The City of Wichita property tax mill levy was unchanged for 2018.
Wichita mill levy rates. This table holds only the taxes levied by the City of Wichita and not any overlapping jurisdictions.In 1994 the City of Wichita mill levy rate — the rate at which property is taxed — was 31.290. In 2018 it was 32.667, based on the city’s Comprehensive Annual Financial Report and the Sedgwick County Clerk. That’s an increase of 1.377 mills, or 4.40 percent, since 1994. (These are for taxes levied by the City of Wichita only, and do not include any overlapping jurisdictions.)
The rate for 2018 was unchanged from 2017 and follows two years of small decreases.
Wichita mill levy rates. Click for larger version.The Wichita City Council does not set the mill levy rate. Instead, the rate is set by the county based on the city’s budgeted spending and the assessed value of taxable property subject to Wichita taxation.
While the city council doesn’t have control over the assessed value of property in its jurisdiction, it does have control over the amount it decides to spend. As can be seen in the chart of changes in the mill levy, the city usually decides to spend more than the previous year’s mill levy generates in taxes. Therefore, tax rates usually rise.
Change in Wichita mill levy rates, year-to-year and cumulative. Click for larger version.It’s more common for the mill levy to rise rather than to fall. In those years, the council does not take responsibility to the increase, insisting that the rate has not gone up.
An increase of 4.40 percent over more than two decades may not seem like much of an increase. But this is an increase in a rate of taxation, not tax revenue. As property values rise, property tax bills rise, even if the mill levy rate is unchanged.
The total amount of property tax levied is the mill levy rate multiplied by the assessed value of taxable property. This amount has risen, due to these factors:
Appreciation in the value of property
An increase in the amount of property
Spending decisions made by the Wichita City Council
Application of tax revenue has shifted
Wichita mill levy, percent dedicated to debt service. Click for larger version.The allocation of city property tax revenue has shifted over the years. According to the 2010 City Manager’s Policy Message, page CM-2, “One mill of property tax revenue will be shifted from the Debt Service Fund to the General Fund. In 2011 and 2012, one mill of property tax will be shifted to the General Fund to provide supplemental financing. The shift will last two years, and in 2013, one mill will be shifted back to the Debt Service Fund. The additional millage will provide a combined $5 million for economic development opportunities.”
in 2018 the city budget held this regarding the debt service fund: “In both 2013 and 2014, 0.5 mills were shifted back to the Debt Service Fund.”
Taxes a homeowner pays
Following, a chart and table showing the taxes paid to the City of Wichita for a hypothetical home. This includes changes in the value of the home (based on U.S. Federal Housing Finance Agency, All-Transactions House Price Index for Wichita, KS (MSA) [ATNHPIUS48620Q]) and inflation (based on Consumer Price Index Series II: CUUR0000SA0, U.S. city average, All items, Base Period 1982-84=100, Bureau of Labor Statistics). Click for larger versions.
In 2014 Wichita voters rejected a sales tax which would have provided $250 million to spend on a water project. What were the city’s concerns?
A recent Wichita Eagle article has ignited some revising of history regarding Wichita’s water infrastructure. 1 The article is grim, starting with, “Next time water comes out of your tap, don’t take it for granted. Wichita’s only water treatment plant could fail at any moment.” The article reports on the poor condition of Wichita’s existing water infrastructure, particularly the central water plant.
Wichita recently dealt with spending on a water project. That was in 2014, when the city asked voters to decide on a one cent per dollar sales tax for five years. Of the estimated $400 million the tax would raise, $250 million was earmarked towards water infrastructure. Since voters did not endorse the tax, some have blamed voters for the city’s current problems regarding water infrastructure.
Here, for example, is a social media exchange on Monday. The first person wrote, referring to Wichita Public Works Director Alan King, “Mr King is only now sounding a warning when he knew 8 years ago there was a problem?”
A second person responded: “Wrong Wrong Wrong. King has been yelling about this since he got here. Remember the temporary sales tax for the water where the citizens obeyed the Billionaire and his million dollars that said we can take the risk?”
To understand the errors in the second person’s comment, we need to understand the meaning of “for the water” and “the risk.” City documents have the answer.
A Wichita city white paper from May 2014 cites a community survey, concluding, “Wichitans have ranked a reliable water supply as their most important priority.” 2 The city interpreted citizens’ concerns are requiring protection from drought: “Protecting water sources during periods of drought is an important part of long-term water supply planning.” The paper presented “two options meet the goal of providing water for community growth and drought protection.” One option was using water from El Dorado Reservoir, and the second was expanding the ASR system. This paper does not mention the condition of existing water infrastructure.
On May 27, 2014 City Manager Robert Layton presented to the city council a “Strategic Plan Follow Up,” providing information about the possible uses of the proposed city sales tax. 3 For water issues, the only consideration was drought protection.
In July 2014, the city prepared a document titled “Strategic Plan Implementation Timetable.” 4 Regarding water, the activity needed was:
1. Develop a plan that addresses:
A. New water sources
B. Conservation strategies
C. Reuse opportunities for industry
D. Emphasize water as a priority with the State and Congressional delegation
E. Work with area communities to ensure water is also a priority for them
The long-term objective for water was: “Secure sufficient capacity from two identified options to provide water that supports the long-term growth of Wichita while protecting water users from future droughts. Implement cost-effective conservation strategies that complement water source capacity.”
Under measurements of success there were these items:
Year of final protection in a 1% drought without additional conservation efforts (target is 2030).
Variance in firm yield compared to demand in 2060 (target is 0%).
Volume of water treated (target is 20.8 billion gallons per year).
Annual water reductions from conservation programs (target is 0.35%).
Water conservation program cost to achieve water reduction goal (target is $300,000 annually).
None of this material mentions the condition of existing water infrastructure.
In September 2014 the city published a document titled “Water Supply Plan: The Proposed 1-cent Sales Tax.” 5 under “Plan Summary,” the document states: “Sales tax revenue would fund a new water supply, through Aquifer Storage and Recovery (ASR) improvements. This new supply would reduce the impact of any future drought and would support job growth.”
Later, the document says the plan does the following:
Pulls more water from the Little Arkansas River
Constructs new storage basins
Further utilizes existing treatment plant capacity
Stores treated water underground where it doesn’t evaporate
Builds an additional pipeline
The document clarifies that the “additional pipeline” is a “parallel pipeline” from the ASR plant to the central water plant.
Information from the City of Wichita. Click for larger.
An information sheet prepared for citizens said the same and warned of the costs of borrowing to pay for these facilities. 6
A lengthier presentation prepared for voters by the city held this:
THE NEED
Demand for water is expected to increase by more than seven billion gallons per year by 2060. A new water supply is needed to meet this demand. If the community should experience a significant drought, residents would face severe water restrictions.” 7
From these city documents, we can understand the error in the second commenter’s remarks. In the context of 2014, taxing and spending “for the water” meant expansion of supply, not maintenance of existing assets.
Further, in 2014 “the risk” that was to be addressed was the risk of water use restrictions in case of an extended drought. The risk of basic water plant infrastructure failing was not considered or addressed in the city’s plan for spending $250 million on a water project.
Kansas personal income tax collections rose by $372 per person in 2018, an increase of 46.5 percent.
