Voice For Liberty

Tag: Tax increment financing

  • Wichita Old Town TIF district illustrates cost and harm of subsidy

    At this week’s meeting of the Wichita City Council there was an item of good news: the closing of the Old Town tax increment financing, or TIF, district. But the expressed attitude of city council members towards TIF districts indicates that citizens must be concerned that the council will attempt to use this harmful form of developer and corporate welfare in the future.

    Citizens need to be made aware of the uninformed and misinformed views of council members, particularly Janet Miller, who was the primary speaker on this item Tuesday. Most of the other city council members, however, also share these views, even those who consider themselves conservative and opposed to intervention in the economy.

    While Miller expressed a correct view of the mechanics of TIF districts, she — and the other council members too — always miss the economic meaning of these districts.

    In her remarks, Miller disagreed with a citizen who said that the TIF district “helped out” the property owners in the district. Miller said: “In tax increment financing districts, it is the property owners’ taxes that they pay, that pay the cost of the public improvements in that area. … The taxes that they paid in on their increased valuations in property have paid for the improvements.”

    She also said that with careful planning the community benefits from TIF districts, and that we should look forward to “future great things that are going to come from this kind of initiative and creativity.”

    It’s quite easy to see the mistakes and fallacies in Miller’s remarks. Do TIF districts help out the favored developers? Of course they do. Why else would the city create them?

    A typical scenario is that a developer has an idea to build something, but claims a “gap” between the financial resources at their disposal and what the project costs. City staff checks the developer’s arithmetic and agrees. So the city creates a TIF district, and the project is able to proceed.

    So the TIF financing filled the gap. How can this be interpreted as doing anything but helping the developer?

    The city and council members like Jeff Longwell regularly claim that TIF districts don’t cost the city anything. We can easily see the errors in this thinking. Over the past 17 years, did Old Town require any attention from the police department? Of course it did. Old Town consumes vast police resources. In 2008 Wichita Police Chief Norman Williams was quoted in the pages of the Wichita Eagle: “Williams said that as Old Town changed from a warehouse district to an entertainment district, it has presented a ‘tremendous challenge’ to public safety.”

    As was brought forth in Tuesday’s city council meeting, Old Town does pay some property taxes that go into the city’s general fund and can be used to pay for the police protection that Old Town requires. The valuation before the TIF district was formed was said to be $1 million dollars. Now it’s $9 million. So the city’s general fund has received taxes on $1 million in property valuation to pay for all the services Old Town requires. The property taxes paid on the other $8 million in valuation are directed back to the district for the benefit of the property owners.

    So yes, TIF districts like Old Town do cost the city. Someone has to pay for the cost of police protection and other government services in Old Town. Its property taxes don’t even come close.

    That’s what the city council doesn’t understand (or maybe it does, see below): The entire purpose of TIF districts is to benefit the property in the district.

    How TIF districts benefit recipients

    Here’s how it works. When using tax increment financing, a geographic district is formed. The property taxes being paid by a property in the district at the time of formation is noted and called the base. Usually this property is not very valuable, so this base is a low value. In the case of Old Town, it was $1 million.

    Then a development plan is created. Based on that plan and the property taxes that the completed project will likely pay, the city will borrow money and give it to the developers. While cities like to say that TIF funds can be used only for things with a public purpose like infrastructure, this doesn’t make any difference. (If the expenditures had a truly public purpose, why wouldn’t the city pay for them without a TIF district?)

    After the project is completed, the tax appraiser notices that there’s something new and valuable where there wasn’t before, and he levies a higher tax bill on the property. The difference between the original taxes — the base — and the new taxes is called the increment.

    Under normal conditions when new property comes on the tax rolls, the tax revenue is used to provide public services such as police and fire protection. The school district is usually a recipient of a large portion of the new tax revenue, which might be used to pay for the schooling of residents of the new housing in the district, for example.

