Voice For Liberty

Tag: Tax increment financing

  • Wichita City Council subsidizes pizza and doughnuts for Planeview

    Here’s some citizen-powered commentary and research from a Wichita citizen, Wendy Aylworth.

    At the September 14th Wichita City Council meeting the public was treated to tales of the helpless nature of Wichita’s Planeview residents. It sounded as if residents are being held in an open-air prison, victims of society, greedy QuikTrip stores, and price-gouging cab companies, unable to obtain the necessities of life without trekking an entire ONE mile to get groceries! (See City OKs tax at Planeview store, Wichita Eagle, September 15, 2010)

    There are in fact four grocery stores right across the street from Planeview on Hillside, and one more just around the corner from Hillside on 31st Street South. Two are owned by Americans of Latino descent and three by Americans of southeast Asian descent. Perhaps the race of the owners is the reason the media refuses to report that these are indeed grocery stores and carry milk, eggs, apples, oranges, fish, fresh meats, lettuce, cheese, cereals, spices and all the other basics of a good, healthful diet.

    However, one does have to go to QuikTrip if one wants pizza. Thus the “need” for a Save-a-Lot financed by you and me. Cheaper pizza, that staple of food stamp life.

    Save-A-Lot will also provide a variety of 129 snack foods including potato chips and microwave popcorn with theater butter! Finally junk food will be available within 1.1 miles of Planeview at prices lower than QuikTrip!

    And although residents speaking to the city council on Tuesday complained about having to go to QuikTrip for milk, the truth is QuikTrip carries milk at prices rivaling the cheapest in town. The price was $3.29 gallon on Wednesday, Sep 15th. On other days it’s on sale for $2.99 gallon. But Save-A-Lot should have a lower regular price on bacon. Pop might also be cheaper!

    The claim by the government-subsidized developer that this chain grocery store must be built because there are large numbers of residents of Planeview who don’t have cars (and thus have to walk to QuikTrip to get pizza) is also false. There are a few; only a few. One Planeview resident explained that those not having vehicles could take a cab or get a ride — and the bus drives right through Planeview. The City of Wichita on one hand pushes for residents to make greater use of the public buses, yet the city council members clearly believe residents can’t possibly go shopping using a bus. Still, people who live in cities like San Francisco, New York, and Portland shop via subway and bus every day. The Wichita City Council is hypocritical, forever at odds with itself, and constantly undermining families who start businesses in an attempt to meet the needs of fellow citizens.

    The grocery stores the media ignores, in case you’d like to show them your support, are:

    Thai An Oriental Market at 2425 South Hillside Street, Wichita, KS, telephone 440-7888. Open everyday 9:00 am to 8:00 pm, except they close early at 7:00 pm on Mondays. This is a large store in a brand new building the owner built from the ground up.

    Super Del Centro at 2425 South Hillside Street, Wichita, KS, open 9:00 am to 9:00 pm 7 days a week This store shares the new building with the Thai An market.

    Four Star Asian Market at 2441 South Hillside Street, Wichita, KS, telephone 684-0966. This is a smaller family business, but still carries a great selection.

    Lao Food Market at 3141 South Hillside Street, Wichita, KS. This is a large family-owned store in a building built in 1994, very clean and well-kept. Open 9:00 am to 9:00 pm everyday and often stays open even later on Saturdays and Sundays, if a customer needs.

    Carniceria Mexicana Super Tienda at 3108 E 31st St South. Open 7 days a week 8:00 am to 9:00 pm They have probably the largest avocados in town!

    No, none of these stores on Hillside have doughnuts, but they all have cookies!

    There’s also Checkers grocery store at the southeast corner of Pawnee and K-15, open 6:00 am until Midnight everyday. It’s locally owned and run and is only one mile from Planeview, and 1.3 miles from the new, smaller grocery store the city council is subsidizing.

  • Economic development planning in Wichita on tap

    Tuesday’s meeting of the Wichita City Council features four public hearings concerning Community Improvement Districts. One CID also will have a public hearing on its application for tax increment financing (TIF).