Each year the United States Census Bureau collects a summary of taxes collected by each state for 5 broad tax categories and up to 25 tax subcategories. 1 I’ve collected this data and made it available in an interactive visualization. Data is through 2018.
You may recall that Kansas raised personal income tax rates in 2017 and made the new rate retroactive to January 1, 2017. But that change doesn’t seem to have affected the data for fiscal year 2017. For 2016, Kansas collected $767 per person in individual income taxes, and for 2017, $800. Not much difference.
Now data for fiscal year 2018 is available, and it shows Kansas collecting $1,172 per person in individual income taxes, an increase of $372 or 46.5 percent over 2017.
(Here’s the reason for the 2017 data being relatively unaffected. For most states, including Kansas, this data is for the fiscal year, not the calendar year. 2 New withholding tax tables were not available until June 27, 2017, just three days before the end of fiscal year 2017. 3)
Considering all taxes, Kansas collected $3,279 per person in 2018, up from $2,808 in 2017, an increase of $471 or 16.8 percent.
Kansas hotel guest tax collections presented in an interactive visualization.
Updated with data through January 2019.
Cities and counties in Kansas may levy a transient guest tax collection on hotel guests. It is sometimes called a bed tax or guest tax. The tax is collected as a percentage of total room revenue, not the number of rooms or the rate charged for rooms. While the Kansas Department of Revenue collects the tax, the proceeds are returned to the cities or counties, except for a two percent processing fee. In Wichita the rate is six percent.
Of note, while Wichita is the largest city in Kansas, Overland Park collects the most hotel guest tax. Of the largest markets in Kansas, Wichita is usually one of the lowest-growth cities.
Kansas hotel guest tax collections presented in an interactive visualization.
Cities and counties in Kansas may levy a transient guest tax collection on hotel guests. It is sometimes called a bed tax or guest tax. The tax is collected as a percentage of total room revenue, not the number of rooms or the rate charged for rooms. While the Kansas Department of Revenue collects the tax, the proceeds are returned to the cities or counties, except for a two percent processing fee. In Wichita the rate is six percent.
In some cases, jurisdictions may levy additional taxes that may not be paid to the Kansas Department of Revenue. This is the case with the Wichita city tourism fee, which took effect on January 1, 2015. This tax of 2.75% is paid directly to the city1, so it doesn’t appear in KDOR figures.
Also, jurisdictions may change the tax rate. The Kansas Department of Revenue maintains a list of taxes charged. 2
The visualization has three views of data. One is a table of collections, including percent change from the previous year. A line chart shows the dollar amount of collections. A second line chart shows collections indexed to a common starting point. This is useful for comparing the relative change in guest tax collections. These line charts show data as the average of the previous 12 months.
Examples of nondisclosure.This data does not represent all hotels in Kansas. Confidentiality rules prohibit disclosure when a jurisdiction has a small number of hotels. In the nearby example, the value “C” is reported for Sedgwick County, indicating such non-disclosure. Obviously, there are hotels in Sedgwick County. But considering hotels in Sedgwick County that are not located in cities like Wichita, the number is too small to report, based on confidentiality guidelines. Similarly, for small cities, data is probably not available to the public.
The City of Wichita plans subsidized development of a sports facility as an economic driver. Originally published in July 2017.
West Bank Redevelopment District. Click for larger.This week the Wichita City Council will consider a project plan for a redevelopment district near Downtown Wichita. It is largely financed by Tax Increment Financing and STAR bonds. Both divert future incremental tax revenue to pay for various things within the district.12
City documents promise this: “The City plans to substantially rehabilitate or replace Lawrence-Dumont Stadium into a multi-sport athletic complex. The TIF project would allow the City to make investments in Lawrence-Dumont Stadium, construct additional parking in the redevelopment district, initiate improvements to the Delano multi-use path and make additional transportation improvements related to the stadium project area. In addition to the stadium work, the City plans to construct, utilizing STAR bond funds, a sports museum, improvements to the west bank of the Arkansas River and construct a pedestrian bridge connecting the stadium area with the Century II block. The TIF project is part of the overall plan to revitalize the stadium area and Delano Neighborhood within the district.”3
We’ve heard things like this before. Each “opportunity” for the public to invest in downtown Wichita is accompanied by grand promises. But actual progress is difficult to achieve, as evidenced by the examples of Waterwalk, Kenmar,and Block One.4
Trends of business activity in downtown Wichita. Click for larger.In fact, change in Downtown Wichita — if we’re measuring the count of business firms, jobs, and payroll — is in the wrong direction, despite large public and private investment. 5
Perhaps more pertinent to a sports facility as an economic growth driver is the Intrust Bank Arena. Two years ago the Wichita Eagle noted the lack of growth in the area. 6 Since then, not much has changed. The area surrounding the arena is largely vacant. Except for Commerce Street, that is, and the businesses located there don’t want to pay their share of property taxes. 7
I’m sure the city will remind us that the arena was a Sedgwick County project, not a City of Wichita project, as if that makes a difference. Also, the poor economic performance cited above is for Downtown Wichita as delineated by zip code 67202, while the proposed baseball stadium project lies just outside that area, as if that makes a difference.
By the way, this STAR bonds district is an expansion of an existing district which contains the WaterWalk development. That development has languished, with acres of land having been available for development for many years. We’ve also found that the city was not holding the WaterWalk developer accountable to the terms of the deal that was agreed upon, to the detriment of Wichita taxpayers. 8
Following, selected articles on the economics of public financing of sports stadiums.
The Economics of Subsidizing Sports Stadiums
Scott A. Wolla, “The Economics of Subsidizing Sports Stadiums,” Page One Economics, May 2017. This is a project of the Federal Reserve Bank of St. Louis. Link.
“Building sports stadiums has an impact on local economies. For that reason, many people support the use of government subsidies to help pay for stadiums. However, economists generally oppose such subsidies. They often stress that estimations of the economic impact of sports stadiums are exaggerated because they fail to recognize opportunity costs. Consumers who spend money on sporting events would likely spend the money on other forms of entertainment, which has a similar economic impact. Rather than subsidizing sports stadiums, governments could finance other projects such as infrastructure or education that have the potential to increase productivity and promote economic growth.”
What economists think about public financing for sports stadiums
Jeff Cockrell, Chicago Booth Review, February 01, 2017. Link.
“But do the economic benefits generated by these facilities — via increased tourism, for example — justify the costs to the public? Chicago Booth’s Initiative on Global Markets put that question to its US Economic Experts Panel. Fifty-seven percent of the panel agreed that the costs to taxpayers are likely to outweigh benefits, while only 2 percent disagreed — though several panelists noted that some contributions of local sports teams are difficult to quantify.”
Publicly Financed Sports Stadiums Are a Game That Taxpayers Lose
Jeffrey Dorfman. Forbes, January 31, 2015. Link.
“Once you look at things this way, you see that stadiums can only justify public financing if they will draw most attendees from a long distance on a regular basis. The Super Bowl does that, but the average city’s football, baseball, hockey, or basketball team does not. Since most events held at a stadium will rely heavily on the local fan base, they will never generate enough tax revenue to pay back taxpayers for the cost of the stadium.”
Sports Facilities and Economic Development
Andrew Zimbalist, Government Finance Review, August 2013. Link.