    But in a TIF district, what happens to this new tax revenue — the increment?

    Recall that the city borrowed money and gave it to the developers. The new property taxes — the increment — is used to pay off these bonds.

    So council member Miller is correct, in a way. Old Town property owners paid increased property taxes.

    But when these increased taxes are used to pay off bonds that exclusively benefit Old Town, how is this any different from not paying?

    Consider development not in a TIF district. Developers may borrow money to build something. Then they have to make loan payments and higher tax payments.

    But TIF developers pay only higher taxes. There are no loan payments, as their increased property tax payments are used to pay off the loan.

    Public choice in action

    I wrote earlier that the city council doesn’t understand this. It may be possible that council member Miller, the mayor, and others do understand this, but they decide to go ahead and create TIF districts and other forms of developer subsidy and welfare nonetheless.

    That’s entirely possible, as TIF districts and other corporate welfare illustrate the worst aspects of public choice theory in action. In this case, we have a situation where a small group of people — the subsidized developers — have a huge and powerful motive to obtain TIF financing and other forms of subsidy. Politicians and bureaucrats want to see these things happen too, as they feel a need to justify themselves and increase their spheres of influence and power.

    Average citizens may realize that these things cost them, but it’s a relatively small amount of money — certainly in contrast to the millions that subsidized developers received — so their motive to oppose them is small. This is a reason why many people don’t bother to vote.

    Don’t forget that politicians want to receive campaign contributions, too. Developers who seek subsidy from city hall generally contribute to all city council members. It’s difficult to see how someone who has a political ideology — say fiscal conservatism — could contribute to all city council members. But they do.

    Miller has received large amounts of campaign contributions from those who have benefited from TIF financing and other corporate welfare in the past, and who plan to benefit again in the future. She’s not alone in this regard.

  • Kansas economic growth policy should embrace dynamism

    A dynamic market where many new business startups attempt to succeed and thrive while letting old, unproductive firms die is what contributes to productivity and economic growth. But most economic development policies, including those of Kansas and Wichita, do not encourage this dynamism, and in fact, work against it.

    That’s the message of Dr. Art Hall, who spoke to the Wichita Pachyderm Club on the topic “Business Dynamics and Economic Development in Kansas.” Hall is Director of the Center for Applied Economics at the Kansas University School of Business.

    At the start of his talk, Hall said that economic development has become an industry of its own, a public industry sometimes implemented as public-private partnerships. But its agenda is often not genuine economic development, he said.

    In a short history lesson, Hall described how Walter Beech came to Wichita from North Carolina simply because Clyde Cessna was in Wichita. Sprint began in Abilene in 1899. Fred Koch, who founded the company that became Koch Industries, came to Wichita because Lewis Winkler was here. “Serendipity — that’s the theme.”

    Hall displayed a map of taxpayer migration. There is a huge and wide swath of deep blue — representing the highest rate of out-migration — stretching north to south through the Great Plains, including much of Kansas. The Plains are urbanizing, Hall said. Pockets are doing well, but generally the rural areas are losing population. Economic development strategies must realize this long-term trend, he said.

    A chart showed the geographic distribution of income earned in Kansas. In 1970, 55 percent of income was earned outside the state’s two major urban areas: Wichita and the Kansas City and Lawrence areas. In 2008, that number had declined to 38 percent. The cause of this is people moving to cities from small towns and rural areas.

    On a map of Kansas counties, Hall showed how jobs are moving — concentrating — to a few areas of the state. “I think this is a positive development, because density tends to be a precursor to productivity, and productivity — meaning the value of output per worker — is one of the core fundamental definitions of economic growth.” It’s the reason, generally speaking, as to why cities are prosperous.

    Hall said that we should care about our rural communities, but if we slow down the process of densification, we may be losing out on productivity growth and its benefit to economic development.

