Voice For Liberty

Tag: Tax increment financing

  • Real Development’s troubles should be red flag for Wichita

    Recent new stories that a prominent Wichita office building developed and owned by Real Development suffers from severe problems should cause the City of Wichita to halt any new partnerships being considered with the company, and to seek to remove itself from agreements that exist.

    The problems with the Wichita Executive Center — ranging from no air conditioning to malfunctioning elevators — have been extensively reported on by the Wichita Eagle. (See Developer pledges to fix all of downtown building’s problems.)

    The city’s involvement with the building is in the form of facade improvement loans made to the building’s owner. The city is confident that the loans will be repaid, as the principle and interest are assessed against the building as special taxes.

    But in what surely is a case of “putting lipstick on a pig,” Real Development spent extensively on the facade and a lobby renovation, but hasn’t been able to supply tenants with essential building services like air conditioning, elevators, and clean water.

    The Eagle reported that Mayor Carl Brewer was surprised to learn of the problems, but now pledges to oversee the city’s investments more closely.

    This problems with the Wichita Executive Center are not the first the “Minnesota Guys” have faced in Wichita. Some of the office condominiums the firm established have plummeted in value in just a few years.

    In May the Wichita Business Journal reported on this decline: “Prices on two bank-owned floors at the Broadway Plaza building — at the corner of Douglas and Broadway — were reduced last week to just $59,000 apiece. … They are just two of a handful office condo floors that originally were developed by Minnesota-based Real Development Corp. Most of them were sold to California investors, and many of them subsequently landed in foreclosure. Prices since then have plummeted.”

    Some of these floors carried mortgage loans of over $400,000 not long ago.

    Tax values on these properties have fallen, too. According to Sedgwick County records, one floor of the Broadway Plaza building that is owned by a bank was appraised at $388,000 in 2007. Its appraised value dropped to $210,900 in 2008, where it has remained since then. Another floor in the building went from $385,000 to $180,000 at the same time. This drop in real estate values is not reflective of the general trend of office values in downtown Wichita. A survey by two real estate firms shows rents for both class A and class B office space holding steady in downtown over the same time period.

    While the floors in question are not currently owned by Real Development, and that company did not default on bank loans, the projects were developed and marketed by Real Development.

    Another project developed by Real Development suffered problems dealing with ordinary issues. In 2009 a condo building that was developed by this company required special waivers of city policy in order to provide special assessment tax financing for facade repairs. Such repairs are the normal course of business, but this condominium association was not able to deal with the situation, and had to appeal to the city for help.

    The troubled Wichita Executive Center is the tallest building in this 2009 photograph. The two buildings that form the Exchange Place project are in the foreground.

    The problem that the City of Wichita faces is that it has entered into an agreement with the Real Development concerning the Exchange Place project. The amended redevelopment plan calls for the city to contribute $10 million in tax increment financing to Real Development.

    While work has not started on Exchange Place, it could at any time. In effect, the city is in a partnership with Real Development, and the city should be watching this company’s performance carefully, even if it is not required to. Based on that track record, the city should seek to revoke the tax increment financing redevelopment plan for Exchange Place.

  • Wichita City Council bows to special interests

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    A few observations from the meeting follow.

    Public investment

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

    Order of events and media coverage

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

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

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

    Questions not answered

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

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

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

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

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

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

    Campaign contributions

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

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

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

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

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

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

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

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

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

    The mayor’s criticisms

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    The project

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

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

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

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

    Burk and past allegations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  • Job creation at young firms declines

    A new report by the Kauffman Foundation holds unsettling information for the future of job growth in the United States. Kauffman has been at the forefront of research regarding entrepreneurship and job formation.

    Previous Kauffman research has emphasized the importance of young firms in productivity growth. Research by Art Hall found that for the period 2000 to 2005, young firms created nearly all the net job growth in Kansas.

    So young firms — these are new firms, and while usually small, the category is not the same as small businesses in general — are important drivers of productivity and job growth. That’s why the recent conclusion from Kauffman in its report Starting Smaller; Staying Smaller: America’s Slow Leak in Job Creation is troubling: “The United States appears to be suffering from a long-term leak in job creation that pre-dates the recession and has the potential to persist for an unknown time. The heart of the problem is a pullback by newly created businesses, the economy’s most critical source of job creation, which are generating substantially fewer jobs than one would expect based on past experience. … This trend has only worsened since the onset of the most recent recession. The cohort of firms started in 2009, for example, is on track to contribute close to a million jobs less in its first five to ten years than historical averages.”