“This article is meant to emphasize the complexity of the factors that must be evaluated in assessing the economic impact of sports facility construction. While prudent planning and negotiating can improve the chances of minimizing any negative impacts or even of promoting a modest positive impact, the basic experience suggests that a city should not expect that a new arena or stadium by itself will provide a boost to the local economy.
Instead, the city should think of the non-pecuniary benefits involved with a new facility, whether they entail bringing a professional team to town, keeping one from leaving, improving the conveniences and amenities at the facility, or providing an existing team with greater resources for competition. Sports are central to cultural life in the United States (and in much of the world). They represent one of the most cogent ways for residents to feel part of and enjoy belonging to a community. The rest of our lives are increasingly isolated by modern technological gadgetry. Sport teams help provide identity to a community, and it is this psychosocial benefit that should be weighed against the sizeable public investments that sports team owners demand.”
Professional Sports as Catalysts for Metropolitan Economic Development
Robert A. Baade, Journal of Urban Affairs, 1996. Link.
“To attract or retain a team, cities are offering staggering financial support and rationalize their largesse on economic grounds. Do professional sports increase income and create jobs in amounts that justify the behavior of cities? The evidence detailed in this paper fails to support such a rationale. The primary beneficiaries of subsidies are the owners and players, not the taxpaying public.”
“Ten years ago, Elizabeth Stevenson looked out at the neighborhood where a downtown arena would soon be built and told an Eagle reporter that one day it could be the ‘Paris of the Midwest.’ What she and many others envisioned was a pedestrian and bike-friendly neighborhood of quaint shops, chic eateries and an active arts district, supported by tens of thousands of visitors who would be coming downtown for sporting events and concerts. It hasn’t exactly turned out that way. Today, five years after the opening of the Intrust Bank Arena, most of the immediate neighborhood looks much like it did in 2004 when Stevenson was interviewed in The Eagle. With the exception of a small artists’ colony along Commerce Street, it’s still the same mix of light industrial businesses interspersed with numerous boarded-up buildings and vacant lots, dotted with ‘for sale’ and ‘for lease’ signs.” Lefler, Dion. 5 years after Intrust Bank Arena opens, little surrounding development has followed.Wichita Eagle. December 20, 2014. Available at http://www.kansas.com/news/local/article4743402.html. ↩
Wichita voters might be surprised to learn that they passed a city sales tax, according to city documents.
In 2014 the Wichita City Council allowed voters to decide on a temporary one cent per dollar Wichita city sales tax. That would have taken the sales tax in the city from 7.5 percent to 8.5 percent. The matter failed to pass, with 62 percent of voters against the tax.
But wait. According to the agenda packet for the council’s meeting on March 5, 2019, a one-cent city sales tax has been approved at an election.
In the agenda for that day, as part of item V-3, titled “Private Development Agreement with Wichita Riverfront LP (District IV),” there is a development agreement between the city and a group wanting to develop city-owned land near the new baseball stadium. Section 6.03 of the development agreement holds this surprise:
“The 1% City sales tax has been approved at an election, and the City agrees that the City sales tax revenues generated within the STAR Bond District will be committed to pay the principal and interest of the STAR Bonds.” (emphasis added)
That’s news.
This error — if it is an error — is much more than a simple typographical error or misspelled word. I’ve asked the city for an explanation of what this means.
Something like this must be more than a random mistake. We need to know: How did this statement make its way into an official city document, specifically an agreement between the city and a business partner?
Are city officials planning another sales tax election? Not only planning an election but banking on the passage of the tax?
Is the business partner relying on a new Wichita city sales tax? Did the city promise this?
No matter what explanation the city may provide, it’s difficult to fathom how language like this appears in an official city document unless someone is thinking about this — and wishes for new taxes.
I’ll let you know if I get a response from Scot Rigby, who is Assistant City Manager, Director of Development Services for the City of Wichita.
Despite the mayor’s bluster, Wichita mostly lets a company off the hook.
As reported in Wichita City Council to consider a clawback, a company failed to meet the targets of an economic development incentive, and according to that agreement, owes the city $253,000 in clawbacks.
The city council, however, decided to require the company to pay only $100,000 of that. The city reasoned that because the company is planning an expansion, that would offset the other $153,000 of the clawback.
Wichita Mayor Jeff Longwell described this is holding the company accountable. The Wichita Eaglequoted him as saying, “This is why we’ve done it, to make sure that everyone is accountable and that the taxpayers, at the end of the day, win.”
But despite the mayor’s bluster, the city failed to enforce the agreement it made to protect taxpayers. Instead, the company receives $153,000 in free taxes that it didn’t deserve, along with an interest-free loan of $100,000 amortized over four years.
By the way, the same Eagle article reported: “Fiber Dynamics, a company founded by Darrin Teeter to commercialize technology developed at Wichita State’s National Institute for Aviation Research in the early ‘90s, hasn’t had to pay city property taxes since 2008, an estimated value of more than $500,000.”
Actually, the company didn’t pay any property taxes on the exempted property. That includes county, school, and state taxes.
In this episode of WichitaLiberty.TV: A look at some economic development incentive programs in Wichita and Kansas. Second in a series. Tax increment financing (TIF) is prominent in this episode. View below, or click here to view at YouTube. Episode 219, broadcast November 25, 2018.
Shownotes
Wichita TIF projects: some background. Tax increment financing disrupts the usual flow of tax dollars, routing funds away from cash-strapped cities, counties, and schools back to the TIF-financed development. TIF creates distortions in the way cities develop, and researchers find that the use of TIF means lower economic growth.
Industrial revenue bonds in Kansas: Industrial Revenue Bonds are a mechanism that Kansas cities and counties use to allow companies to avoid paying property and sales taxes.
Wichita employment, September 2018. For the Wichita metropolitan area in September 2018, jobs are up, the labor force is up, and the unemployment rate is down, compared to the same month one year ago.
Kansas tax receipts by category, presented in an interactive visualization.
The Kansas Division of the Budget publishes monthly statistics regarding tax collections. I’ve gathered these and present them in an interactive visualization. Updated with data through October 2018.
Click here to learn more and access the visualization.
In this episode of WichitaLiberty.TV: A look at some economic development incentive programs in Wichita and Kansas. First in a series. View below, or click here to view at YouTube. Episode 218, broadcast November 18, 2018.
Shownotes
Industrial revenue bonds in Kansas: Industrial Revenue Bonds are a mechanism that Kansas cities and counties use to allow companies to avoid paying property and sales taxes.
Wichita employment, September 2018. For the Wichita metropolitan area in September 2018, jobs are up, the labor force is up, and the unemployment rate is down, compared to the same month one year ago.
A look at actual spending on Kansas highways, apart from transfers.
KDOT spending, major road programs. Click for larger.KDOT spending, total road programs. Click for larger.KDOT transfers. Click for larger.KDOT funding sources, partial. Click for larger.When we look at actual spending on Kansas roads and highways, we see something different from what is commonly portrayed. Kansas Department of Transportation publishes a Comprehensive Annual Financial Report that details spending in four categories. These figures represent actual spending on roads and highways, independent of transfers to or from the highway fund.
For fiscal year 2018, which ended June 30, 2018, spending on two categories (Maintenance and Modernization) rose slightly from the year before, while spending on the categories Preservation and Expansion and Enhancement fell.