    Continuing on this important theme, Hall said that the key to real and sustainable economic development is productivity growth: “Productivity growth happens on the front lines of individual businesses. You cannot will productivity growth. You cannot legislate productivity growth. You must create the conditions under which individual businesspeople, slogging it out on the front lines every day, create prosperity and productivity by trying new things and working hard. That requires a climate in which they feel optimistic enough to try new things, are rewarded for their efforts, and are willing to test new ideas.”

    Dynamism is one of the most underappreciated aspects of the U.S. economy among those working in economic development, Hall told the audience. There is a high correlation between the average size of a business and economic growth, and particularly employment growth. In other words, small companies tend to grow faster than large companies. In the chart Hall displayed, there is a clear demarcation at companies with about 20 employees.

    But most of our economic development policies have a bias towards big business. Hall said this is understandable. Further, he said that Wichita is a big business town, meaning that statistically, it is not poised to be a fast-growing area. Hall said we should create an atmosphere where we have lots of small businesses, where there is lots of experimentation. “If our economic development policies are biased against that, that is not helpful.”

    A chart showed that each year many business firms die or contract, and many others are born or expand. These numbers are large, relatively speaking: in most years, around 150,000 jobs are created through new firms or expansion of existing firms, and about the same number are lost. Given that Kansas has about one million jobs, each year about 30 percent of Kansas jobs are in in play, just as a result of business dynamics.

    Hall said that when the Kansas Department of Commerce announces the creation of 80 new jobs in Kansas, we need to remember that the marketplace swamps anything that individual economic development agencies can do. Hall called for policies that can handle a large volume of businesses — 15,000 to 25,000 — in growth mode each year. Our state’s economic development policies can not handle this level of volume, he said.

    Another chart of the states illustrated the relationship between job reallocation rate — the “churn” of jobs — and the economic growth rate in a state. States with high growth rates have high turnover rates in jobs. Kansas ranks relatively low in economic growth.

    Economic development policy should encourage new business startups, Hall said, although there is a high correlation between newness and death of businesses. “What you’re trying to do is have enough experimentation that enough good experiments take hold, and they grow.” This concept of experimentation is related to serendipity, or “making desirable discoveries by accident” that Hall mentioned earlier.

    But much economic development policy focuses on retaining jobs. Hall said that if what we mean by job retention is saving jobs in companies that ought to die, the policy is not productive. Instead, job retainment policies should create a climate where people can find new jobs quickly here in Kansas. Job retention should not mean bailouts, he added.

    Hall emphasized that while there is a high correlation between new businesses and being small, he said it is new businesses that are most important to driving economic growth.

    Newness of business firms is vitally important, Hall said. Summarizing a chart of Kansas job creating by age of the firm, he told the audience: “Without year-zero businesses [meaning the newest firms], the entire state of Kansas is almost always losing jobs. It’s the same for the United States. It’s the newness that matters. We want new businesses, but new businesses create churn, as there’s a high correlation between birth and death.”

    Hall said this is a complicated process, and that most discussions of economic development do not recognize this complexity.

    Hall explained that the state, in conducting economic development activity, often acts as an investor in a company. Specifically, he said that the state acts as an “active manager” similar to an actively managed stock mutual fund. The other type of investor or mutual fund is the passively-managed index fund, where the fund invests in all stocks, usually weighted by the size of the firms. Which approach works best: active management, or investing in all companies. This historical record shows that very few actively-managed funds beat index funds, only 2.4 percent from 1994 to 2004.

    Hall said the data shows it is very difficult to predict which are the right firms to pick to come to Kansas. Therefore, we need policies that benefit all companies in order to have a dynamic market in new business firms. “Everyone gets the same deal,” he said.

    Hall recommended three specific policies: First, universal expensing of all new capital investment made in Kansas, which means that companies can deduct new investment immediately. Second, eliminate the tax on capital gains. Third, automatic property tax abatements for new or improved business investment for a period of five years.

