansas students are unable to read at grade level. The event will be held at the Holiday Inn & Suites, Overland Park West. The cost is $35, which includes breakfast and lunch for the all-day event. … RSVPs are requested. For more information, click on Kansas Policy Institute Education Summit.

    Why should liberals like libertarian ideas? Last week we saw Dr. Stephen Davies explain why conservatives should consider libertarian ideas. Today, he explains why liberals, or progressives, should also consider libertarian ideas. The video is from LearnLiberty.org, a project of Institute for Humane Studies.

  • Kansas and Wichita quick takes: Friday September 9, 2011

    A citizen call to action. This month’s meeting of Americans for Prosperity, Kansas focuses on the Douglas Place project in downtown Wichita. Event organizers write: “On September 13, 2011 the Wichita City Council will be holding a public hearing to consider approval of millions of dollars of public incentives being offered to the downtown Douglas Place project developers. Monday’s meeting will have these topics: Learn about the incentive programs being offered. … Learn and consider getting involved in this issue as a citizen. … Consider testifying before the City Council. … Attend the council meeting to show your support for other speakers. … Please attend and participate in a group discussion to share ideas on how you can make a positive difference in local city government. … Presenters include Bob Weeks, Susan Estes, and John Todd.” This free event is Monday September 12th 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. The event’s sponsor is Americans for Prosperity, Kansas. 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.

    Troubles with Kansas City tax increment financing. I think the problems in Kansas City are larger than what we have in Wichita. But then, Wichita hasn’t relied on TIF as much as Kansas City has. But plans for the revitalization of downtown Wichita call for its expanded use. We need to be cautious, as Jon N. Hall explains in Creative Destruction in Kansas City?

    Effects of stimulus on hiring. A new paper from the Mercatus Center sheds light on the effects of American Recovery and Reinvestment Act of 2009, also known as ARRA, also known as the stimulus bill, and one of the first legislative initiatives by President Obama. “In an effort to boost hiring and job creation and to invest in a variety of domestic infrastructure programs, Congress passed and the president signed the American Recovery and Reinvestment Act (ARRA), commonly known as the economic stimulus package, in 2009. ARRA represented one of the largest peacetime fiscal stimulus packages in American history. But little is known about the ways in which organizations and workers responded to the incentives created by the bill.” Among the report’s findings: “Hiring isn’t the same as net job creation. In our survey, just 42.1 percent of the workers hired at ARRA-receiving organizations after January 31, 2009, were unemployed at the time they were hired (Appendix C). More were hired directly from other organizations (47.3 percent of post-ARRA workers), while a handful came from school (6.5%) or from outside the labor force (4.1%)(Figure 2). Thus, there was an almost even split between “job creating” and “job switching.” This suggests just how hard it is for Keynesian job creation to work in a modern, expertise-based economy: even in a weak economy, organizations hired the employed about as often as the unemployed.” See Did Stimulus Dollars Hire the Unemployed? for the full report.

    Kansas education summit. On Thursday September 15th, Kansas Policy Institute is holding a summit on education in Kansas. In its announcement, KPI writes: “Kansas can expand educational opportunities for students in need — even in our current economic climate. Join a “Who’s Who” of the nation’s education reformers in a discussion on how Kansas can give every student an effective education. … Invited participants include Gov. Sam Brownback, the Kansas Department of Education, Kansas National Education Association, Kansas Association of School Boards, state legislators, and other public education stakeholders.” … KPI notes that we increased total aid to Kansas public schools by $1.2 billion between 2005 and 2011, that 25 percent of Kansas students are unable to read at grade level. The event will be held at the Holiday Inn & Suites, Overland Park West. The cost is $35, which includes breakfast and lunch for the all-day event. … RSVPs are requested. For more information, click on Kansas Policy Institute Education Summit.

    Why should conservatives like libertarian ideas? From LearnLiberty.org, a project of Institute for Humane Studies: “Are you a conservative? If so, Dr. Stephen Davies provides a few compelling reasons to consider libertarianism. For instance, conservatives tend to prefer institutions that have been tried and trusted, and want to maintain and uphold a traditionally established way of life. They also typically believe in an established or correct moral code. However, it does not logically follow that government should enforce all of these things. In fact, government enforcement of morals and traditions is often detrimental to both.”