For these four categories — which represent the major share of KDOT spending on roads — spending in fiscal 2018 totaled $528.234 million. That’s down 28 percent from $736.781 million the year before, and up from a low of $698.770 million in fiscal 2010.
Again, these are dollars actually spent on highway programs. A common characterization of the way Kansas government is funded is called “robbing the bank of KDOT.” To the extent that characterization is accurate, there is a separate line item titled “Distributions to other state funds” that holds these values. It appears in the nearby table. A chart shows sales tax distributions from the general fund to KDOT, and transfers from KDOT. The two values tack closely over history, and in 2018 were nearly identical values.
Many also criticize Kansas government for slashing highway spending, letting our roads crumble. While total spending on these four programs has been falling (after adjusting for inflation), the decline, until recent years, is minor compared to the hysterical claims of those with vested interests in more government, and especially highway, spending.
Kansas law specifies how much sales tax revenue is transferred to the highway fund. Here are recent rates of transfer and dates they became effective: 1
July 1, 2010: 11.427%
July 1, 2011: 11.26%
July 1, 2012: 11.233%
July 1, 2013: 17.073%
July 1, 2015: 16.226%
July 1, 2016 and thereafter: 16.154%
A nearby chart shows the dollar amounts transferred to the highway fund from sales tax revenue. In 2006 the transfer was $98.914 million, and by 2018 it had grown to $530.765 million.
KDOT spending, major road programs. Click for larger.
Kansas tax receipts by category, presented in an interactive visualization.
The Kansas Division of the Budget publishes monthly statistics regarding tax collections. I’ve gathered these and present them in an interactive visualization.
In the nearby example from the visualization, we can see the rising trend in individual income taxes, due to the tax increase passed by the Kansas Legislature.
Click here to learn more and access the visualization.
Must the City of Wichita spend its share of Sedgwick County sales tax proceeds in a specific way?
Sedgwick County collects a one-cent per dollar retail sales tax. The county keeps some, then distributes the rest to cities. On Facebook, a question arose regarding how Wichita may spend its share of the sales tax proceeds. Couldn’t some funds that go towards building Kellogg be rerouted to, say, fund the operations of Wichita’s public library system?
A former city council member argued that “As it stands, Wichita cannot spend its allocated portion of that sales tax on anything but roads and bridges.” I posted that there was a Wichita city ordinance that said how the sales tax is to be spent in Wichita, and that ordinance could be modified or canceled. The same former council member admonished me to call a specific person in the city budget office and “he will clarify for you that the City Council doesn’t have the ability to override the Sedgwick County sales tax referendum language.”
I looked for the referendum language. The document is available in Sedgwick County’s election document system. The canvass of the special sales tax election was held on August 2, 1985, and this was reported:
The returns of the election were presented to the Board as received from the official conducting the election on the following proposition:
SHALL THE FOLLOWING BE ADOPTED?
A proposition to enact a countywide retailers’ sales tax in Sedgwick County, Kansas, in the amount of one percent (1%), such tax to take effect on October 1, 1985, pursuant to K.S.A. 1984 Supp. 12-187.
The language of the referendum is silent regarding how the tax revenue may or may not be spent.
Certificate of canvass, portion. Click for larger.There are, however, other considerations. One, according to Mark Manning, the city’s budget officer, is that the city has borrowed money, with proceeds from the sales tax pledged for repayment.
Second, there is a Wichita city ordinance, number 41-185. It pledges half the city’s share of the sales tax towards property tax reduction. Then, it states: “… and pledges the remaining one half of the one percent (1%) of any revenues received to Wichita road, highway and bridge projects including right-of-way acquisitions.” This was adopted on August 25, 1992 and replaced an existing ordinance that said the same.
The 1992 ordinance also holds this, in section II: “It is the specific intent of the Governing Body of the City of Wichita that the City of Wichita continue to use the tax revenues as outlined in this ordinance and that this pledge be continued as a matter of faith and trust between the people and the present and future Governing Bodies of the City of Wichita.”
We often hear that half the city’s share of the sales tax is pledged for Kellogg construction. In actuality it is pledged to “Wichita road, highway and bridge projects.”
But really, it isn’t even pledged to that. The pledge is in the form of a city ordinance. It may be changed at any time at the will of four council members.
Yes, the ordinance says the city intends to continue using the tax revenues in the same way “as a matter of faith and trust.” Unfortunately, that trust has been destroyed in many ways, one being council members who tell us things that aren’t true.
The Wichita City Council will consider approval of a redevelopment plan in a tax increment financing (TIF) district.
This week the Wichita City Council will hold a public hearing considering approval of more tax increment financing (TIF) spending in downtown Wichita. The spending is for the second phase of redevelopment of the Union Station property on East Douglas. According to city documents, the total cost of this phase is $31,000,000, with TIF paying for $2,954,734. 1
This is a pay-as-you-go form of TIF, which means the city does not borrow funds as it would in a traditional TIF district. Instead, the eligible portion of the developer’s property taxes will be rerouted back to the development as they are paid.
The TIF district was established in 2014. The council this week considers a redevelopment plan, which authorizes spending TIF funds on a specific project. Redevelopment plans must be approved by a two-thirds majority of the council. While overlapping jurisdictions like counties and school districts can block the formation of a TIF district, they have no such role in the approval of a redevelopment plan.
Of note, this public hearing is being held after the fact, sort of. City documents state: “A development agreement was approved by the City Council on August 7, to allow for the developer to begin non-TIF eligible improvements in order to meet deadlines for a new tenant.” The city documents for the August 7 meeting hold this: 2
The Developer has requested that the development agreement be approved now, prior to adoption of the project plan, to allow work to begin on the Meade Corridor improvements in order to complete the project in time for the tenant to move in. The Development agreement is drafted to allow for the Meade Corridor improvements to occur following adoption of the agreement, however, any work or reimbursement for TIF is contingent on City Council adoption of the project plan following the September 11 public hearing.
Citizens have to wonder will the September 11 public hearing have any meaning or relevance, given that on August 7 the city gave its de facto approval of the redevelopment plan.
Following, more information about tax increment financing.
Tax increment financing disrupts the usual flow of tax dollars, routing funds away from cash-strapped cities, counties, and schools back to the TIF-financed development. TIF creates distortions in the way cities develop, and researchers find that the use of TIF means lower economic growth.
How TIF works
A TIF district is a geographically-defined area.
In Kansas, TIF takes two or more steps. The first step is that cities or counties establish the boundaries of the TIF district. After the TIF district is defined, cities then must approve one or more project plans that authorize the spending of TIF funds in specific ways. (The project plan is also called a redevelopment plan.) In Kansas, overlapping counties and school districts have an opportunity to veto the formation of the TIF district, but this rarely happens. Once the district is formed, cities and counties have no ability to object to TIF project plans.
Figure 1.Before the formation of the TIF district, the property pays taxes to the city, county, school district, and state as can be seen in figure 1. Because property considered for TIF is purportedly blighted, the amount of tax paid is usually small. Whatever it is, that level is called the “base.”
Figure 2.After approval of one or more TIF project plans the city borrows money and gives it to the project or development. The city now has additional debt in the form of TIF bonds that require annual payments. Figure 2 illustrates. (There is now another form of TIF known as “pay-as-you-go” that works differently, but produces much the same economic effect.)