    Hall’s talk was based on his paper from earlier this year titled Embracing Dynamism: The Next Phase in Kansas Economic Development Policy. That paper contains the charts referred to, and also more detail, additional information, and policy recommendations.

  • Wichita downtown planning, not trash, is real threat

    A recent plan for the City of Wichita to take over the management of residential trash pickup has many citizens advocating for the present free market system. Some go as far as calling city-managed trash pickup “socialism.”

    While I appreciate the sentiment, and I agree that a free market in trash pickup is superior to government management of a cooperative, it is, after all, only trash. There are far greater threats to the economic freedom of Wichitans, in particular the planning for the future of downtown Wichita.

    While the downtown Wichita planners promote their plan as market-based development, the fact is that we already have market-based development happening all over Wichita. But because this development may not be taking place where some people want it to — downtown is where the visionaries say development should be — they declare a “market failure.”

    But just because people make decisions that visionaries don’t approve of, that’s not market failure. And this is one of the most important reasons why Wichitans should oppose the downtown plan. It proposes to direct public investment away from where free people trading in free markets want public investment to be. The public investment component of the downtown plan says that people who decided not to live or work downtown are wrong, and they must now pay for others to be downtown.

    The public investment in suburban development, by the way, is not as large as critics of “sprawl” claim. Here is an example of the public infrastructure that a suburban development paid. It’s a big number, and pays for many of the things that people assume the city pays for. Downtown developers, however, aren’t asked to pay for infrastructure in the same way. Or, they may receive preferential treatment like tax increment financing (TIF) that allows their property taxes to be redirected back to them for their own exclusive benefit.

    We have market-based development in Wichita. We don’t need a government plan to have market-based development.

    The downtown planning visionaries are also proud of their community engagement. This consists largely of asking people what they’d like to see downtown. The problem with this community engagement is that there’s no accountability. Anyone can say they’d like to see almost anything downtown, and it goes into the plan. But without accountability, this is meaningless. After all, who doesn’t want more of everything?

    The fact is that just like we already have market-based development in Wichita, we already have community engagement in Wichita. It’s done by people who are held accountable by markets in the most severe way. These people are the private-sector developers who risk their own capital in order to build what their research or tenants tell them they want. It is through this process that we build what people really want when they spend their own money. Those planning how to spend other people’s money — these are the downtown planners and visionaries — do not have this accountability.

    It is the conceding to a centralized government of the power to plan that is a great threat to economic freedom in Wichita. To top it off, it just isn’t going to work. Here is a passage from the opening chapter of The Voluntary City: Choice, Community and Civil Society that explains the problems with the type of planning Wichita is considering to adopt:

    The use of land is not a “special case” exempt from the power of markets to fashion orderly and efficient outcomes. In fact, quite the opposite is true. Just as Nobel prize-winner Friedrich Hayek (1988) and fellow Austrian economist Ludwig von Mises demonstrated the folly of top-down economic planning, Jane Jacobs (1963) exposed the problems of top-down city planning. Top-down planners of all stripes are fatally hobbled by their inability to tap local knowledge, the sheer magnitude of which would in any event overwhelm them. In a competitive market, local knowledge reappears, lessening the dependence on politics and increasing flexibility; “public” goods (and spaces) in CIDs and in shopping centers are provided more optimally; the capitalization of benefits in land rents more efficiently finances public goods provision; and market-tested rules of governance are developed. Private developers now routinely supply what had been thought to be “public” goods — without the widely presumed market failure. Just as many people presume the inevitability of top-down planning because of external effects and information problems, events show the opposite: the inevitability of bottom-up approaches to these problems exactly as the Hayekian critique makes clear. It takes decentralized markets to generate the required information through trial-and-error learning. In the process, market participants are far more productive than central planners can ever be.

    In Wichita, we are considering replacing the dynamic and truly market-driven approach to development with the political and bureaucratic system. This loss of economic freedom is far more important than having a city manager who doesn’t think Wichitans can handle arranging for their own trash service.