    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.

    Under tax increment financing (TIF), developers get to use their property taxes to pay for the same infrastructure (or other costs) that everyone else has to pay for. That’s because in TIF, the increment in property taxes are used to pay off bonds that were issued for the exclusive benefit of a development. Or, as in the case with a new form of TIF called pay-as-you-go, the increment in property taxes are simply given back to the developer. (Which leads to the question: why even pay at all?)

    The developments seeking this form of public financing include a grocery story in Plainview, a low-income and, according to the application, underserved area of town. Material on this hearing provided by the city is at Plainview Grocery Store CID and TIF in Wichita, Kansas.

    A second applicant asks to charge an extra one cent per dollar sales tax for Central Park Place, a proposed suburban shopping center. Read more here: Community Improvement District at Central Park Place, Wichita, Kansas.

    Then the developers of Bowllagio, a proposed bowling alley and entertainment district, will make their pitch to add two cents per dollar sales tax. Read more here: Community Improvement District for Bowllagio (Maize 54 Development).

    Finally, the developers of the downtown Wichita Broadview Hotel will ask to add two cents per dollar sales tax on purchases made by the hotel’s visitors. Read more here: Community Improvement District for Broadview Hotel, Wichita, Kansas.

    All of these applications should be turned down by the city council, and for a variety of reasons.

    For example, the goal of the Plainview grocery store is to serve a low-income area of town. To do that, however, the store will be charging its customers an extra $1 for every $50 spent. Supporters make the case that many of the potential customers presently shop at Quik-Trip, which is not an inexpensive store, so the city is really doing these people a favor. The developer makes the case that he’s just trying to do something for the community, giving back something.

    But if the developer really wants to do something for the community, he should agree to pay his share of property taxes like almost everyone else pays. That won’t happen, as most of the taxes he will pay will be routed right back to him through the TIF district.

    The extra sales tax is a consumer protection issue, both in the case of the Plainview grocery store and the suburban shopping center. Shoppers won’t have any idea that they’re going to be paying extra sales tax by shopping at these merchants until after they get their receipt. Most people probably won’t notice then.

    There are several council members who normally would be in favor of exposing greedy merchants who overcharge people, but they haven’t shown this concern so far regarding Community Improvement Districts.

    The Broadview hotel is already the recipient of potentially $4.75 million in Kansas historic preservation tax credits. Despite the name of the program, the tax credits are in effect a grant of money to the developers — the state might as well write the developers a check. The City of Wichita has also assisted the hotel in several ways. But now it’s back at the government trough asking for even more corporate welfare.

    We ought to ponder the wisdom of renovating this hotel if it can’t survive without so much government assistance. And having plowed so much into an economically unfeasible project, we can easily see sometime a few years down the road where owner Drury Hotels come to the city saying they can’t make a profit, and they need some other form of assistance.

    Having given so much already, the city won’t be able to turn down the request for a little more. It’s happened before.

    Even pointing out how the city works at cross-purposes with itself doesn’t impress the council. 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, with Vice Mayor Jeff Longwell and the Wichita Eagle editorial board approving this as a wise strategy.

    People remember high taxes. I don’t think it’s a good strategy to establish high-tax districts designed to capture extra tax revenue from visitors to our city. A good strategy for Wichita to pursue would be to establish itself as a low-cost destination, but we’re going the other way.

    Then we must consider: does all this economic development planning work? The answer, emphatically, is: No. City leaders tell us that they do these things to grow Wichita’s economy. The activity of developers who seek subsidy like this is called, in economic terms, rent seeking, and city leaders encourage it. But evidence shows that rent seeking activity harms economic growth.

    It’s usually pretty good for the favored developers who receive such economic rents (subsidy). But it’s a bad deal for everyone else. It illustrates one of the primary problems with government taxation and spending. John Stossel explains:

    The Public Choice school of economics calls this the problem of concentrated benefits and dispersed costs. Individual members of relatively small interest groups stand to gain huge rewards when they lobby for government favors, but each taxpayer will pay only a tiny portion of the cost of any particular program, making opposition pointless.