    The report mentions two assumptions that are commonly made regarding employment that the authors believe are incorrect:

    First, policymakers’ focus on big changes in employment because of events such as a new manufacturing plant or the recruitment of a business to a community ignore the more important fact that our jobs outlook will be driven more by the collective decisions of the millions of young and small businesses whose changing employment patterns are not as easy to see or influence. Second, it is just as easy to be deluded into thinking that the jobs problem will be solved by growth in the number of the self-employed.

    The importance of young firms is vital to formulating Kansas economic development policy. Kansas Governor Sam Brownback has incorporated some of the ideas of economic dynamism in his economic plan released in February. The idea of dynamism, as developed by Dr. Art Hall, is that economic development is best pursued by creating a level playing field where as much business experimentation as possible can take place. The marketplace will sort out the best firms. The idea that government economic development agencies can select which firms should receive special treatment is sure to fail. It is failing.

    While the governor’s plan promotes the idea of economic dynamism, some of his actual policies, such as retaining a multi-million dollar slush fund for economic development, are contrary to the free marketplace of business experimentation and letting markets pick winning firms.

    At the City of Wichita, economic development policy is tracking on an even worse direction. Among city hall bureaucrats and city council members, there is not a single person who appears to understand the importance of free markets and capitalism except for one: council member Michael O’Donnell, who represents district 4 (south and southwest Wichita).

    The policy of Wichita is that of explicit crony capitalism, with city leaders believing they have the wisdom to develop policies that recognize which firms are worthy of taxpayer support. And if they want to grant subsidies to firms that don’t meet policies, they find exceptions or write new policies. Elected officials like Wichita Mayor Carl Brewer and city council member Jeff Longwell lust for more tools in the economic development toolbox.

    At the Sedgwick County Commission, two of the five members — Karl Peterjohn and Richard Ranzau understand the importance of free markets for economic development. But the city has a much larger role in targeted incentives for economic development, as it is the source of tax increment financing districts, industrial revenue bonds, economic development exemptions, community improvement districts, and other harmful forms on economic interventionism.

  • Kansas and Wichita quick takes: Monday July 11, 2011

    TIF in Louisiana. Randal O’Toole recently examined the use of tax increment financing in Louisiana. He finds this: “Property tax TIFs are limited to that portion of property taxes that are not already obligated to some specific purpose — and most property taxes are so obligated, so most if not all Louisiana TIFs rely on sales and hotel taxes instead.” This is different from Kansas, where all the property tax, except for the usually small base, benefits the TIF district exclusively. … He describes sales-tax TIFs, which we in Kansas call community improvement districts or CID. While describing them as the least objectionable form of TIF, he notes problems: Why don’t stores just raise their prices? Stores that charge extra sales tax don’t have warning signage. And: “In the end, TIF is still just a way for elected officials to hand out favors to selected developers and other special interests. There is no reason to think that cities in Louisiana that use TIF grow any faster than ones that do not. Instead, all the TIFs do is shuffle new developments around, favoring certain property owners in the TIF districts over owners outside of the TIF districts. TIF may even reduce growth as developers who don’t get TIF subsidies may decide to build elsewhere where they won’t have to compete against subsidized developments.” … All these warnings have been raised before the Wichita City Council. … California has new legislation designed to kill redevelopment districts there, which are like TID districts in Kansas. … The full article is A Different Kind of TIF.

    Overland Park may see tax hike. Ben Hodge reports that Overland Park, the second largest city in Kansas and the largest in Johnson County, may increase its property tax rates. Hodge quotes a Kansas City Star editorial: “One plan from [Overland Park City Manager Bill] Ebel would boost the city’s mill levy by 46 percent and bring in more than $10 million a year in new revenue. The other option, a 41 percent increase, would create an extra $9 million annually.” To which Hodge replies: “So, those are the innovative ideas of today’s Overland Park Council: either a 41% increase, or else a 46% tax increase.” … The Overland Park Chamber of Commerce supports the proposal, which is simply more evidence of the decline of local chambers of commerce. … Hodge’s article is Between a Rock and a Tax Hike.