  • Wichita Community Improvement District policy to be decided

    Tomorrow the Wichita City Council is scheduled to decided the city’s policy on Community Improvement Districts (CID).

    CIDs are a creation of the Kansas Legislature from the 2009 session. They allow merchants in a district to collect additional sales tax of up to two cents per dollar. The extra sales tax is used for the exclusive benefit of the CID.

    One of the main issues to be decided is the issue of warning signage. Some have recommended that consumers be protected from unknowingly shopping in stores, restaurants, and hotels that will be adding extra sales tax to purchases. Developers who want to benefit from CID money say that merchants object to signage, fearing it will drive away customers. Imagine that: people don’t want to pay any more tax than necessary!

    City staff has recommended that a website be used to notify customers of CIDs. This form of notification is so weak as to be meaningless.

    One of the follies in Wichita government economic development policy is the categorization of costs into eligible and non-eligible costs. The proceeds from programs like CIDs and tax increment financing may be used only for costs in the “eligible” category. I suggest that we stop arbitrarily distinguishing between “eligible costs” and other costs. When city bureaucrats and politicians use a term like “eligible costs” it makes this process seem benign. It makes it seem as though we’re not really supplying corporate welfare and subsidy.

    As long as the developer has to spend money on what we call “eligible costs,” the fact that the city subsidy is restricted to these costs has no economic meaning. Suppose I gave you $10 with the stipulation that you could spend it only on next Monday. Would you deny that I had enriched you by $10? Of course not. As long as you were planning to spend $10 next Monday, or could shift your spending from some other day to Monday, this restriction has no economic meaning.

    The rise of CIDs is an example of the city working at cross-purposes with itself, as many of the CIDs are for the benefit of hotels and other tourist attractions. Now we have the situation where we spend millions every year subsidizing airlines so that airfares to Wichita are low. Then we turn around and add extra tax to visitors’ hotel bills and perhaps the shops and restaurants they visit. Vice Mayor Jeff Longwell approves this as a wise strategy.

    Developers say that Wichita will lose deals if businesses don’t have the ability to charge extra sales tax without the prior knowledge of customers. I would suggest we lose deals because of another reason: our high business property taxes. According to the Minnesota Taxpayers Association, commercial property in Wichita is taxed an an effective rate of 2.801 percent per year. The national average is about 1.9 percent, meaning the rate in Wichita is 47 percent greater.

    These high commercial property taxes have driven developers such as Colby Sandlian and others out of Wichita. They continue to develop properties outside of Wichita and Kansas — in Sandlian’s case, over $100 million in commercial development outside of Kansas since 1989.

    These high business taxes mean that the state and cities must concoct schemes like CIDs and other economic development giveaways in order to attract business to Wichita. This places governmental bodies like the Wichita City Council in the position of selecting which business firms it will invest in, when there’s no way the Council has the knowledge and incentive structure needed to make these decisions.

    If we will lose deals because a special class of merchants can’t charge extra sales tax, then we have a big problem.

    If we will lose deals because we’re afraid to notify consumers — in advance — of the taxes they will pay, we have a big problem.

    Finally perhaps the simplest public policy issue is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? Why the roundabout process of the state collecting extra sales tax, only to ship it back to the merchants in the CID?

  • Sedgwick County Commissioners applauded

    This letter also appeared in the Wichita Eagle.

    We were pleased to see the Sedgwick County Commission vote this week to stop the proposed TIF district in the Planeview neighborhood. Commissioners correctly determined that approval of the TIF would have adversely affected other businesses in the area.

    Several grocery stores are already operating in that neighborhood – without government subsidies. Approving the TIF district would have hurt those businesses by forcing them help subsidize their competition.

    This proposed project is another example of letting the government choose winners and losers in the marketplace. We applaud commissioners for listening to the small business owners in the Planeview neighborhood, and for voting in favor of free markets and free enterprise.