    We see this in play nearly every week in Wichita as the city seeks to manage economic development. City leaders portray “success stories” (that’s when a company accepts subsidy from the city to build something) as evidence of people having faith in Wichita. Someone has confidence in Wichita because they’re investing here, they say.

    But I wonder why these people won’t invest in Wichita unless they receive millions of dollars through preferential tax treatment such as tax abatements, CID, TIF, STAR bonds, forgivable loans, and other forms of local corporate welfare.

    These preferential tax treatments increase the cost of government for everyone else in the city. That fuels the cycle of people coming to city council saying their plans are not feasible unless they receive tax breaks. This expanding role of Wichita in centralized economic planning is great if you’re a city hall bureaucrat like Wichita city manager Bob Layton and Wichita economic development director Allen Bell. It satisfies the incentives and motivations of bureaucrats. But it’s bad for economic freedom and the people of Wichita.

    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?

  • For downtown Wichita, Mayor Brewer has a vision

    In Sunday’s Wichita Eagle, Wichita Mayor Carl Brewer penned a piece that states his belief in the importance of downtown and prepares the people of Wichita for the start of a prescriptive planning process, with accompanying subsidy to politically-favored developers willing to fulfill the plan.

    The mayor used the word “vibrant” twice. Asking citizens a question like “Would you like to have a vibrant downtown?” is meaningless. Who doesn’t? It’s only when the question is accompanied by context that citizens can start to understand how they should answer.

    For example, in the mayor’s article, he mentions the use of special assessment financing that funded suburban infrastructure, and that this is not sufficient for downtown needs. This statement reveals a misunderstanding by the mayor about the various forms of financing that might be used to help development.

    Special assessment financing means that the city spends money to build something, like the new street to serve a site where someone wants to build a house or a shopping center. The cost of this street, plus interest, is added to the property’s tax bill over a period of years. The property owner doesn’t get anything for free.

    But in the forms of financing that the mayor and city hall planners favor for downtown, developers do get something for free. Under tax increment financing (TIF), developers get to use their property taxes to pay for the same infrastructure that everyone else has to pay for. That’s because in TIF, the increment in property taxes are used to pay off bonds that were issued for the exclusive benefit of a development. Or, as in the case with a new form of TIF called pay-as-you-go, the increment in property taxes are simply given back to the developer. (Which leads to the question: why even pay at all?)

    Some deny that TIF directly enriches the developer. They’ll make arguments such as “it’s only used for infrastructure and eligible expenses” or “it’s not lending, it’s bonding” or “it wouldn’t happen but for TIF” or the biggest lie: TIF doesn’t have any cost. But despite these claims, TIF has a cost, and it does directly enrich the developer. That’s its entire purpose; its reason for being. If TIF didn’t enrich the developer, how does it change something that is claimed to be not economically feasible into something that is?

    While city leaders say that public participation in the revitalization of downtown is to be limited, we should be cautious and skeptical. Goody Clancy planners have said that public participation will be limited to TIF. This is bad in its own right and should be opposed on its merits.

    We need to be skeptical of the mayor and downtown planners because there isn’t enough TIF money available to do what they want to do. I fully expect a citywide sales tax, probably in the amount of one cent per dollar, to be proposed for the benefit of downtown subsidized developers. City leaders speak fondly of such a tax that Oklahoma City has used for many years.

    City leaders have already shown themselves to be not averse to imposing additional sales taxes in Wichitans and our visitors, having granted several Community Improvement Districts the ability to charge up to an additional two cents per dollar sales tax. This means that when visitors check out of the Fairfield Inn in downtown Wichita, they’ll be faced with a sales tax rate of 9.3 percent. That’s in addition to the six percent guest tax, which in the case of this hotel is collected for the exclusive benefit of itself, rather than funding general government and tourism activities.

    More community improvement districts are in the works. Wichita may soon be peppered with them.

