Voice For Liberty

Tag: TIF districts

  • Tax increment financing questions topic at Wichita city council meeting

    On Tuesday the Wichita city council heard a request by Real Development for a $2.5 million increase in tax increment financing on a downtown project. Discussion during the meeting revealed how little is known about the numbers that the city uses in deciding whether to participate in the project. Numbers that don’t make sense, plus the fact that the applicant has not responded to the city’s request for new numbers, indicate that this proposal should be rejected.

    A question that I asked referred to some numbers presented by in the materials supplied to council members in the public, specifically the total investment and market value for the project. When the project was revised for the first time in 2008, the plan called for total investment of $27,800,000, producing a project with market value of $33,803,000. In this plan the market value is greater than investment, which seems like a good thing.

    In the second revision presented to the council this week, here are the values: Total investment is $46,491,728, while the market value is $41,695,000. Now the market value is less than investment. In fact, it is ten percent less than the amount invested.

    I asked how are these market values determined, and is it wise to have investment that is so much greater than market value? In the video below, I think we can agree that a satisfactory answer was not provided.

    In particular, the city’s economic development chief Allen Bell said that he had asked the applicants for updated information on these figures, but had not received it. This was revealed at the time the council was being asked to make an investment of some ten million dollars of taxpayer funds.

    The fact that there was confusion, and data not made available to the city, at the time the council is being asked to make a decision casts quite a bit of doubt on the entire decision-making process.

    A second question I asked had to do with the fact that the TIF district is quite a bit larger than the specific buildings that are the subject of the TIF financing request, and not all the property in the district is owned by the applicants. I asked that as property values — and therefore tax payments — in the other property in the district rises, does its increased valuation go towards paying off the TIF bonds? The answer from Bell was no.

    A second question was what if these other property owners in the TIF district wanted to obtain TIF financing of their own. Does the fact that their property is already in a TIF district prevent them from receiving TIF financing? The answer from Bell was no.

  • Wichita Exchange Place TIF should be rejected

    Tomorrow’s meeting of the Wichita city council will feature a public hearing as to whether a tax increment financing district that benefits Real Development should be modified. The TIF district is already approved in the amount of $9.3 million. The applicants are asking that the city’s contribution be increased to $11.8 million, plus approval of changes to the project plan.

    The first issue we should address is the purpose of these public hearings. Presumably notice of their existence is given not only so citizens and interested parties can plan to attend, but also so that there can be discussion of the details of the issue. This second reason is not fulfilled to any meaningful extent. There just isn’t time for anything to happen. The agenda report for this matter did not appear on the city’s website until around noon Friday, just two business days before the hearing.

    Furthermore, the plan may be revised as late as today — the day before the public hearing — according to reporting in today’s Wichita Eagle.

    There needs to be more time if these public hearings are to be anything but a sham. The city approved April 13 as the date for the public hearing on March 23. So the public hearing is announced, but details of the project are not known. How will the public — much less city council members — become aware of the final plan?

    The plan to be heard tomorrow is the second revision of the original plan, which was first approved in 2007. Some may criticize Real Development for the shifting plan. But this is the nature of business. Change, however, is something that government bureaucracy is particularly ill-equipped to deal with.

    There are reasons to be concerned with these particular applicants. Several floors in buildings they own in Wichita have been subject of foreclosure actions. While it is not Real Development that failed to pay the loans that were foreclosed on, this happened in buildings Real Development owns and developed with a condominium-style of ownership.

    There is also issue of allegations made by tenants of Real Development that it is not performing on its obligations. These tenants will not come forward in public, as they are afraid that if the city stops subsidizing Real Development, the tenants will suffer.

    But the largest and overriding issue is that the city should not be directing taxpayer investment outside the market process. It is an undeniable fact that the city is considering forcing Wichita taxpayers to risk an investment of around $10 million in this project. And if the investment doesn’t work out, the city is likely to force Wichitans to spend even more money on this project, as the city did when it made a no-interest and low-interest loan to a downtown theater that was underperforming in its TIF district.