Figure 3.Figure 3 shows the flow of tax revenue after the formation of the TIF district and after the completion of a project. Because buildings were built or renovated, the property is worth more, and the property tax is now higher. The development now has two streams of property tax payments that are handled in different ways. The original tax — the “base” — is handled just like before, distributed to city, state, school district, and the state, according to their mill levy rates. The difference between the new tax and the base tax — the “increment” — is handled differently. It goes to only two destinations (mostly): The State of Kansas, and repayment of the TIF bonds.
Figure 4.Figure 4 highlights the difference in the flow of tax revenues. The top portion of the illustration shows development outside of TIF. We see the flows of tax payments to city, county, school district, and the state. In the bottom portion, which shows development under TIF, the tax flows to city, county, and school district are missing. No longer does a property contribute to the support of these three units of government, although the property undoubtedly requires the services of them. This is especially true for a property in Old Town, which consumes large amounts of policing.
(Cities, counties, and school districts still receive the base tax payments, but these are usually small, much smaller than the incremental taxes. In non-TIF development, these agencies still receive the base taxes too, plus whatever taxes result from improvement of the property — the “increment,” so to speak. Or simply, all taxes.)
The Kansas law governing TIF, or redevelopment districts as they are also called, starts at K.S.A. 12-1770.
TIF and public policy
Originally most states included a “but for” test that TIF districts must meet. That is, the proposed development could not happen but for the benefits of TIF. Many states have dropped this requirement. At any rate, developers can always present proposals that show financial necessity for subsidy, and gullible government officials will believe.
Similarly, TIF was originally promoted as a way to cure blight. But cities are so creative and expansive in their interpretation of blight that this requirement, if it still exists, has little meaning.
The rerouting of property taxes under TIF goes against the grain of the way taxes are usually rationalized. We use taxation as a way to pay for services that everyone benefits from, and from which we can’t exclude people. An example would be police protection. Everyone benefits from being safe, and we can’t exclude people from benefiting from police protection.
So when we pay property tax — or any tax, for that matter — people may be comforted knowing that it goes towards police and fire protection, street lights, schools, and the like. (Of course, some is wasted, and government is not the only way these services, especially education, could be provided.)
But TIF is contrary to this justification of taxes. TIF allows property taxes to be used for one person’s (or group of persons) exclusive benefit. This violates the principle of broad-based taxation to pay for an array of services for everyone. Remember: What was the purpose of the TIF bonds? To pay for things that benefited the development. Now, the development’s property taxes are being used to repay those bonds instead of funding government.
One more thing: Defenders of TIF will say that the developers will pay all their property taxes. This is true, but only on a superficial level. We now see that the lion’s share of the property taxes paid by TIF developers are routed back to them for their own benefit.
It’s only infrastructure
In their justification of TIF in general, or specific projects, proponents may say that TIF dollars are spent only on allowable purposes. Usually a prominent portion of TIF dollars are spent on infrastructure. This allows TIF proponents to say the money isn’t really being spent for the benefit of a specific project. It’s spent on infrastructure, they say, which they contend is something that benefits everyone, not one project specifically. Therefore, everyone ought to pay.
This attitude is represented by a comment left at Voice for Liberty, which contended: “The thing is that real estate developers do not invest in public streets, sidewalks and lamp posts, because there would be no incentive to do so. Why spend millions of dollars redoing or constructing public streets when you can not get a return on investment for that”
This perception is common: that when we see developers building something, the City of Wichita builds the supporting infrastructure at no cost to the developers. But it isn’t quite so. About a decade ago a project was being developed on the east side of Wichita, the Waterfront. This project was built on vacant land. Here’s what I found when I searched for City of Wichita resolutions concerning this project:
Figure 5. Waterfront resolutions.Note specifically one item: $1,672,000 for the construction of Waterfront Parkway. To anyone driving or walking in this area, they would think this is just another city street — although a very nicely designed and landscaped street. But the city did not pay for this street. Private developers paid for this infrastructure. Other resolutions resulted in the same developers paying for street lights, traffic signals, sewers, water pipes, and turning lanes on major city streets. All this is infrastructure that we’re told real estate developers will not pay for. But in order to build the Waterfront development, private developers did, with a total cost of these projects being $3,334,500. (It’s likely I did not find all the resolutions and costs pertaining to this project, and more development has happened since this research.)
In a TIF district, these things are called “infrastructure” and will be paid for by the development’s own property taxes — taxes that must be paid in any case. Outside of TIF districts, developers pay for these things themselves.
If not for TIF, nothing will happen here
Generally, TIF is justified using the “but-for” argument. That is, nothing will happen within a district unless the subsidy of TIF is used. Paul F. Byrne explains:
“The but-for provision refers to the statutory requirement that an incentive cannot be awarded unless the supported economic activity would not occur but for the incentive being offered. This provision has economic importance because if a firm would locate in a particular jurisdiction with or without receiving the economic incentive, then the economic impact of offering the incentive is non-existent. … The but-for provision represents the legislature’s attempt at preventing a local jurisdiction from awarding more than the minimum incentive necessary to induce a firm to locate within the jurisdiction. However, while a firm receiving the incentive is well aware of the minimum incentive necessary, the municipality is not.”
“This paper conducts a comprehensive assessment of the effectiveness of Chicago’s TIF program in creating economic opportunities and catalyzing real estate investments at the neighborhood scale. This paper uses a unique panel dataset at the block group level to analyze the impact of TIF designation and investments on employment change, business creation, and building permit activity. After controlling for potential selection bias in TIF assignment, this paper shows that TIF ultimately fails the ‘but-for’ test and shows no evidence of increasing tangible economic development benefits for local residents.” (emphasis added)
In the paper, the author clarifies:
“To clarify these findings, this analysis does not indicate that no building activity or job crea-tion occurred in TIFed block groups, or resulted from TIF projects. Rather, the level of these activities was no faster than similar areas of the city which did not receive TIF assistance. It is in this aspect of the research design that we are able to conclude that the development seen in and around Chicago’s TIF districts would have likely occurred without the TIF subsidy. In other words, on the whole, Chicago’s TIF program fails the ‘but-for’ test.
Later on, for emphasis:
“While the findings of this paper are clear and decisive, it is important to comment here on their exact extent and external validity, and to discuss the limitations of this analysis. First, the findings do not indicate that overall employment growth in the City of Chicago was negative or flat during this period. Nor does this research design enable us to claim that any given TIF-funded project did not end up creating jobs. Rather, we conclude that on-average, across the whole city, TIF was unsuccessful in jumpstarting economic development activity — relative to what would have likely occurred otherwise.” (emphasis in original)
The author notes that these conclusions are specific to Chicago’s use of TIF, but should “should serve as a cautionary tale.”
The paper reinforces the problem of using tax revenue for private purposes, rather than for public benefit: “Essentially, Chicago’s extensive use of TIF can be interpreted as the siphoning off of public revenue for largely private-sector purposes. Although, TIF proponents argue that the public receives enhanced economic opportunity in the bargain, the findings of this paper show that the bargain is in fact no bargain at all.”