    Medicinal cannibis to be topic. This Friday’s (July 15th) meeting of the Wichita Pachyderm Club features Dr. Jon Hauxwell, a physician from Hays, speaking on “Medicinal Cannabis.” The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. Upcoming speakers: On July 22, Steve Anderson, Director of the Budget for Kansas. On July 29, Dennis Taylor, Secretary, Kansas Department of Administration and “The Repealer” on “An Overview of the Office of the Repealer.”

    Employment on a long slow, slide. Wichita’s Malcolm Harris takes a look at the dismal employment numbers from last week. But, there is some better news for Wichita regarding airplane orders.

    We already know it’s hot in Wichita. But now here’s proof. The Weather Channel ranks Wichita as fourth hottest city in the nation — and that’s based on weather, not economic growth or something really desirable. Wichita is also ranked as “Midwest” hottest city.

    Pursuing happiness, not politics. That’s the title of the prologue to the recently-published book The Declaration of Independents: How Libertarian Politics Can Fix What’s Wrong with America by Nick Gillespie and Matt Welch, both of Reason, the libertarian magazine of “Free Minds and Free Markets.” So far, the prologue is all I’ve read, but I can tell — okay, I already knew — that these guys get it. Here’s what I mean: “In 2011, we do not equate happiness with politics; the mere juxtaposition of the words feels obscene. And for good reason: Politics, John Adams’s great-grandson Henry famously observed, ‘has always been the systematic organization of hatreds.’ Every election cycle — and we are always in an election cycle — we are urged to remember that deep down inside we really despise the opposing gang of crooks. We hate their elite (or Podunk) ways, their socialist (or fascist) economics, their reliance on shadowy billionaires with suspect agendas. In a world where mutual gains from trade have lifted a half billion people out of poverty in just the past half decade, politics is one of the last remaining zero-sum games of I win, you lose, where the victor gets to spend everyone else’s money in ways that appall the vanquished, until they switch places again after the next election. We instinctively know that our tax dollars aren’t being spent efficiently; the proof is in the post office, or the permitting offices at city hall, or the neighborhood school. We roll our eyes when President Barack Obama announces a new national competitiveness initiative in his State of the Union address just five years after George W. Bush announced a new American Competitiveness Initiative in his, or when each and every president since Richard Milhous Nixon swears chat this time we’re gonna kick that foreign-oil habit once and for all. And yet, the political status quo keeps steering the Winnebago of state further and further into the ditch.”

    More ‘Economics in One Lesson.’ Tonight (Monday July 11th) Americans For Prosperity Foundation is sponsoring a continuation of the DVD presentation of videos based on Henry Hazlitt’s classic work Economics in One Lesson. The event is Monday 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.

  • Kansas and Wichita quick takes: Monday June 6, 2011

    Wichita school superintendent to speak. This Friday’s meeting (June 10) of the Wichita Pachyderm Club features John Allison, Superintendent of USD 259, the Wichita public school district, on “An update from USD 259.” The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. … Upcoming speakers: On June 17, The Honorable Lawton R. Nuss, Kansas Supreme Court Chief Justice on “The State of the Kansas Courts.” On June 24, Jim Mason, Naturalist at the Great Plains Nature Center will have a presentation and book signing. Mason is author of Wichita’s Riverside Parks, published in April 2011. On July 1, Jay M. Price, Director of the Public History Program at Wichita State University, speaking on “Classes of Values in Kansas History.” On July 8, Dave Trabert, President, Kansas Policy Institute, on “Stabilizing the Kansas Budget.”