    No faith in free markets means no faith in people

    The unwillingness of Wichita city leaders to let Wichitans freely decide where they live, and Wichita businesses freely decide where to locate, is a sign of lack of confidence in free markets and the people of Wichita. Because Wichitans do not choose to live and locate their business firms where politicians like Carl Brewer and Janet Miller — to name just two — and city hall bureaucrats like Wichita city manager Bob Layton and Wichita economic development director Allen Bell want them to, they deliver a slap in the face. It appears in the form of a vision backed up by planning, regulation, and the power to dish out favorable tax treatment, as outlined above.

    Once formed, a vision is a powerful force. Randal O’Toole, author of The Best-Laid Plans: How Government Planning Harms Your Quality of Life, Your Pocketbook, and Your Future has written about visionaries and government planning:

    The worst thing about having a vision is that it confers upon the visionary a moral absolutism: only highly prescriptive regulation can ensure that the vision overcomes an uncaring populace responding to a free market that planners do not really trust. But the more prescriptive the plan, the more likely it is that the plan will be wrong, and such errors will prove extremely costly for the city or region that tries to implement the plan.

    An example of planning that many see as having gone wrong is the government planning that led to growth on the city’s fringes. An example that helped make this possible is the government’s decision to build the northeast expressway also known as K-96. Acts of government like this are claimed to have caused the demise of downtown, the very situation that planners now want to correct.

    With government making “mistakes” (their claim, not mine) like this on a grand scale, why are we willing to trust that politicians and bureaucrats are making correct decisions now? Especially when you look at the campaign finance reports of most city council members and see the same names giving repeatedly to all council members, with these same names appearing repeatedly before the council asking for their subsidy. This is not a decision making process that gives citizens confidence.

    It bears repeating: the existence of the downtown planning process tells Wichitans they’ve made a mistake in where they chose to buy a home or build a business. Not only will Wichitans have to pay for what they freely chose, they’re going to be asked to pay again so that those with purportedly superior vision can have their way.

  • More Wichita Community Improvement Districts proposed

    Tomorrow’s meeting of the Wichita City Council will consider starting the process for the approval of three Community Improvement Districts in Wichita.

    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.

    CIDs may work in one of two ways: First, the city might sell special obligation bonds, give the money to the applicant, and pay off the bonds with the extra sales tax that is collected.

    The other way is “pay-as-you-go,” in which the extra sales tax is sent to the applicant as it is collected.

    Tomorrow’s city council meeting will accept petitions by property owners in the proposed CIDs and set dates for public hearings, usually around 30 days in the future.

    The first of the proposed CIDs is the Bowllagio project at Kellogg and Maize Road. This is proposed to be a pay-as-you-go CID, meaning that the city will not issue bonds. The applicant proposes to collect the full two cents per dollar extra tax for up to 22 years.

    The second is a development in the 2600 block of north Maize Road titled Central Park Place Development. The applicant proposes collecting an additional one cent per dollar for up to 22 years on a pay-as-you-go basis.

    The third project is Planeview Grocery Store Project at George Washington Blvd. and Pawnee in southeast Wichita. This applicant proposed to collect two cents per dollar extra sales tax on a pay-as-you-go basis. This applicant also proposes creating a tax increment financing (TIF) district.

    According to city documents, a goal of this project is to provide “affordable access to grocery shopping to the underserved Planeview area.” But if affordability is a goal of this project, we have to question the wisdom of adding two cents per dollar spent to the grocery bills of low income people.

    Community Improvement Districts and public policy

    There are several public policy issues surrounding Community Improvement Districts that deserve consideration.

    First, the extra sales tax collected in these districts needs to be considered from a consumer protection perspective. How will shoppers in these districts learn that they are going to be paying extra sales tax? While some shoppers may not care, certainly low-income shoppers need to stretch their grocery dollars. Asking them to spend two cents extra per dollar doesn’t seem like the city is watching out for the best interests of its citizens.

    Then there’s the “tax our visitors” strategy of council member and Vice Mayor Jeff Longwell and some other council members. Since the extra sales taxes in some CIDs like a hotel will largely be paid by visitors, it’s a wise economic development strategy, they say.