    Susan Estes
    Field Director
    Americans for Prosperity-Kansas
    Wichita

  • Wichita’s alphabet soup of ‘tax tricks’

    Thank you to Marian Chambers of Wichita for submitting this letter. It also appeared in today’s Wichita Eagle.

    I want to commend the courage shown by the October 10 Sunday Wichita Eagle editorial “Get control of incentives.” It takes some intestinal fortitude to speak out against the “tax tricks” (wonderful description) that have been foisted on the city and county taxpayers already burdened by federal, state, and property taxes.

    Wichita is a wonderful place to live. But some of our leaders seem to be threatening our historic legacy by burdening us with an alphabet soup of “tax tricks”; so far, I have counted TIF, STAR, and CID (not to mention the broader state version of EDX and PEAK). The alphabet soup of “incentives” has the same result, regardless of the letters: taking money from taxpayers without them seeing it in their paychecks.

    I have no objection to paying straightforward taxes that provide the services we all need and expect: firefighters, police, roads, water, sewers, emergency vehicles, basic schools for our children and basic coverage for our elderly. But “incentives” masquerading as hidden taxes do not promote a quality of life for our citizens.

    The Eagle has taken a courageous stand in drawing attention to these ugly, hidden taxes.

  • In Wichita Planeview neighborhood: Yes, we have!

    Developers of a proposed Save-A-Lot grocery store in Wichita’s Planeview neighborhood have made the case that without two forms of subsidy, the store won’t be profitable and won’t be built.

    There is a counterexample, however. On Hillside, just south of Pawnee and just across the street from Planeview, sit two grocery stores that together occupy 13,000 square feet of space. This is close in size to the proposed Save-A-Lot store’s 16,500 square feet.

    While the developer says the Save-A-Lot store can’t be profitable without over $800,000 of taxpayer subsidy, the existence of these grocers proves that it can be done. They are in business, earning a profit, and doing so without government subsidy. The City of Wichita, apparently, is not aware of these success stories, or doesn’t care.

    Reviewing the September 14th meeting of the Wichita City Council gives us an idea of how little the city cares how its actions affect existing business.

    At that meeting, Rob Snyder, developer of the proposed Save-A-Lot store, said he has “researched every possible way” to make the project work. Without the subsidy, he said, there won’t be a grocery store. But the existence of several grocery stores in or near Planeview, operating profitably without government subsidy, shows that Snyder’s claims are false.

    I’m not claiming that Snyder intentionally lied to the city council about the necessity of subsidy for his store. But he has an $800,000 motive to get the council to approve his subsidy. And there’s evidence that corporate welfare like what Snyder requests is not necessary to open and operate a successful grocery store in this part of Wichita.

    During his talk to the council, it became apparent that Snyder thinks corporate welfare is a wise business and political strategy. Snyder lamented the fact that earmarks are now unpopular with the American public and not available to finance his proposed grocery store. An earmark — that is to say, a grant of money paid for by U.S. taxpayers — was used as a large part of the financing for the other Save-A-Lot in Wichita at 13th and Grove. An article by James Arbertha tells of the roll earmarks played in the opening of that store.

    While it may be necessary for Snyder’s store to be propped up by taxpayer subsidy, citizen Wendy Aylworth told council members of the several grocery stores already operating in the Planeview area. Mayor Carl Brewer appeared surprised to learn of these stores and asked Aylworth for their locations.

    The mayor’s surprise is evidence that the city simply does not care about the impact of its corporate welfare policies on existing business. Several people have pointed out to me that these existing stores — with the exception of one large supermarket — are ethnic grocers, although most carry a wide variety of food and household items.

    Is the CID tax necessary?

    One of the issues relating to CIDs is their very necessity. If a business feels it needs to generate additional revenue, why not simply raise its prices? Why is it necessary to have the government collect taxes in order to generate additional revenue for the merchants in the CID?