TIF is social engineering
TIF represents social engineering. By using it, city government has decided that it knows best where development should be directed. In particular, the Wichita city council has decided that Old Town and downtown development is on a superior moral plane to other development. Therefore, we all have to pay higher taxes to support this development. What is the basis for saying Old Town developers don’t have to pay for their infrastructure, but developers in other parts of the city must pay?
TIF doesn’t work
Does TIF work? It depends on what the meaning of “work” is.
If by working, do we mean does TIF induce development? If so, then TIF usually works. When the city authorizes a TIF project plan, something usually gets built or renovated. But this definition of “works” must be tempered by a few considerations.
Does TIF pay for itself?
First, is the project self-sustaining? That is, is the incremental property tax revenue sufficient to repay the TIF bonds? This has not been the case with all TIF projects in Wichita. The city has had to bail out two TIFs, one with a no-interest and low-interest loan that cost city taxpayers an estimated $1.2 million.
The verge of corruption
Second, does the use of TIF promote a civil society, or does it lead to cronyism? Randal O’Toole has written:
“TIF puts city officials on the verge of corruption, favoring some developers and property owners over others. TIF creates what economists call a moral hazard for developers. If you are a developer and your competitors are getting subsidies, you may simply fold your hands and wait until someone offers you a subsidy before you make any investments in new development. In many cities, TIF is a major source of government corruption, as city leaders hand tax dollars over to developers who then make campaign contributions to re-elect those leaders.”
We see this in Wichita, where the regular recipients of TIF benefits are also regular contributors to the political campaigns of those who are in a position to give them benefits. The corruption is not illegal, but it is real and harmful, and calls out for reform. See In Wichita, the need for campaign finance reform.
The effect of TIF on everyone
Third, what about the effect of TIF on everyone, that is, the entire city or region? Economists have studied this matter, and have concluded that in most cases, the effect is negative.
“TIF districts grow much faster than other areas in their host municipalities. TIF boosters or naive analysts might point to this as evidence of the success of tax increment financing, but they would be wrong. Observing high growth in an area targeted for development is unremarkable.”
So TIF districts are good for the favored development that receives the subsidy — not a surprising finding. What about the rest of the city? Continuing from the same study:
“If the use of tax increment financing stimulates economic development, there should be a positive relationship between TIF adoption and overall growth in municipalities. This did not occur. If, on the other hand, TIF merely moves capital around within a municipality, there should be no relationship between TIF adoption and growth. What we find, however, is a negative relationship. Municipalities that use TIF do worse.
We find evidence that the non-TIF areas of municipalities that use TIF grow no more rapidly, and perhaps more slowly, than similar municipalities that do not use TIF.” (emphasis added)
In a different paper (The Effects of Tax Increment Financing on Economic Development), the same economists wrote “We find clear and consistent evidence that municipalities that adopt TIF grow more slowly after adoption than those that do not. … These findings suggest that TIF trades off higher growth in the TIF district for lower growth elsewhere. This hypothesis is bolstered by other empirical findings.” (emphasis added)
“This article addresses the claim by examining the impact of TIF adoption on municipal employment growth in Illinois, looking for both general impact and impact specific to the type of development supported. Results find no general impact of TIF use on employment. However, findings suggest that TIF districts supporting industrial development may have a positive effect on municipal employment, whereas TIF districts supporting retail development have a negative effect on municipal employment. These results are consistent with industrial TIF districts capturing employment that would have otherwise occurred outside of the adopting municipality and retail TIF districts shifting employment within the municipality to more labor-efficient retailers within the TIF district.” (emphasis added)
These studies and others show that as a strategy for increasing the overall wellbeing of a city, TIF fails to deliver prosperity, and in fact, causes harm.
—
Notes
Wichita city council agenda packet for September 11, 2018. ↩
Wichita city council agenda packet for August 7, 2018. ↩
Among nearby states, Kansas collects a lot of taxes, on a per-resident basis.
The United States Census Bureau collects data from the states regarding tax collections. Some data is available for each quarter subdivided by category.
From the first quarter of 2011 to the first quarter of 2018, Kansas and its local governmental units collected an average of $681 per quarter per resident in taxes. Of nearby states and a few others, Arkansas and Iowa had higher values, and Iowa is higher by only one percent.
Some states had lower values, such as Colorado at $565 per quarter per resident (17.0 percent less than Kansas), Texas and Missouri both at $486 (28.6 percent less), and Florida at $470 (31.0 percent less).
To learn more about this visualization and create your own, click here.
State and local tax collections presented in an interactive visualization.
The United States Census Bureau provides tax collection data for states and local governments on a quarterly basis. The data is provided by category such as total taxes, sales taxes, personal income taxes, etc. 1
The Bureau describes the program as:
The Quarterly Summary of State and Local Government Tax Revenue provides quarterly estimates of state and local government tax revenue at a national level, as well as detailed tax revenue data for individual states. The information contained in this survey is the most current information available on a nationwide basis for government tax collections.
While the state data records are ultimately from state government sources, the classification of taxes among the different categories is entirely the responsibility of the Census Bureau. Therefore, tax classification might not reflect the actual classification or presentation as requested by the various state government respondents. 2
This data is not adjusted for inflation. Some taxes, such a property taxes, show large seasonal variations.
I’ve gathered the data and have made it available in an interactive visualization. There are several views of the data, represented by the tabs at the top. You may select a time frame, the states that appear, and the tax categories that appear.
A lawsuit claims that when the City of Wichita refinanced its special assessment bonds, it should have passed on the savings to the affected taxpayers, and it did not do that.
A lawsuit filed in Sedgwick County District Court charges that the City of Wichita improperly handled the savings realized when it refinanced special assessment bonds at a lower interest rate. The case is 2018-CV-001567-CF, filed on July 13, 2018, and available here.
The suit names David L. Snodgrass and Leslie J. Snodgrass as plaintiffs, and a long list of defendants, namely:
The City of Wichita, Kansas
Wichita City Manager Robert Layton
Wichita Finance Director Shawn Henning and Former Wichita Finance Director Kelly Carpenter
Wichita City Clerk Karen Sublett
Wichita Mayor Jeff Longwell and former Wichita Mayor Carl Brewer
Current Wichita City Councilmembers Brandon Johnson, Pete Meitzner, James Clendenin, Jeff Blubaugh, Bryan Frye, and Cindy Claycomb
Former Wichita City Councilmembers Lavonta Williams, Janet Miller, Sue Schlapp, Paul Gray, Jeff Longwell, Jim Skelton, and Michael O’Donnell
Springsted Incorporated
Gilmore And Bell, A Professional Corporation
Kutak Rock, LLP
Sedgwick County Treasurer Linda Kizzire
The suit asks for a class to be created consisting of “all other affected land owners paying excess special assessments,” which would, undoubtedly, be many thousands of land owners. No specific amount of relief is requested.
The suit’s basis
The city borrows money by issuing bonds to fund improvements to (generally) new neighborhoods. These bonds pay for things like residential streets, water pipes, and sewer lines. The debt service for these bonds, that is, the money needed to make the bond payments, is charged to benefitting property owners in the form of special assessment taxes, often called “specials.” These specials are separate from the general property taxes that are charged to all property.
General property taxes are based on a property’s assessed value multiplied by a mill levy rate. Specials, however, are based on the cost of the infrastructure and the payments needed to retire the debt. This amount is determined at the time bonds are sold and the repayment schedule is established. (Bond payments depend on the amount borrowed, the length of the repayment period, and the interest rate. All this is known at the time the bonds are issued.)
