Voice For Liberty

Tag: TIF districts

  • KenMar Shopping Center, Funded by Righteousness

    Can the Lord’s work be funded by taxation? If you’re Reverend Kevass Harding, the answer is sure, why not? He might even think it’s his calling.

    Never mind that at its fundamental level, taxation takes money from one person against their will and gives it to another.

    Sure, some people will argue that taxes are “the price we pay for civilization” or something like that. Or they will say that since we all benefit from, say, police and fire protection, we all have to pay taxes.

    Even if true, these rationalizations are a long way from using taxation to support private real estate development. At least these arguments don’t invoke the name of Jesus. But Harding does in order to accomplish through government, in the form of tax increment financing, what he couldn’t through voluntary action. Is this what Jesus would do?

    The Wichita Eagle story KenMar part of pastor’s work in neighborhood tells us of Harding’s belief that “he is doing the Lord’s work, in part, in renovating the run-down KenMar Shopping Center at 13th and Oliver.”

    The story also states “The project is a private, for-profit venture, he said, but it springs in part from his spiritual vocation.”

    This taking of money, shrouded in morality and spirituality, is even more egregious than most. High atop his moral high horse, Harding believes he is doing good for the community. For the entire city, I’m sure he believes.

    Here’s something from another man of religion, C.S. Lewis, reminding us about moral busybodies: “Of all tyrannies, a tyranny exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience.”

  • Proposition K and TIF Districts Collide

    A recent story in the Wichita Eagle by Dion Lefler (Tax plan could leave city with TIF debt) illustrates the some of the problems that can happen with complex economic development efforts.

    The problem in this case lies in the interaction of Proposition K, an effort to reform property tax appraisals in Kansas, and tax increment financing, or TIF districts.

    The idea behind TIF districts is that as property is developed, its value will rise enough that the increased property taxes will pay off bonds that the city issued to benefit the developer.

    Proposition K, however, alters the way that appraised values rise. According to the Eagle’s analysis of the TIF district benefiting the Ken-Mar shopping center, under Proposition K this district will generate $4.3 million less than what is needed to pay off the bonds.

    So what would the city do if faced with this shortfall? The Eagle article suggests “The city could cut spending elsewhere or raise the mill levy to fill the gap.”

    That would be a huge windfall to the developer of this project, which is Wichita school board member and Methodist minister Kevass Harding.

    But not so fast. The city requires beneficiaries of TIF financing to make up any difference between tax revenues and what’s needed to pay off the bonds. So it appears that the taxpayers may not be on the hook, after all.

    The difference, I believe, is that the debt owed to the city would simply be an obligation of Harding and his ownership team. It’s only as good as their ability and willingness to pay. Without Proposition K, the monies needed to pay the bonds would be in the form of property taxes, and the city could take various measures to collect that wouldn’t be available otherwise.

    Isn’t this a fine mess? Last summer when this TIF district was being considered, I wondered out loud to the city council “Why don’t we strip away all the confusion and obfuscation surrounding TIF districts and just give the developers $2.5 million?” (See Reverend Kevass Harding’s Wichita TIF District: A Bad Deal in Several Ways.)

    I didn’t know then that the confusion and obfuscation would get worse.

  • In Wichita, let’s have economic development for all

    GWEDC crucial to attracting, retaining jobs, says a post by Phillip Brownlee on the Wichita Eagle Editorial Blog. (GWEDC is the Greater Wichita Economic Development Coalition.)

    There’s probably little doubt that offering incentives to companies to move to Wichita results in some that do. And, as we’ve seen, some Wichita companies are adept at inciting rumors they might move or locate new facilities somewhere else in order to gain some advantage or incentive from local or state (or sometimes both) government.

    Whether these economic development policies are wise is far from settled. Last year the Kansas Legislative Division of Post Audit released a study examining economic develompent efforts at the state level. This report may be read at Economic Development: Determining the Amounts the State Has Spent on Economic Development Programs and the Economic Impacts on Kansas Counties Executive Summary.