    Ron Rhodes, who developed the existing Save-A-Lot store in Wichita, addressed the Wichita city council that day. Rhodes referred to the “people who have ability to pay” an extra sales tax, and those who don’t have the ability to pay. Listening to him I couldn’t help be reminded of another slogan: “From each according to his ability, to each according to his needs.”

    Rhodes also spoke of neighborhood pride. But how proud can a neighborhood be when merchants have to rely on corporate welfare to open a store there?

    In later questioning, Rhodes said that a Save-A-Lot store can’t raise its prices due to a “price deck” policy that says that most prices should be uniform in Save-A-Lot stores. This is an internal business policy of Save-A-Lot that should not bind the City of Wichita. It is not relevant to the formation of public policy in Wichita.

    The issue of tax increment financing

    At the same meeting, Greg Ferris, a lobbyist for Snyder, told the council that “there will not be a building on that corner if this is not passed today. There will not be any tax revenue, so we are not taking away any tax money away from schools, police, fire, etc.” He said we have “spent months” trying to figure out how to finance a project in that area. He said that “a grocery store is not going to move into the Planeview area to service those people,” alluding to how a grocery store did not move to the 13th and Grove area until the city subsidized it.

    Ferris contended that there is no city tax money going in to this project that is taken from something else.

    While presenting himself as speaking for the public interest, Ferris is a hired lobbyist for Snyder, the developer of the proposed grocery store. He is being paid to present Snyder’s interests, and those alone. He invokes the standard argument of those seeking corporate welfare through tax increment financing: the “but for” argument. This is the claim that without the benefit of the TIF district, nothing will happen.

    It may be true that without the corporate welfare provided by the TIF district and the CID, Snyder won’t develop the Save-A-Lot store. But that doesn’t mean that it is not possible to run a successful grocery store in that part of town, as we have evidence that it is.

    Ferris’ claim that no tax money from something else will go into this project is false, too. Will the Save-A-Lot store pledge to forgo the use of police, fire, and other city services? As this store wants to escape paying the same taxes that others have to pay, the rest of Wichita has to pay to provide services that Snyder doesn’t want to pay for.

    TIF is not a wise policy. Research on tax increment financing indicates that TIF is a zero-sum game. When someone wins, others lose an equal amount. TIF does not increase the total amount of development that takes place in a city. It simply transfers development from one part of the region to another. This intervention by government may actually decrease the amount of development in a city.

    In the case of Snyder and Ferris, the city’s actions in favoring a politically-connected developer and lobbyist with taxpayer-funded welfare may result in small ethnic grocers and one large established supermarket going out of business. How is this progress?

    The moral hazard

    In visiting with the owner of the large building and one of the grocery stores on Hillside, I asked him if he sought government assistance when developing that property. He answered no, that he didn’t know — speaking in his broken English — “where to dig the money” at that time.

    Now he knows to get a shovel.

    This creates an increasing cycle of dependence on government, particularly Wichita city government, for managing economic development. Entrepreneurship is replaced by bureaucracy and politics, not only for the revitalization of downtown Wichita, but across the city too.

  • Subsidy for Planeview Save-A-Lot grocery store bad for Wichita

    By John Todd

    I am troubled by what I see the Wichita city government doing to the owners of the Checkers Grocery store located near the Wichita Planeview neighborhood. At the public hearing before the Wichita City Council on September 14th, one of the Checkers owners testified that their grocery business has been serving the people of Planeview for many years. After listening to the owner’s testimony and listening to testimony presented by Planeview customers at the hearing, it appears obvious to me that the Checkers grocery store’s Planeview customer base is a vital part of their business.

    At the hearing, the Checkers owner expressed his opposition to the massive subsidy our city was offering the developer of the proposed Save-A-Lot grocery store in Planeview. His concern was the unfair economic advantage city government was creating for their competitor through the use of public funding programs.