These specials usually last 15 years, and after paid, no longer appear on a property’s tax bill. Sometimes special assessments are prepaid.
What the city did, and didn’t do, according to plaintiffs
During the last decade, interest rates on long-term bonds generally fell. In response, the city issued refunding bonds. These bonds took advantage of low interest rates by paying off old bonds that had higher interest rates, replacing them with bonds with lower interest rates. The lawsuit alleges that since 2009, the city has issued $216 million in refunding bonds saving $60.2 million, according to city documents cited in the lawsuit. The suit does not specify how much of this savings is attributed to special assessment bonds.
So the city refinanced special assessment debt at a lower rate, reducing the cost of the debt. That’s good. Homeowners often do this when mortgage rates are low, and it’s good that the city does this too.
The problem, according to the lawsuit, is that some of the refinanced debt was special assessment debt. The lawsuit contends that, based on Kansas law, the city should have passed on the savings to the property owners that were paying off this special assessment debt. Instead, says the suit, “the City of Wichita transferred the excess special assessment money paid by affected Wichita taxpayers to support its general fund and/or other municipal funds.” In other words, the city spent the savings on other things, when it should have directed the savings to land owners who were paying the special taxes.
Plaintiffs allege that the conduct of the city and its advisors constitutes fraud against those paying special assessment taxes:
The fraudulent actions of Defendant City of Wichita, along with the other Wichita Defendants, and Defendants Springsted, Gilmore and Bell and Kutak Rock resulted in the misappropriation of millions of dollars of “saved” tax payments that should have been returned to Plaintiffs along with all other affected land owners paying special assessments levied under the General Improvement and Assessment Laws of the State of Kansas.
Further, the suit alleges that the liability faced by many of the defendants is personal:
Because the Wichita Defendants actively participated in the fraud practiced by Defendant City of Wichita, they cannot escape personal liability for the fraudulent actions of the City of Wichita upon Plaintiffs and all other affected land owners paying special assessments.
While there is one named party as plaintiff, the suit alleges that all similarly situated persons have been harmed, and so a class action is appropriate. That would be all property owners who have paid special assessment taxes to Wichita since 2009, including myself.
A Wichita Eagle editorial argues for higher property taxes to help the city grow.
In a recent op-ed, the Wichita Eagle editorial board writes: “It’s hard to make the argument that Wichitans are overtaxed by their city government. It’s time for the community to look at how it helps the city grow. A responsible plan that asks Wichita families to chip in the cost of a family meal should be part of the conversation.” 1
The argument that a tax increase is only “the cost of a family meal” is weak. (From the editorial: “A 1-mill increase would cost a property owner $11.50 annually for every $100,000 of appraised value of a home.”) In other words, it’s just a little bit. Just one dollar each month. You won’t even notice it.
This is a standard argument made by those who want higher taxes and those who oppose tax cuts. The problem is just that: Everyone makes this argument, and when added together, the nickels and dimes add up to real money.
Besides, there are families in Wichita who have trouble paying for family meals.
Then, there’s the effect on business. An ongoing study reveals that generally, property taxes on commercial and industrial property in Wichita are high. Specifically, taxes on commercial property in Wichita are among the highest in the nation. Commercial property is taxed at 2.180 times the rate as residential property. (The U.S. average is 1.683.) Because Wichita’s ratio is high, it leads to high property taxes on commercial property. 2
Raising taxes on commercial enterprise shifts economic activity from the private sector to government. Citizens may want to ask where money is spent most beneficially.
The Eagle editorial board says higher property taxes could help the city grow. There’s no doubt the city needs help growing. But given the record of our local government leaders — both elected and bureaucratic — it’s difficult to see how giving them more money to spend will help.
WaterWalk, downtown Wichita, September 30, 2014. There has been little change since then, except for the loss of Gander Mountain.As an example of government helping the city grow, consider the Waterwalk development in downtown Wichita. Despite some $41 million in taxpayer subsidy, the development languishes. On top of that, the city doesn’t enforce agreements that might benefit taxpayers. 3
The Wichita Eagle editorialized “Seven years into a project that was supposed to give Wichita a grand gathering place full of shops, restaurants and night spots as well as offices and condos, some City Council members and citizens remain skeptical at best about WaterWalk’s ability to deliver on its big promises. … True, the skepticism to date is richly deserved.” 4
Oh. That editorial was written in 2009, nine years ago. Since then, there has been some improvement, like the Marriott Fairfield Inn and Suites Hotel and the fountain. But, Gander Mountain — the development’s retail anchor — closed.
The present Eagle editorial board calls for a “responsible plan.” But when we see the city spending on things like Waterwalk and then failing to uphold agreements designed to protect taxpayers — well, the city hasn’t been acting responsibly.
Contrast downtown’s Waterwalk with Waterfront, a development at 13th and Webb Road in east Wichita that started around the same time as Waterwalk. There, developers spent millions of their own money to build a beautiful parkway, sewers, traffic lights, and the like. 5
Merchants at Wichita’s Waterfront. Click for larger.It is at Waterfront where we see large first-class office buildings and small executive offices. It is there we find desirable nationally-known restaurants like Abuelo’s Mexican Food Embassy, Bonefish Grill, PF Chang’s China Bistro, and Red Robin. We also see fine local restaurants like Chester’s Chophouse & Wine Bar. It is at Waterfront we find lodging like Homewood Suites by Hilton, retail stores like Ethan Allen, and the city’s only Whole Foods Market.
All this at Waterfront was done without help from the taxpayers, unlike downtown’s Waterwalk consuming our $41 million. Other popular developments like Bradley Fair and New Market Square were developed with little or no government help.
Trends of business activity in downtown Wichita. Click for larger.Even the subsidized “development” that most people agree is a success is not all it’s cracked up to be. That is downtown Wichita, where there has been hundreds of millions in private and public investment over the past decade. The result is that over the same time, business activity in downtown Wichita has been on a downhill trend. The data for 2016 (the most recent year for data) is a bit of good news, with the decline stopping and business activity remaining mostly unchanged. It isn’t the vibrant growth we’ve been told is happening in downtown Wichita, but at least things are not getting worse. 6
So: Do we trust Wichita’s political and bureaucratic leaders to develop a “responsible plan?” Give this record, do we want to shift more resources from the private sector to the government sector?
Competing tax hikes
It’s surprising that the Eagle editorial board would recommend higher property taxes right now. That’s because it’s likely we’ll be asked to approve more taxation, probably soon. There is support among the city’s elite for a renovated or new performing arts and convention center, something that probably can’t be done without more tax revenue. Project Wichita is seen by many as an effort to persuade the region for higher taxes.
Also: In 2014 the steering committee for the Wichita/Sedgwick County Community Investments Plan delivered a report to the Wichita City Council. This report told the council that the “cost to bring existing deficient infrastructure up to standards” is an additional $45 to $55 million per year over current levels of spending. 7
I’m not aware of the city directing additional spending to cure this maintenance gap. As time passes, the gap becomes larger. Although: The city decided to spend an additional $10 million on street repair. But that was a one-time infusion made available when the city sold a capital asset.