    Some conclusions of interest are these:

    First: “There are a number of problems in trying to assess the effectiveness of economic development programs and activities.” The document elaborates, but the important thing is that when organizations like the GWEDC make grandiose claims, realize that many are only crude estimates formulated to produce the best possible numbers,.

    Second: “Most studies of economic development incentives suggest these incentives don’t have a significant impact on economic growth. The literature we reviewed concluded that, thus far, negative and inconclusive findings are far more numerous than positive findings. Most reviews of economic development assistance find few results are achieved — a theme that audits in Kansas and other states commonly find, as well. Findings of ineffectiveness include promised jobs weren’t created, return on investment is low or negative, and incentives offered weren’t a determining factor.”

    This paragraph hardly requires comment, except to note that professionals in the field of economic development, politicians, and government bureaucrats don’t believe this.

    Third: “The literature also suggests that economic development incentives must be offered to remain competitive with other states.”

    Because the parties identified above believe that incentives work, they want to offer them and will continue to do so. This is true, I believe, in all states.

    So it’s a terrible situation to be in. We have expensive programs that don’t produce their intended goal, but because some very self-interested parties believe they do, we’re stuck with it.

    If Kansas and Wichita wanted to really do something to get noticed, let’s lower taxes for everyone, not just those companies who seek political favor and happen to fit into a situation where they are eligible for one or more of the various incentive plans we have. If we could do this, all companies would benefit.

    Consider the case of Steve Compton, owner of the Eaton Steakhouse in downtown Wichita, as described in my post (with video) At Wichita City Council, Why Are Some Doors Open, and Others Closed?

    Here we have an established Wichita company that is, apparently, facing tough economic conditions. What could help this company? Lower taxes would, without a doubt.

    There would be no need for an organization like GWEDC to tell us this. We wouldn’t need an army of bureaucrats to administer a program to deliver the benefit. There would be no need for Mr. Compton to make campaign contributions to the right politicians. There would be no need to have a debate in city council chambers over the merit of incentives offered to individual firms, one at a time.

    Let’s have a simple policy of lower taxes, and, of course, lower government spending. This will provide immense economic development benefits to everyone.

  • Wichita Center City TIF Missed Linkage Between “Unrelated” Developers

    A missed linkage between developers involved in a Wichita tax increment financing (TIF) project means progress should be stopped until all facts are known.

    In July, 2007, the City of Wichita considered a development plan (the Center City South Redevelopment District) for a tax increment financing (TIF) district in downtown Wichita. The beneficiary of the TIF financing is Real Development, whose principals are commonly known as the “Minnesota Guys.”

    The report from the City Manager’s office to the council from July 17, 2007 states: “The City will acquire the property within the Project Area from DGL, LLC, an unrelated third party, for a cost not-to-exceed $1,975,000, and convey property to Lofts at Exchange Place, LLC.” (Page 164. The information for this item starts on page 131.)

    The “DGL, LLC” referred to as an “unrelated third party” is actually “DGL Investments, LLC.” We can be sure of this for two reasons: First, there is no “DGL, LLC” registered in either Kansas or Minnesota, but there is “DGL Investments, LLC” registered in both states, although the registration is forfeited in Kansas. Second, the current owner of Exchange Place, according to Sedgwick County records, is DGL Investments, LLC.

    (You may be wondering why I looked for record of this company in Minnesota. Well, these are the “Minnesota Guys” after all.)

    So who are the people behind DGL Investments, LLC? Here’s two clues:

    On a registration form for the Kaufman Building on file at the Kansas State Historical Society, the owner of the building is identified as “DGL Investments, LLC (contact Michael Elzufon – Real Development).” This form is dated November 20, 2006.

    There’s also a lease agreement dated September 1, 2006 between the Kansas Department of Corrections and DGL Investments, LLC, where the contact person is given as “Michael Elzufon – Real Development.”