    TIF in California and Kansas. In California’s Secret Government: Redevelopment agencies blight the Golden State Steven Greenhut discusses Redevelopment Agencies (RDAs) in California, which is the way that state implements tax increment financing (TIF). In California RDAs are separate agencies with their own boards. Fortunately, Kansas TIF law doesn’t create these separate agencies. But we have TIF and its wild claims. Greenhut cites the claims of RDA boosters in California: “… agencies explicitly advance various goals beyond blight removal, claiming to boost economic development, provide affordable housing, reenergize downtowns, and create hundreds of thousands of jobs in the process.” But: “Do these lofty growth claims hold water? Redevelopment officials arrive at them by taking credit for every new job and every new economic activity in a redevelopment area. But that isn’t a plausible boast. Crunching the numbers, [Michael] Dardia found that after correcting for local real-estate trends, ‘redevelopment projects do not increase property values by enough to account for the tax increment revenues they receive. Overall, the agencies stimulated enough growth to cover just above half of those tax revenues. The rest resulted from local trends.’” In the follow-up article Proving the Redevelopment Rule: Evidence from Southern California that RDAs don’t work Greenhut discusses eminent domain, or the threat of it. While Kansas has an eminent domain law that seemingly provides protection to property owners who don’t want to sell, the threat of its use is still available. Greenhut cites an attorney who fights these battles, noting “most cities don’t need to use eminent domain, any more than most muggers need to use the handgun pointed at their victims’ heads. Brandishing it usually is enough to convince an owner to give in.” The Wichita City Council, when considering TIF districts and other special tax districts, has been asked to explicitly disavow the use of eminent domain so that this threat is no longer available. But the mayor and council members will not extend that protection to citizens.

    More ‘Economics in One Lesson.’ Next Monday (June 13) Americans For Prosperity Foundation is sponsoring a continuation of the DVD presentation of videos based on Henry Hazlitt’s classic work Economics in One Lesson. The event is Monday (June 13) at 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.

    ‘Running on Empty’ tour in Kansas. This week Americans for Prosperity Foundation is bringing the Running on Empty tour to Topeka (Thursday June 9th) and Kansas City (Friday June 10th). AFP writes: “Since President Obama took office, gas prices have nearly doubled. The administration refuses to develop American energy sources … American energy sources that could help gas prices, electricity prices, and food prices come down. Americans are running on empty and the administration needs to hear how regulations and restriction to domestic resources are affecting working families who rely on affordable energy to commute to work, go to school activities and shop for family groceries. Join us on the Running on Empty Tour to learn what executive actions the Administration can take to bring down fuel costs and bring stability to the market and send them your gas bill!” For more information on these two area events, click on National Running on Empty Tour to Stop in Topeka & Kansas City.

    MRCTV announced. Media Research Center, a conservative media watchdog organization and think tank, has announced MRCTV, a video site. In its announcement, MRC wrote: “Many Conservatives have long felt that YouTube has two sets of rules, one for conservative videos and one for everyone else. Videos that are critical of liberals or present a conservative point of view are often mysteriously removed from YouTube. This is frustrating for everyone, but especially for conservative websites that rely on videos to get their message across. ”

    Kansas census data added. The Institute for Policy & Social Research at KU has added 2010 U.S. Census data. Besides this, the institute holds much other data and resources. Click on Kansas Data.

    Markets: exploitation or empowerment? Do markets lead to a centralization of political and economic power, or do markets decentralize and disseminate wealth? In an eight-minute video from LearnLiberty.org, a project of Institute for Humane Studies, Antony Davies presents evidence and concludes that markets and free trade empower individuals rather than exploit them.

  • For Wichita, Save-A-Lot teaches a lesson

    The announcement that a Save-A-Lot grocery store will proceed — contrary to the claims of developers and city staff who rely on their information — should provide a lesson that yes, economic development in Wichita can and will happen without public assistance. Additionally, examination of the public hearing for this matter before the Wichita City Council last September should teach us to be very cautious in relying on the claims of people who have a huge economic stake in obtaining public assistance.

    At a city council public hearing on both the Community Improvement District and Tax Increment financing district last September, developer Rob Snyder sought public assistance in the form of a tax increment financing district (TIF) and a Community Improvement District (CID). Over a period of years, the two forms of subsidy were estimated to be worth $900,000 to the developer. The project’s total cost was presented as slightly over $2 million.

    (By the way, in its recent coverage of this matter, the Wichita Eagle has an incorrect recording of events. The Eagle reported, referring to the Wichita City Council and Sedgwick County Commission: “The boards ultimately rejected the financing, despite support from some officials.” Actually, the city council unanimously approved both the CID and TIF. Then, the county commission exercised its statutory prerogative to veto the formation of a TIF district. The commission has no authority to intervene in the formation of CIDs.)

    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.”

    Snyder told the council that without the public assistance, there will be no grocery store: “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.”

    Greg Ferris, a former city council member who lobbies local government on behalf of clients, was adamant in his insistence that the grocery store could not be built without public financing: “There will not be a building on that corner if this is not passed today. … That new building would not be built. I absolutely can tell you that because we have spent months … trying to figure out a way to finance a project in that area. A grocery store is not going to move into the Planeview area to service those people just like they didn’t move into the area at 13th and Grove until the city subsidized that with several hundred thousand dollars of city money. … What you’ve heard is misinformation. … This project just won’t happen and the people of Planeview will suffer.”