  • In Wichita, how tax increment financing can channel tax money

    The flow of tax dollars Wichita city leaders have planned for Douglas Place, a proposed hotel in Wichita, creates a mechanism where taxpayer funds are routed to a politically-connected construction firm. And unlike the real world, where developers have an incentive to build economically, the city has created incentives for Douglas Place developers to spend lavishly in a parking garage, at no cost to themselves.

    The original plan for Douglas Place as specified in a letter of intent that the city council voted to support, calls for a parking garage (and urban park) to cost $6,800,000. Details provided at the August 9th meeting of the city council gave the cost for the garage alone as $6,000,000. The garage would be paid for by capital improvement program (CIP) funds and tax increment financing (TIF). The CIP is Wichita’s long-term plan for building public infrastructure. TIF is different, as we’ll see in a moment.

    During the meeting, it was also revealed that plans specified that Key Construction of Wichita would be the contractor for the garage. Key would not have to bid for the contract, even though the garage is being paid for with taxpayer funds.

    At the meeting, Council Member Michael O’Donnell (district 4, south and southwest Wichita) expressed concern about the no-bid contract. As a result, it is likely that the contract will be put out for competitive bid. Sources say it’s possible that the garage could be built for as much as $2,000,000 less than the original plan.

    However much is saved, it’s money that otherwise would have gone into the pockets of Key Construction. Because of the way the garage is being paid for, that money would not have been a cost to Douglas Place’s developers. Instead, it would have been a giant ripoff of Wichita taxpayers.

    Even worse, the Douglas Place developers have no incentive to economize on the cost of the garage. In fact, they have incentives to make it cost even more.

    Recall that the garage is being paid for through two means. One is CIP, which is a cost to Wichita taxpayers. It doesn’t cost the Douglas Place developers anything except for their small quotal share of Wichita’s overall tax burden. In exchange for that, they get part of a parking garage paid for.

    But the tax increment financing, or TIF, is different. Under TIF, the increased property taxes that Douglas Place will pay as the project is completed won’t go to fund the general operations of government. Instead, these taxes will go to pay back bonds that the city will issue to pay for part of the garage — a garage that benefits Douglas Place, and one that would not be built but for the Douglas Place plans.

    That’s a pretty neat deal for the Douglas Place developers. Under such a scheme, the more the parking garage costs, more Douglas Place property taxes are funneled back to it — taxes, remember, it has to pay anyway. (Since Douglas Place won’t own the garage, it doesn’t have to pay taxes on the value of the garage, so it’s not concerned about the taxable value of the garage increasing its tax bill.)

    Why would Douglas Place be interested in an expensive parking garage? Here are two reasons:

    First, the more the garage costs to build, the more the hotel benefits from a fancier and nicer garage for its guests to park in. Remember, since the garage is paid for by property taxes on the hotel — taxes Douglas Place must pay in any case — there’s an incentive for the hotel to see these taxes used for its own benefit rather than used to pay for firemen, police officers, and schools.

    Second, consider Key Construction, the planned builder of the garage under a no-bid contract. The more expensive the garage, the higher the profit for Key.

    Now add in the fact that one of the partners in the Douglas Place project is a business entity known as Summit Holdings LLC, which is composed of David Wells, Kenneth Wells, Richard McCafferty, John Walker Jr., and Larry Gourley. All of these people are either owners of Key Construction or its executives. The more the garage costs, the higher the profit for these people. Remember, they’re not paying for the garage. City taxpayers are.

    The sum of all this is a mechanism to funnel taxpayer funds, via tax increment financing, to Key Construction. The more the garage costs, the better for Douglas Place and Key Construction — and the worse for Wichita taxpayers.

    It’s no wonder Key Construction principals 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.

    This scheme, of which few people must be aware, as it has not been reported anywhere but here, is a reason why Wichita and Kansas need pay-to-play laws. These laws impose restrictions on the activities of elected officials and the awarding of contracts.

    An example is a charter provision of the city of Santa Ana, in Orange County, California, which states: “A councilmember shall not participate in, nor use his or her official position to influence, a decision of the City Council if it is reasonably foreseeable that the decision will have a material financial effect, apart from its effect on the public generally or a significant portion thereof, on a recent major campaign contributor.”

    This project also shows why complicated financing schemes like tax increment financing need to be eliminated. Government intervention schemes like this turn the usual economic incentives upside down, and at taxpayer expense.