    The total economic incentive package city officials were offering the Save-A-Lot project through tax increment financing (TIF) and Community Improvement Districts (CID) funding packages was $880,440 of total project cost of $2,083,430. That figure is in excess of 40 percent of the total project cost.

    I believe the Checkers grocery store owner’s concerns are valid, and the massive subsidy that the Wichita City Council has approved for their Save-A-Lot competitor is wrong. The council vote was 7 to 0 in favor of the subsidy with no consideration given by council members for Checkers or any other taxpaying grocery businesses that competes in the Wichita market.

    The CID funding program, as approved by the Wichita city council, allows the Save-A-Lot grocery store to charge an additional two cents per dollar sales tax. This extra sales tax is then given to the project developer. Under the guise of helping an economically “underserved” neighborhood, customers of the new Planeview Save-A-Lot grocery store will soon be paying 9.3 percent sales tax on their grocery purchases. This additional sales tax enriches the developer and punishes the residents of the Planeview neighborhood.

    The TIF funding program, also approved by the city council, diverts future real estate taxes into developers’ pocket instead of paying for police and fire protection and the schools that educate our children.

    The subsidy programs our city is offering the Planeview Save-A-Lot grocery project are great for the developer, but bad for competing businesses and their customers. They create an unfair advantage for other grocery stores and result in increased sales tax for the very residents it is intended to help. The grocery store will no doubt expect fire and police protection and the grocery store customers will want schools for their children. Yet, the store will not be paying anywhere near its fair share for these services, as it will continue to effectively pay the same property taxes as does a vacant lot. Perhaps these programs should be renamed “The Developer Relief Act!”

    Under TIF, the developer is the winner and the people that pay the city’s bills lose. In other words, one guy wins and the taxpaying public loses. The harm is that by exercising its power to choose winners and losers, government discourages the risk-takers that invest their own money in projects. The potential for abuse of government’s power to create winners and losers in the marketplace creates a sense of regulatory uncertainty.

    This uncertainty serves to keep private capital on the sidelines rather than being invested, as businessmen are justifiably concerned that the city may prop up a subsidized competitor in their same market. Not only do entrepreneurs have to contend with all the usual economic risks they face, they must also face political risk coming from Wichita City Hall. No one can plan ahead with this type of government involvement tampering with markets.

    Unfortunately, as is the case when government exercises its power to influence economic development outcomes, the hidden results of this intervention does more harm than good. Government mandated stimulus programs, even on the local level, are not good public policy.

    State law gives the Sedgwick County Commissionand USD 259 (the Wichita public school district) until October 14th to voice objection to the diversion of tax funds away from county services and schools and into the pocket of the Planeview Save-A-Lot grocery developer. I hope they exercise the check over local government’s abuse of local economic stimulus tools by voting to opt out the county taxpayer from the city’s abuse of their economic power. Sedgwick County commissioners need to step to the line and put a stop to this nonsense!

  • Photos of Wichita Planeview grocery stores

    Carneceria Mexican Food Market in Wichita Planeview neighborhoodCarneceria Mexican Food Market in Wichita Planeview neighborhood

    Supporters of a proposed Save-A-Lot grocery store in Wichita’s Planeview neighborhood claim that there are no grocery stores nearby. Therefore, the city is willing to grant over $800,000 in special tax treatment to this store. This special tax treatment — let’s call it what it is: corporate welfare — is not available to the store’s competitors that already exist in the neighborhood or nearby.

    But Wendy Aylworth’s research and John Todd’s photography show that the claims of the store’s supporters are not true: There are grocery stores — nice ones, too — in Planeview. The Wichita City Council is granting special tax-advantaged status to a competitor to these largely mom-and-pop stores in the form of tax increment financing (TIF) and Community Improvement District additional sales tax.

    Click here to view a set of photographs of Planeview grocery stores taken by Todd.