Voice For Liberty

Tag: TIF districts

  • Wichita’s alphabet soup of ‘tax tricks’

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

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

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

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

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

  • In Wichita Planeview neighborhood: Yes, we have!

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

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

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

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

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

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

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

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

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

    Is the CID tax necessary?

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

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

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

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

    The issue of tax increment financing

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

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

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

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

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

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

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

    The moral hazard

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

    Now he knows to get a shovel.

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

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

    By John Todd

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

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

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

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

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

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

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

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

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

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

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

  • Photos of Wichita Planeview grocery stores

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

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

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

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

  • 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)