    It would be one thing if TIF districts were good for the city, but there is no such evidence. There is evidence that TIF districts are great for the developers — after all, wouldn’t like to have their increase in property taxes spent for their exclusive benefit, which is the purpose of a TIF district — but not so good for the rest of the city. The article Tax Increment Financing: A Tool for Local Economic Development by economists Richard F. Dye and David F. Merriman states, in its conclusion:

    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 TIFs are good for the favored development — not a surprising finding. What about the rest of the city? Continuing from the same study:

    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.

    So TIF districts may actually reduce the rate of economic growth in the rest of the city.

    Cato Institute Senior Fellow Randal O’Toole has written this about tax increment financing:

    TIF does not increase the total amount of development that takes place in a city or region; it merely transfers development from one part of the region to another. … The new developments in the TIF districts consume fire, police, and other services, but since they don’t pay for those services, people in the rest of the city either have to pay higher taxes or accept a lower level of services. This means people outside the district lose twice: first when developments that might have enhanced their property values are enticed into the TIF district and second when they pay more taxes or receive less services because of the TIF district.

    Similar findings apply to the issuance of industrial revenue bonds, as the city issued last week and issues frequently.

    Finally, I have a simple question for the mayor, city council, and city staff: Will any downtown development occur without public subsidy?

    Resources on tax increment financing:

    Exchange Place Redevelopment Plan April 13, 2010

  • Wichita Warren Theater IRB a TIF district in disguise

    On Tuesday the Wichita City Council will consider an economic development incentive for a local business. The process the city is using to grant this incentive bypasses the scrutiny that accompanies the formation of TIF districts while providing essentially the same benefit.

    The proposal provides Industrial Revenue Bond financing to American Luxury Cinemas, Inc., d.b.a. 21st Street Warren Theatre, a company owned in part by Wichita theater operator Bill Warren. Under the city’s IRB program, no city money is lent to Warren, and the city does not provide any guarantee that the bonds will be repaid.

    Instead, the benefit of the IRB to Warren is that he will escape paying property taxes on the new theater. Also, he will likely avoid paying sales taxes on purchases made with the bond money. (The city-supplied material doesn’t mention the sales tax exemption, but this incentive is commonly granted, and mention of it was likely omitted by mistake from the agenda report.)

    This project is a TIF district in effect. It has the same economic benefit to the applicant. But the way this deal is structured means it doesn’t have to go through the normal approval process of a TIF district. Specifically, the Sedgwick County Commission will not have a chance to consider approval of these incentives. That approval would probably not be granted.

    The process being used also allows the city to bypass the 30 day notice of a public hearing required for formation of a TIF district.

    In a TIF district, the city borrows money and spends it immediately for the benefit of the TIF district. What the city spends money on isn’t important, as long as it’s spent on things that the owners of the property in the TIF district would have to pay for themselves, if not for the city. This is important to remember, as defenders of TIF districts say that the city money is spent “only on infrastructure,” as if most developers don’t have to pay for their own infrastructure.

    As improvements to property in the TIF district are made — buildings being built or renovated, etc. — the property taxes on the property go up. This increase in the tax payments — that’s the increment in TIF — goes to pay off the borrowed money that was spent on the TIF district.

    Since the TIF district spending was for the exclusive benefit of of the TIF district applicant, and the increased property taxes are paying off the bonds that provided that spending, TIF districts, in effect, let the applicants keep the increase in their own property taxes for their exclusive benefit.

    Whenever anyone else improves their property and has to pay higher taxes, those taxes go to fund the general operations of government.

    (If this sounds confusing and complicated, it is. It is confusing by design. A while back I told the council: “I’ve come to realize that this confusion serves a useful purpose to this council, because if the people of Wichita knew what was really happening, they’d be outraged.”)

    In the Warren deal that the council will consider on Tuesday, no TIF district is being created. But because the property is in the IRB program, property taxes will be forgiven. Warren is agreeing to make payments equal to the present tax bill on the property (plus a small annual increase).

    The net effect is that the Warren group will not pay property taxes on the value of the new project. It’s the same economic effect as a TIF district, without the scrutiny that accompanies formation of a TIF district.