    We need to consider, however, the effect of these high sales tax districts on visitors to Wichita. Will they be happy with their decision to visit Wichita once they learn of the high taxes on their hotel or restaurant bill? Will they mistakenly assume that these high taxes apply to the entire city? When corporate expense accounting sees the high taxes charged in Wichita, will they want to send business here again?

    But 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?

    No one at Wichita city hall has an answer for this question.

  • The ‘tax expenditure’ solution for our national debt

    While most critics of government spending focus on entitlements, regular appropriations, and earmarks, there is a category of spending that not many pay much attention to. The spending is called “tax expenditures.”

    It’s a big issue. As economist Martin Feldstein writes in the Wall Street Journal, tax expenditures will increase the federal budget deficit by $1 trillion this year.

    Tax expenditures are implemented through the tax system. It’s usually the income tax system, especially at the federal level. Taxpayers may receive tax credits, which reduce the tax that must be paid dollar for dollar. Many credits are refundable, meaning that if the taxpayer has no tax liability, the government will send the recipient a check. Examples cited by Feldstein include “$500 million annual subsidy for the rehabilitation of historic structures and a $4 billion annual subsidy of employer-paid transportation benefits.”

    While supporters of many of these programs portray them as not costing the government anything, Feldstein writes that they do: “These tax rules — because they result in the loss of revenue that would otherwise be collected by the government — are equivalent to direct government expenditures.”

    I argued this in testimony I presented to a committee in the Kansas Legislature this year, when it was considering restoring and expanding the Kansas historic preservation tax credit program. I told committee members: “We must recognize that a tax credit is an appropriation of Kansans’ money made through the tax system. If the legislature is not comfortable with writing a developer a check for over $1,000,000 — as in the case with one Wichita developer — it should not make a roundabout contribution through the tax system that has the same economic impact on the state’s finances.”

    In that committee, not one member voted against this program, even though the committee has some members who consider themselves very fiscally conservative and hawks on spending.

    Here in Wichita, the city council regularly steers spending to certain companies through the tax system by granting property tax exemptions and tax increment financing.

    Feldstein describes problems with spending implemented through the tax system:

    • Politicians use tax expenditures to grow the welfare state. While proposing a freeze on discretionary spending, President Obama at the same time proposed an expansion of a tax credit program for child or elderly care.
    • Once enshrined in the tax law, these appropriations don’t have to be reauthorized each year. They’re on auto-pilot, so to speak.
    • Eliminating tax expenditures is looked on by Republicans as a tax increase, so they are reluctant to support their elimination. Felstein counters: “But eliminating tax expenditures does not increase marginal tax rates or reduce the reward for saving, investment or risk-taking.”
    • Tax expenditures distort the economy in harmful ways: “[Eliminating tax expenditures] would also increase overall economic efficiency by removing incentives that distort private spending decisions.”

    Feldstein concludes: “Cutting tax expenditures is really the best way to reduce government spending. And to be politically acceptable, the cuts in tax expenditures must be widespread, requiring most taxpayers to give up something so that the fiscal deficits can decline.”

    The ‘Tax Expenditure’ Solution for Our National Debt

    The credits and subsidies that make the tax code so complicated cost big bucks. Reduce them by third and the debt will be 72% of GDP in 2020 instead of 90%.

    By Martin Feldstein

    When it comes to spending cuts, Congress is looking in the wrong place. Most federal nondefense spending, other than Social Security and Medicare, is now done through special tax rules rather than by direct cash outlays. The rules are used to subsidize a wide range of spending including education, child care, health insurance, and a myriad of other congressional favorites.

    These tax rules — because they result in the loss of revenue that would otherwise be collected by the government — are equivalent to direct government expenditures. That’s why tax and budget experts refer to them as “tax expenditures.” This year tax expenditures will raise the federal deficit by about $1 trillion, according to estimates by the congressional Joint Committee on Taxation. If Congress is serious about cutting government spending, it has to go after many of them.