    Now, we see that the financing gap has been closed, and without government assistance. The claims that a grocery store can’t be built in that neighborhood without welfare for developers have been demonstrated to be false.

    Wichita Mayor Carl Brewer has referred to those who oppose government intervention like TIF and CID as “naysayers.” Here’s an example where free markets, capitalism, and economic freedom have overcome Wichita’s true naysayers: those who say it can’t happen without government intervention.

    A message from John Todd: “This Wednesday (June 8th) at 2:00 pm there will be a groundbreaking ceremony for the new Planeview Save-A-Lot grocery store located on the southeast corner of George Washington Boulevard and Pawnee. This project was initially proposed with $900,000 in CID and TIF public subsidies for the developer that were approved by the Wichita City Council last fall. When the Sedgwick County Commission rejected giving the county’s portion of the TIF generated real estate taxes to the developer and away from the public treasury, the project appeared to be dead. The Wichita Eagle recently reported that the Save-A-Lot grocery store owner has now decided to develop the project on his own with his own financing. Perhaps it is appropriate for those citizens who appreciate businesses who develop market-driven projects in Wichita and Sedgwick County on their own nickel to show their appreciation to the grocery store owner/developer by attending the groundbreaking ceremony and personally thanking him.”

  • Kansas and Wichita quick takes: Sunday June 5, 2011

    Wichita City Council this week. This week the Wichita City Council will consider these items of particular interest: The Wichita Art Museum has $265,738 in funds that it did not spend. The council will be asked to allow the museum to retain this unspent money. … Mid-Continent Instrument, Inc. is asking for a forgivable loan of $10,000. It received the same last week from Sedgwick County. According to city documents, the State of Kansas is also chipping in $503,055 in forgivable loans, sales tax exemptions, training grants, and tax credits. … Council members will receive the city’s 2010 Comprehensive Annual Financial Report. … An item deferred from two weeks ago will consider hiring an outside firm to inspect the roofs at the airport for storm damage. Wichita Eagle reporting from that time has detail. Some, including Council Member Michael O’Donnell (south and southwest Wichita) have wondered why the city can’t do the inspection with its own engineering staff and resources. … Of further note is that the city — two weeks ago — proposed to use general obligation bonds to borrow the funds to pay for this inspection. This is similar to last December, when the city decided to also use bonds to borrow money to pay for an analysis of nine aging fire stations and what repairs and upgrades they might require. Material for this week’s meeting indicates the project will be “funded with Airport revenues either directly or through the repayment of General Obligation bonds.” … A “receive and file” item notes that as established by city ordinance, the salaries for council members, the vice-mayor, and the mayor will increase by 3.2 percent effective June 7. This is a cost-of-living increase based on the consumer price index. Last year all these parties decided to decline the increase. … A consent agenda item recommends settling a lawsuit for damages resulting from a shooting on August 3, 2008 for the amount of $575,000. The agenda material is not specific, but Wichita Eagle reporting indicates that Wichita police officers on that date shot James Ware “at least seven times” in the parking lot of a club after Ware retrieved a rifle from his car. Ware was charged with a crime in the matter, but acquitted in a jury trial. Consent agenda items will not be discussed by the council unless a member asks to “pull” an item for discussion and a possible vote separate from the other consent agenda items. … As always, the agenda packet — all 376 pages for this week’s meeting — is available at Wichita city council agendas.

    Resources on Austrian economics. The prolific and best-selling author Thomas E. Woods, Jr. has compiled a very useful collection of resources regarding Austrian economics. In an essay by Lew Rockwell that Woods refers to, we can learn the essence of the Austrian way: “It is not a field within economics, but an alternative way of looking at the entire science. Whereas other schools rely primarily on idealized mathematical models of the economy, and suggest ways the government can make the world conform, Austrian theory is more realistic and thus more socially scientific. Austrians view economics as a tool for understanding how people both cooperate and compete in the process of meeting needs, allocating resources, and discovering ways of building a prosperous social order. Austrians view entrepreneurship as a critical force in economic development, private property as essential to an efficient use of resources, and government intervention in the market process as always and everywhere destructive.” Concluding his essay, Rockwell wrote: “The future of Austrian economics is bright, which bodes well for the future of liberty itself. For if we are to reverse the trends of statism in this century, and reestablish a free market, the intellectual foundation must be the Austrian School.” … Woods’ collection is at Learn Austrian Economics. … The local chapter of Americans for Prosperity, Kansas has been showing some of the video presentations Woods recommends at its monthly meetings, and will conclude the series at its June 13th meeting. Details to follow.