    Some city politicians and bureaucrats — particularly Mayor Carl Brewer, council member Jeff Longwell, and the city’s economic development chief Allen Bell — have complained that the city doesn’t have enough “tools in the toolbox” when it comes to dishing out economic development incentives.

    This applicant has been the recipient of economic development incentives, including a TIF district formed for its benefit. When that business was failing, the city created a special tool for Warren’s benefit: a no-interest and low-interest loan.

    Here we see another new tool being created — the formation of what is, in effect, a TIF district without accompanying scrutiny.

    Warren IMAX Theater Project

  • Will the real robber barons please stand up?

    By Helen Cochran.

    At the April 13th meeting of the Wichita City Council a request from downtown developer Real Development will be made for an additional $2.2 million taxpayer subsidy for its condo project Exchange Place, located at Douglas and Market. With two weeks to go before this public hearing there is still time for council members to read The Myth of the Robber Barons by Burton Folsom. Folsom’s easy-to-read 134-page narrative lays out the case for entrepreneurship in America and can be read in one evening. It’s a history lesson worth reading by all.

    Folsom highlights two kinds of business developers: “political entrepreneurs” and ‘market entrepreneurs.” And while Folsom focuses on the larger-than-life entrepreneurs of the nineteenth and early twentieth century, the lessons gleaned have far reaching implications and relevance, even on a local level.

    According to Folsom, “political entrepreneurs” are those that seek government/taxpayer subsidy, public private partnerships, protective tariffs, special privileges, etc. Folsom makes a sound case that economic development fueled by political intervention invariably fails and undermines the very ideology it purports to serve.

    On the other hand “market entrepreneurs” are those that obtain their successes by producing a product that is better and of more value to the consumer, unbridled by the government controls and restrictions that come with subsidy. No one can argue that it is the market entrepreneurs that create the wealth in this country.

    Despite the anti-business rhetoric spewed by most historians and reinforced in school curriculums across this country, Folsom offers concrete evidence that the likes of Commodore Vanderbilt, John D Rockefeller, Andrew Mellon, the Scrantons of Pennsylvania, James J. Hill, and Charles Schwab should be revered because of the consumer benefits achieved when free markets are allowed to flourish without government involvement. Folsom contrasts these successes with failure-after-failure of those in the same respective industries that received government subsidy. Government cannot do it better and most certainly cannot do it cheaper.

    In Wichita, Real Development is one of several downtown “political entrepreneurs.” What was originally a $27.8 million project with an approved $9.3 million subsidy from the City of Wichita is now a $51.5 million project seeking an additional $2.2 million subsidy from the City. Real Development boasts that with approved additional City subsidy they will be able to qualify for a $30 million loan from the U.S. Department of Housing and Urban Development — a government guaranteed loan. This “guarantee” is none other than you and me. Our taxpayer dollars are lost if this project fails.

    According to Goody Clancy, the City’s downtown development consultant, there is a market for downtown development in Wichita. Specifically, Goody Clancy consultants found that downtown Wichita demand for residences is 1,000 units over the next five years.

    If such a market truly exists where are the market entrepreneurs and why are they not clamoring to develop? Why are local banks not willing to loan these political entrepreneurs money without a government guarantee? Michael Elzufon, one of the principals of Real Development, states this is a “low risk deal.” Yes, it’s a low risk deal for Elfuzon but I suggest it is a very high-risk deal for the taxpayer.

    The Wichita City Council, as with as many city councils nationwide, continues to insist that economic development in downtown Wichita requires government subsidy. Fear mongering becomes a tactic used when justifying subsidies offered to private enterprise to locate or expand here: “Everyone else is offering them” or “If we don’t subsidize, Company X will go elsewhere or relocate” or “Without subsidy this won’t happen.” Millions of taxpayer dollars have been invested in the name of economic development or downtown revitalization and when projects fail, millions more are spent in an attempt to salvage the project.

    Development succeeds when market entrepreneurs perceive a need and are willing to risk their own capital for success. Anything short of that has historically failed.

    The Myth of the Robber Barons is a must read for anyone interested in the writing on the wall but especially for those with the power to commit taxpayer money to projects that are better left to market entrepreneurs.