    Continue reading at the Wall Street Journal (subscription required)

  • North Dakota TIF video informative, reminiscent of Wichita

    The North Dakota Policy Council has a video on YouTube that explains the mechanics of tax increment financing (TIF) districts and the public policy problems associated with TIF.

    The video is presented in three sections. The material in the first section is different from the way TIF districts work in Kansas, but the other two sections are very similar to the way the law works in Kansas.

    At the start of part 3 (“Problems with TIFs”) the narrator states the problem succinctly: “Tax increment financing negatively affects everybody’s property tax bill by taking the tax revenue from increased taxable valuations on the properties in the TIF areas and putting that into TIF accounts.”

    She then presents an illustration showing how the property taxes for non-TIF properties have to rise to make up for the fact that taxes from TIF properties do not go towards paying for city, county, or school district services. While Wichita doesn’t use the term “TIF accounts” as used in this video, the economic effect is the same.

    The video also mentions politically-favored developers being the beneficiaries of TIF districts, specifically mentioning “a friend of the city who might own property that is struggling.” I wonder: is the North Dakota Policy Council aware of the situation in Wichita, where many feel that the city is bailing out Real Development (also known as the “Minnesota Guys”) by not only granting TIF financing to them, but increasing the amount of TIF financing against the recommendation of its independent consultant?

    When you add the fact that our city manager’s girlfriend has the Minnesota Guys as a client and the city — specifically Mayor Carl Brewer — will not forthrightly explain this situation and the city’s response to citizens, we have a problem in Wichita.

    Compounding the problem is the obvious lack of understanding of the economic effects of TIF districts by members of the Wichita City Council, and possibly by city hall bureaucrats, too. Wichita vice mayor Jeff Longwell has complained to the Wichita Eagle that the public doesn’t understand tax increment financing. We should be questioning Longwell’s own understanding, and that of council member Janet Miller, too.

    Longwell and Miller — the rest of the council too, for that matter — are aided by newspaper reporters like the Wichita Eagle’s Bill Wilson, who is dismissive and hostile towards free markets and those who advocate for them, calling reliance on markets “intellectually shallow” and a “thin ideological argument.”

  • Wichita mayor speaks on economic development

    At last week’s Wichita City Council meeting, Mayor Carl Brewer spoke in favor of the city’s economic development policy, specifically as it related to a downtown Wichita development partly financed with tax increment financing, or TIF.

    The mayor disagreed with those who have appeared at city council meetings to testify against the use of TIF. He told of how the city called mayors’ associations and the National League of Cities, and they said that most large cities use incentives. He learned that cities use some incentives that that Wichita has not yet heard of, which undoubtedly will give city staff some additional tools in the toolbox in the future.

    He said “Incentives are available, and we’re on the right track.”

    The mayor mentioned that Harvard and Yale experts said that Wichita had too much parking downtown. This is in agreement with the Goody Clancy proposal presented to the city last October. Wichita selected that firm to lead the planning process for the revitalization or redevelopment of downtown Wichita.

    He said that in a recent meeting of mayors he attended, he learned that the mayors of other cities are trying to figure out how to use incentives and recruit business. They’re not turning their backs on incentives, he said, adding that “What we’re doing is nothing new.”

    He told the audience that “We as a city are going to have to endure change, and we as a city are going to have to understand any time there’s change, there is going to be some pain.”

    He added that he appreciated input from those who oppose the various subsidies and incentives the city gives to developers, and the city did check to see if the information they provided to the city was correct.

    Commentary

    The National League of Cities, one of the organizations the mayor consulted with regarding the use of incentives for the purpose of economic development, promotes an expansion of the powers of cities to engage in taxpayer-funded economic development subsidies. Its mission statement sounds noble: “Its mission is to strengthen and promote cities as centers of opportunity, leadership, and governance.” But citizens should not be deceived. It promotes interventionist practices rather than economic freedom. An example is its celebration of the U.S. Supreme Court decision in Kelo v. City of New London, which the Wall Street Journal described as “one of the worst in recent years, handing local governments carte blanche to seize private property in the name of economic development.”