This backlog of maintenance is a manifestation of the city not being responsible with assets Wichita taxpayers paid for. And if it is true that we need to spend an additional $45 to $55 million per year, where will the city get those funds? The Eagle urges a one mill property tax increase, which it says means the “city budget would gain $3.5 million to $4 million.” To fix our maintenance backlog would require a property tax increase of over ten mills, if that is how the city decides to raise the funds.
The Douglas Design District proposes to transform from a voluntary business organization to a tax-funded branch of government (but doesn’t say so).
Update: On August 21, the council approved the formation of the planning committee.
This week the Wichita City Council will consider taking the first step in forming a business improvement district (BID) in east-central Wichita. Some explanation from the agenda packet for the meeting: 1
First, there already exists a voluntary organization: “The Douglas Design District (DDD) is a voluntary organization of over 300 local businesses located near Douglas Avenue between Washington Avenue and Oliver Avenue. In 2017, the DDD established a five-year strategic plan to become a financially self-sustaining organization that is not reliant on elective membership.”
The purpose of a business improvement district: “A BID provides for the administration and financing of additional and extended services to businesses within the district and is funded by the City levying a mandatory service fee on the businesses within the district.”
Who will collect, and who will spend? “While the City levies the service fee, it can contract with a third-party organization such as the DDD to operate the BID. The approach is similar to that used by the City to contract with the Wichita Downtown Development Corporation in downtown.”
The action on the agenda this week is to establish a planning committee to develop things like district boundaries, services to be provided, and a budget. Although city documents aren’t specific, it’s likely this “service fee” will be levied as a property tax.
Are BIDs a good idea? Most information about them is provided by their boosters, that is, those who directly benefit from the service fee, which is really a tax. But there are some doubters. The New Republic, by no means a conservative publication, printed a piece arguing against BIDs, stating: “But too often BIDs have turned against the businesses they were meant to serve, making the cost of entry into a new area even higher for local merchants, or lacking the transparency needed to instill trust from the community.” 2
A larger and more balanced look at BIDs comes from Washington Monthly this summer:
The privatized structure of BIDs may raise liberals’ hackles, but it’s clear that BIDs can be a useful tool to remake neighborhoods into places where people actually want to spend their time. Many big-city mayors — who are overwhelmingly Democratic — have thrown their weight behind them. D.C. Mayor Muriel Bowser recently doled out grants totaling $300,000 to five neighborhoods thinking about forming their own BIDs. (One of the grantees, Dupont Circle, with the decaying park, will start collecting taxes from business owners in the fall.)
Still, there are real downsides to BIDs for renters and small business owners, who will not benefit from rising property values and may ultimately be pushed out of the area. Luckily, this isn’t a hugely difficult problem to remedy. The best, and easiest, way to revamp how BIDs are run is through city halls; they’re the ones who legislate what BIDs can and can’t do, while holding them accountable to the public. But too often, they renege on that responsibility. 3
From Canada, harsh criticism:
In this paper, we propose and develop the concept of “socio-economic hygiene” to denote the ways in which neoliberal Western urban space is spatially regulated and re-oriented towards consumption in a way that reinforces social exclusion. … We conclude by tracking how sociological strategies of “hygiene” have moved from racial and biological features to features of place and socioeconomic status, and how BIDs, resembling genocidal states in certain ways, use these strategies to continually justify their own existence. 4
Civil society, or government?
What should trouble everyone is the replacement of civil society with political society. Edward H. Crane explains: “There are basically only two ways to organize society: Coercively, through government mandates, or voluntarily, through the private interaction of individuals and associations. … In a civil society, you make the choices about your life. In a political society, someone else makes those choices.”
Right now DDD is a voluntary organization. Civil society, in other words. But now it is proposed to replace it with political society.
Why trade voluntary cooperation for the force of government? The annual report of the DDD (included in the city council agenda packet) explains: “Approximately 1/3 of businesses in DDD’s project area are DDD members yet ALL businesses benefit from DDD’s efforts. A BID eliminates this ‘free rider’ problem and, if implemented, would allow DDD to have a singular focus on implementing the BID business plan rather than always chasing membership.” For emphasis, the report notes: “THE PAYMENT OF THE BID ASSESSMENT WILL REPLACE MEMBERSHIP DUES.”
Another term for chasing membership is selling your product by showing how it creates value. If the formation of the BID is successful, the Douglas Design District will be relieved of this necessity. Will having a guaranteed source of revenue make DDD more or less responsive to its members?
Also, the DDD annual report states: “A BID assessment is not a tax.” I wonder what will happen to anyone who decides to skip paying this tax. After a few years, they will experience the blunt power of government tax collection.
Taxation without transparency
The agenda packet states this about the relationship between the city and the district: “While the City levies the service fee, it can contract with a third-party organization such as the DDD to operate the BID.”
Wichita has similar organizations. One is the Wichita Downtown Development Corporation, now known as Downtown Wichita. This organization is funded nearly entirely by tax revenue from an improvement district. Yet, it refuses to make its spending records public, and the city supports that decision. 5
Another similar taxpayer-funded organization is the city’s convention and tourism bureau, which has gone by several names over the years. Regarding it, in 2012 I wrote:
We’ve learned that city council members rely on — as Randy Brown told the council last year — facile legal reasoning to avoid oversight: “It may not be the obligation of the City of Wichita to enforce the Kansas Open Records Act legally, but certainly morally you guys have that obligation. To keep something cloudy when it should be transparent I think is foolishness on the part of any public body, and a slap in the face of the citizens of Kansas. By every definition that we’ve discovered, organizations such as Go Wichita are subject to the Kansas Open Records Act.” 6
Of interest is a segment from the KAKE Television public affairs program “This Week in Kansas” where the failure of the Wichita City Council, especially council member Pete Meitzner (district 2, east Wichita), to recognize the value of open records and open government is discussed. Video is here.
Since this time, the city has formed a business improvement district known as a TBID. It covers all hotels in the city and imposes an additional 2.75 percent tax to hotel bills, although the city and hotels call it a “City Tourism Fee.” 7 I’ve not asked for records of this spending, but I am sure the request would be rejected.
Will the Douglas Design District follow the standard set by Wichita’s other improvement districts and evade accountability and transparency?
Results from current improvement districts
The Washington Monthly piece mentions that city halls can hold BIDs accountable. But lack of transparency works against oversight and accountability.
Then, if anyone wonders what about the results of Wichita’s improvement districts, here are a few findings:
For the past decade business activity in downtown Wichita has been on a downhill trend. The data for 2016 (the most recent year for data) is a bit of good news, with the decline stopping and business activity remaining mostly unchanged. It isn’t the vibrant growth we’ve been told is happening in downtown Wichita, but at least things are not getting worse. 8
Truthfulness is in short supply. The Downtown Wichita organization has been caught in either a huge lie or gross incompetence regarding its claim of the number of people working in downtown Wichita. After brought to its attention, the number is no longer used. 9
Wichita economic development officials use a circuitous method of estimating the population of downtown Wichita, producing a number much higher than Census Bureau estimates. 10
Looking at hotel guest tax receipts, which are a surrogate for total hotel room revenue, we observe that of the largest markets in Kansas, Wichita has experienced the least growth in hotel guest tax collections since 2010. 11
Despite this record, Wichita City Hall seems satisfied with these results.