  • Randal O’Toole on Wichita’s WaterWalk and government planning

    As part of Randal O’Toole’s visit to Wichita, he recorded some remarks in front of a few of Wichita’s monuments to government planning. Paul Soutar of Kansas Watchdog recorded video and assembled the remarks. His reporting is Randal O’Toole on Wichita’s WaterWalk and Government Planning.

  • Businesses in Old Town Cinema district fought property taxes

    As reported in the Wichita Eagle by Brent Wistrom: “Business owners in a special taxing district surrounding the Old Town Warren Theatre have fought to have their property taxes reduced, forcing the city to cover debts incurred when the city bought land, installed utilities and built a park to spur the development.”

    I guess no one wants to pay taxes, even when those taxes go to pay off bonds that benefited your property. That’s true even though the city has made a no-interest and low-interest loan to the primary business in this TIF district. As the Eagle story reports: “The move was seen as a way to ensure the theater’s success and give the TIF district a boost.”

    We see the desire to skirt paying a full load of taxes playing out in the Power & Light District in Kansas City, Missouri, which is often cited as an example of what we’d like to have in Wichita. There, the Cordish Company refers to the project as an $850 million investment. But according to Kansas City Business Journal reporting, the company wants the appraised value for tax purposes to be just $12.3 million.

    This didn’t go over well with the writer of an editorial in the same publication. The anonymous author wrote: “But for all of The Cordish Co.’s skill in conjuring the entertainment district, the developer doesn’t seem to miss an opportunity to kick its host community in the shins. The latest kick comes in the form of a protest by Cordish of the appraised value of the Power & Light District.”

    Further: “Cordish isn’t bickering with the county about a slight variance in figures — it is claiming a value that is less than one-tenth of the county’s number.”

    We don’t have many more details about the situation in Wichita. I’ve made a records request that should tell us which property owners appealed their tax valuations, their reasons why, and the result of the appeal.

  • Public forum on WaterWalk hotel proposal

    On Monday January 25, a group of citizens will hold a public forum concerning the proposal for a hotel in the WaterWalk development in downtown Wichita.

    The event is from 7:00 pm to 8:00 pm in the meeting room of the Wichita Downtown Public Library. The meeting room is on the top floor of the library.

    Tirza Heflin is the organizer of this forum. She says:

    “You and the public are invited to join a group of interested citizens to discuss the proposed Water Walk hotel.

    An invitation to join this public forum discussion has been sent to Wichita Mayor Carl Brewer and all of the Wichita City Council members.

    The forum is being organized by a group of citizens who are interested in downtown redevelopment, and want to see our downtown thrive. Several citizens have questions about the public sector interests in the WaterWalk public/private partnership before our City Council considers the letter of intent for this project on February 2, 2010.”

    Contact Tirza Heflin at 316-201-8353 or tvgustadj_88@yahoo.com.

    The Facebook page for this event is Public forum on WaterWalk hotel proposal.

  • Estes Park repeals TIF district

    A city in Colorado has voted to repeal a TIF district. Wichitans ought to take notice. Randal O’Toole, the author of the post, notes the complexity of the TIF mechanism. This is in line with testimony I’ve delivered to the Wichita City Council, in which I characterized TIF districts as “a confusing arrangement that hides the reality and size of the subsidy given to TIF developers.” The benefit, I said, is that “this confusion serves a useful purpose to this council, because if the people of Wichita knew what was really happening, they’d be outraged.”

    It’s likely that more TIF districts will be proposed as part of the revitalization of downtown Wichita, as our planning firm, Goody Clancy, has said that Wichita should “Continue to employ established TIF funding mechanisms.”

    O’Toole will be visiting Wichita on Thursday and Friday February 4 and 5 for a series of events, including a public lecture that Thursday evening. Details will follow.

    I’ve reproduced the post in its entirety below. The original version, complete with many links to supporting documents, is at Estes Park Repeals TIF District.

    In what leaders hope to be the start of a movement, nearly 61 percent of voters in the city of Estes Park, Colorado decided to abolish the city’s urban-renewal district. The measure, which was put on the ballot through an initiative petition, also requires voter approval before the city creates another one.