    The mayor’s refusal to embrace economic freedom — which he has described as a “philosophy” that is not viable in the real world — means that Wichita is likely to continue to engage in the same competitive practices as do almost all other cities. It means that deals like the subsidy granted to Real Development is a template for other taxpayers-funded giveaways. As Council Member Paul Gray has warned, the plans for the redevelopment of downtown Wichita are likely to require many millions — perhaps hundreds of millions of dollars — of public assistance or investment. Since there isn’t enough tax increment financing available to pay for this, we can expect to see proposals for tax increases, such as a new city sales tax of perhaps one cent on the dollar, to pay for downtown redevelopment.

    A sales tax is the model for economic development in Oklahoma City. This has been promoted to Wichita and Sedgwick County leaders as a good idea for Wichita to pursue.

    What Wichita is missing out on is a way to truly distinguish itself from all the other cities and counties that are all using the same economic development tools. Presently about all we can do is offer subsidies that are larger than what other cities offer. But if we decided to forgo the use of the usual economic development subsidies and incentives, that would be something very unusual. It could really put Wichita on the map as a place to locate to.

    Since these economic development incentives and subsidies require other taxpayers, both individuals and businesses, to pay for their cost, Wichita could reduce the cost of doing business in Wichita for everyone. A company considering locating to Wichita could be confident that it would be operating in a low-tax environment. It wouldn’t have to hope that it fits into the city’s economic development policy guidelines. It wouldn’t have to hope that politicians and bureaucrats view its application favorably.

    Further, once a company locates here, it wouldn’t have to worry that other companies will receive incentives and subsidies that it will have to pay for. It would not need to worry about the other costs that subsidies impose, such as subsidized companies having lower overhead and are therefore better able to compete for employees.

    Eliminating interventionist policies from city hall could have other benefits. Is there a “good ‘ol boy” network of insiders that use Wichita city hall as their personal piggy bank? By eliminating the practice of granting incentives and subsidies, we could reduce or eliminate the cynical attitude of many citizens towards city government.

    We wouldn’t have to worry whether the campaign contributions made by those seeking favor from city hall were made in the interest of good government, or made in the hopes of getting a TIF district or other subsidy passed through the council.

    These ideas, however, are not seriously considered by the mayor or any city council members, at least to my knowledge. Instead, we in Wichita are doomed to finance an escalating economic development arms race. The economic freedom of Wichitans will decline.

    This is noteworthy in light of the mayor’s curious assertion in his remarks that we will have to “endure pain” caused by change. We’ve changed nothing.

  • Wichita Exchange Place project passes

    At today’s meeting of the Wichita City Council, final approval of the city’s involvement in a downtown Wichita development passed.

    The item, which appeared on the consent agenda, was the second reading for the ordinances that authorize the Exchange Place Project, including the expansion of its tax increment financing district.

    (A consent agenda is a group of items that will be voted on in bulk with a single vote. An item on a consent agenda will be discussed only if a council member requests the item to be “pulled.” If that is done, the item will be voted on separately. Generally, consent agenda items are considered by the city to be non-controversial, but that is not always the case.)

    Council Member Lavonta Williams wanted to know more about the change to the parking plan. On Saturday reporting by the Wichita Eagle’s Brent Wistrom told of how the number of parking spaces that will be available to the public has declined as the project plan has evolved: “Now the proposed garage near Douglas and Market would have only 64 spaces saved for public parking. That’s down from 103 promised earlier this month, which was down from the 149 projected in March. Meanwhile, the number of spaces reserved for apartment tenants increased from 195 to 209.”

    The availability of additional public parking spaces in downtown was one of the major reasons cited by city council members as a reason for approving the Exchange Place project.

    Assistant City Manager Cathy Holderman asked Pat Ayers, a former Key Construction executive, to respond to the question. He said that the unique aspects of the proposed garage actually increased the number of parking spaces available during the work day, as residents of the apartments drive their cars to work.

    (City manager Bob Layton, although present at the meeting, is not able to participate in this matter due to a conflict of interest.)