    Wichita Save-A-Lot owner commended. Susan Estes of Americans for Prosperity, Kansas contributed this letter to the Wichita Eagle, and it appeared today. Following is the letter as submitted to me: “News the grocery store project in Planeview will proceed — without tax incentives — is a major win for Wichita taxpayers. We commend Ron Rhodes and his company for finding a way to make this project happen without asking for tax money. Rather than giving up the store entirely when the Tax Increment Financing (TIF) district was vetoed by the county, the Rhodes family continued to explore the possibility of building a grocery store here. The planned Save-A-Lot store will create jobs and serve the needs of the neighborhood without adding on to their grocery bills through tax increases, which is certainly good news for Wichitans.” … For more on this matter, see In Wichita, corporate welfare not needed, after all.

    Pompeo public forum. On Monday June 6 at 6:30 pm, U.S. Representative Mike Pompeo, a Wichita Republican serving his first term, will hold a public forum at Andover City Hall, 1609 E. Central. Pompeo’s office says: “Congressman Pompeo will take questions from those in attendance and discuss issues related to Congress and the federal government.”

  • In Wichita, corporate welfare not needed, after all

    Last fall the City of Wichita awarded two forms of economic development subsidy to a proposed Save-A-Lot grocery store to be built in the Planeview neighborhood. The developer of the store was able to persuade Wichita economic development officials and city council members that the store could not be built without public assistance. But now a different developer is going ahead with the project — without any of the subsidies Wichita approved, raising questions as to whether the city’s original offer of public assistance was genuine economic development, or just another instance of corporate welfare.

    The subsidies approved were in the form of a tax increment financing district (TIF) and a Community Improvement District (CID). Over a period of years, the two forms of subsidy were estimated to be worth $900,000 to the developer.

    Kansas law allows affected counties and school districts to veto the formation of a TIF district. The Sedgwick County Commission did just that, and the developer said he would not proceed with the project.

    But now, according to Wichita Eagle reporting, a different developer is proceeding with the project, and without subsidy, according to the article. While TIF is not available, it seems the authorizing ordinance for the CID is still in effect, and could be used by the new developer, if desired.

    Economic development, or corporate welfare?

    That the Planeview Save-A-Lot grocery store is able to proceed, and in a larger and more expensive form than originally proposed, tells us that the arguments of its supporters — that economic development assistance was absolutely required — were not true. Actually, these arguments might have been true in the mind of Rob Snyder, the original developer. Developers who seek public subsidy have a powerful incentive to make the case to local governments that their projects need financial assistance. In this case, Snyder was able to convince Wichita city staff that there was indeed a “gap,” according to city documents, of “approximately $950,000 on a total project cost of over $2,000,000.” In other words, the purported “gap” was nearly half the total project cost.

    But in the hands of a different developer, that gap has evaporated, and the project is able to stand on its own without public assistance.

    We need to realize that the “gap” analysis performed by the City of Wichita is not thorough. There’s an imbalance of power in the relationship between city officials and developers. As mentioned above, developers have powerful financial motives to present their projects in a way that makes them eligible for public assistance. Government officials want these projects to happen. Economic activity is good for everyone, after all. So the motives of local economic development officials and elected representatives to turn over a lot of rocks — examining deals too closely — is weak. As a result, we’ve seen examples where outsiders brought information to the City of Wichita that would not have been considered otherwise.

    In one instance a former Wichita City Council member was unhappy that the Wichita Eagle uncovered negative information about a potential recipient of Wichita public assistance.

    Wichita officials and council members need to take a look at their economic development programs and decide whether the city is willing to — and wants to — distinguish between real and valid economic development programs and corporate welfare. In the case of Wichita’s public assistance offer to Rob Snyder’s Save-A-Lot grocery store, recent developments confirm what a few people suspected at the time — it was corporate welfare, plain and simple.