    Supporters of the urban-renewal district made the usual claim that tax-increment financing doesn’t cost anything. In fact, it takes money that would otherwise go to schools and other urban services and puts it in a slush fund for city officials to use to benefit favored developers.

    The city made every effort to keep the measure from passing, including scheduling it during a time when many voters were out of town and it would be a single-issue election, thus depressing voter turnout. Despite this, voter turnout exceeded 60 percent.

    After the election, the Mayor Bill Pinkham announced that the city may challenge the vote in court. However, he later backed away, perhaps because he couldn’t find any legal grounds to contest it.

    The problem with tax-increment financing is that it is just complicated enough that it is easy to confuse people about it. This makes it hard for critics in major cities such as Denver or Portland to gather enough signatures to put a similar measure on the ballot in their cities. But if some more smaller cities pass such measures, it may inspire similar campaigns in the big cities.

  • Wichita planning puts freedom, prosperity at risk

    Remarks to be delivered to the October 13, 2009 meeting of the Wichita City Council.

    Mr. Mayor, members of the council,

    I’m here today to ask this council to put aside consideration of this proposal. My reasons are not particular to this proposal or planning firm, but rather I am concerned that we believe we have the ability to successfully plan at all.

    Here’s just one reason why I’m concerned: Wichita’s favorite method of financing developments is the TIF district. Recognizing this, the Goody Clancy proposal under the heading “Opportunities” mentions “Continue to employ established TIF funding mechanisms.”

    But as documented by the Wichita Eagle last year, our city has a poor record of financial performance with TIF districts.

    Another reason I’m concerned is that our attempts at downtown redevelopment so far have produced mixed results. In particular, the WaterWalk project in downtown Wichita has so far consumed $41 million in public subsidy, and we have very little to show for it. Shouldn’t we see if we can nurture this project to success before we take on projects that are much larger?

    Then there’s the presumption expressed by city leaders that downtown must be revitalized for the sake of our entire city. Several months ago I asked Mr. Williams to supply me with references that provide evidence for the claimed benefit of downtown redevelopment. At first he referred me to the mayor’s vision statement. But with all due respect, Mr. Mayor, your visions and dreams aren’t evidence.

    We do have a document that describes what’s been built in several cities. But the mere fact that buildings were built or renovated is not evidence of success. In these descriptions there’s no discussion of the cost, or the public subsidy needed to redevelop these downtowns, and importantly, no discussion of the effect on the entire city.

    When we look at the effect of things like TIF districts on an entire city, we find evidence like economists Richard F. Dye and David F. Merriman found. They concluded that yes, development happens in the subsidized TIF district. But it’s often at detriment to the entire city.

    Besides TIF districts, I’m also concerned about the use of other public subsidy, including a sales tax that some are talking about. I’m also concerned about the potential for eminent domain abuse. This summer I traveled to Anaheim, California to learn about a redevelopment district where the city decided not to use these techniques. The article Anaheim’s mayor wrote about this planning effort is subtitled “Foundation of Freedom Inspires Urban Growth.”

    That’s what I’m really concerned about: freedom.

    Why aren’t we satisfied with letting people live where they want to live? Why aren’t we satisfied with letting developers’ capital flow to where they think it finds its most valued use? Why do we think that centralized government planning can do a better job of making decisions and allocating resources than the dispersed knowledge of all the people of Wichita?

    Randal O’Toole has written about the impossibility of the planning task. In his book The Best-Laid Plans: How Government Planning Harms Your Quality of Life, Your Pocketbook, and Your Future, he writes this about urban planners: “Because they can build a house, planners think they can design an entire urban area.”

    He expands on the difficulty of the planning task at length in his book.

    These difficulties can be summed up like this: If we think that we can plan the revitalization of downtown Wichita, we ought to heed this quote from Friedrich Hayek’s book The Fatal Conceit: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

    Mr. Mayor and members of the council, our efforts at downtown redevelopment have produced mixed results at best. Yet we have a lot of development — commercial and residential — taking place in Wichita. It’s just not happening downtown. Instead, it’s happening where people want it to happen. It’s happening without TIF districts, public subsidy, or the use of eminent domain.

    Why can’t we be happy with that?