    Is this a deviation from what was originally planned, asked Williams? Yes, was the reply from Ayers.

    Vice Mayor Jeff Longwell asked Holdeman about a safeguard in place for this project, a ten percent “retainage.” Ayers replied that this provision is in effect for this project. But Council Member Paul Gray said a retainage is common to construction contracts, and that it simply ensures that the contractor completes the job, not the sustainability of the project.

    There was mention of the fact that payments will be made directly to vendors, not to Real Development, the developers of the project. This is a reminder of the peculiar arrangement where the city is placing a huge bet of the success of downtown Wichita redevelopment in the hands of the principals behind Real Development, but evidently we don’t trust them enough to write them a check and be confident they will pay their bills.

    The measure passed with Gray and Jim Skelton voting against the measure, as they did last week.

    Other reporting is at Downtown condo project gets final approval.

  • On Wichita’s Exchange Place TIF, Janet Miller speaks

    Last week’s meeting of the Wichita City Council featured a message from Council Member Janet Miller that illustrated her firm belief in centralized government planning for the purposes of economic development. It also contained a material mistake in the understanding of the facts of the project.

    In her remarks from the bench, Miller disagreed with those who testify at council meetings against tax increment financing (TIF). She said there is much information that says this type of economic development incentive is effective.

    She said “Sometimes I wonder what city folks are living in when they talk about the negative, or the lack of results from TIFs.” She then named several Wichita TIF districts that she said performed well.

    If her remarks were aimed at me and some of the other people who have testified at city council meetings against the formation of TIF districts, council member Miller may not have been listening very carefully. We do not deny that TIF districts produce results — within the district itself. Things get built, buildings get renovated. It is the effect of TIF on the city as a whole that we are concerned with.

    It’s the observed effects of TIF, as economists Dye and Merriman have found and I have mentioned to the city council, including Miller, several times: “We find evidence that the non-TIF areas of municipalities that use TIF grow no more rapidly, and perhaps more slowly, than similar municipalities that do not use TIF.”

    It’s also the unobserved effects — the things that don’t happen because Wichita props up developers in politically-favored areas such as downtown. This form of centralized planning from Wichita city hall overrides the decisions that the citizens of Wichita make with their own pocketbooks, and concentrates power in the hands of bureaucrats and politicians.

    As Randal O’Toole has written: “TIF today is often part of a social engineering agenda that Americans should reject.”

    Miller praised the amount of office space Real Development has brought online in downtown Wichita. To the extent that this has been done without government assistance, this should be praised.

    She agreed with Vice Mayor Longwell’s assessment of this project, saying “This is not a tax abatement project.” She is just as wrong as is Longwell and other council members who believe this.

    In discussing the risk involved in this project, Miller told of how the disbursements from a HUD-guaranteed loan that will finance much of this project will made directly to contractors, not to Real Development. City of Wichita documents indicate that the City’s payments will be made in the same way. This is a quite peculiar arrangement: we are placing a huge bet of the success of downtown Wichita redevelopment in the hands of the principals behind Real Development, but evidently we don’t trust them enough to write them a check and be confident they will pay their bills.

    Miller also spoke of the jobs that will be created by this project. Implicit in her argument is that this project, or something similar, would not occur without the city’s subsidy. Her argument also ignores what economists tell us — that TIF districts simply transfer development from one part of town to another.

    What Wichitans should be most concerned about, however, is a misstatement by Miller that other council members may have relied on in making their decision on how to vote. Miller said: “The property tax increases, the increment that’s being calculated in this project, includes only the buildings in this project.”

    This statement directly contradicts the facts. In the Longhofer study, other properties owned by Real Development — the Petroleum Building, Sutton Place, 105 S. Broadway, and others — are used to support the TIF loan for the Exchange Place project. In response to my question, Wichita’s urban development director Allen Bell confirmed the same.

    In her message from the bench, Miller said that city staff and council members have had enough time to go over this proposal. Her mistaken remarks indicate, however, that the project is still not understood very well by the council, neither its mechanics or its economic effect.