    (Michael Elzufon is CEO of Real Development, the company that is developing the buildings that are the subject of this TIF district redevelopment plan.)

    It’s true that DGL Investments, LLC is not the same legal entity as the group the city is granting TIF financing to. So what the City Manager’s report says is true — on a technical level.

    But in less than an hour, I was able to find documents that establish a positive linkage between two companies that the city says are unrelated. It’s possible that these documents weren’t available online in July 2007. But there are other ways to discover the linkage between these two companies.

    I don’t know why the city wasn’t aware of this relationship. Wichita’s public information office forwarded my inquiry to someone who could answer my questions, but I’ve not received a response.

    But it appears that one of several things happened. Perhaps city staff wasn’t aware of the connection between DGL Investments, LLC and Real Development. This could have happened though staff’s negligence, or by relying on information provided by Real Development. Or maybe city staff knew of the relationship, but wanted to hide it from the city council and the people of Wichita.

    There could be other possibilities, too. None of them are good.

    So what should the city council do? This matter dates from July 2007, but this TIF district’s development plan was modified in December 2008. To my knowledge, the property has not been transferred, and the city hasn’t sent money to these developers. There is time, and in my opinion, the necessity, to stop progress on this TIF district until this oversight by city staff can be corrected.

  • Wichita Center City South TIF Changes Slip Through

    At the December 16, 2008 meeting of the Wichita City Council, a major revision to the development plan of a downtown Wichita TIF district was made. This TIF district is a project of Real Development, whose principals Michael Elzufon and David Lundberg are commonly known as the “Minnesota Guys.”

    The changes to this plan were not made in secret, but the document describing them was buried in the 675-page agenda report (or “green sheets”) for that meeting. These changes escaped the notice of any local news media (at least my searches show no stories being reported), including the Wichita Eagle and Wichita Business Journal. At the city council meeting, no one from the public spoke or asked questions. No council members did, either.

    The original plan dates from July, 2007. Highlights of the changes from then to now include:

    1. Changing from condominium ownership to rentals.

    2. Property acquisition costs are now $3,000,000, up from $2,250,000 in the original plan. The city is reimbursing Real Development for these costs as part of the TIF. Probably a primary reason for this increase is that another building is being bought by the city for the developers.

    3. The cost of the parking garage is now $6,300,000, up from $3,750,000 in the original plan. This again is paid for by the TIF.

    As stated in a document titled “FIRST AMENDMENT CENTER CITY SOUTH REDEVELOPMENT DISTRICT FOR EXCHANGE PLACE PROJECT PLAN December 16, 2008” in Section 2: “The amount of Eligible Project Costs is hereby increased from Six Million Five Hundred Eighty Thousand Dollars $6,580,000.00) to Ten Million One Hundred Eighty Thousand Dollars ($10,180,000.00).” This represents an increase of 54.7% from the original plan.

  • Prudence Requires Postponement of Wichita TIF District: The Video

    Bob Weeks recommends postponing approval of a Wichita TIF district until new procedures are put in place. Plus, a question about future mill levies, with a response from council member Sharon Fearey. The remarks in printed form are at this link: Prudence Requires Postponement of Wichita TIF District.

  • Prudence Requires Postponement of Wichita TIF District

    Remarks to be delivered to the Wichita City Council on January 6, 2009.

    Mr. Mayor, members of the council:

    Last month it was discovered that procedures used to investigate the background of potential city business partners were lacking in some respects. It is now recognized that the process that were in place failed to give city council members information that they needed in order to make a fully-informed decision about the desirability of partnering with a certain development firm.

    Today the council is facing a similar situation. As with the previous case, the TIF district itself has already been approved. Now the actual project plan is before you.

    Also as with the case last month, these developers made application under the vetting process that this council has now realized was faulty.

    To my knowledge, no one has made any allegations that the developers before you today have problems like those that caused the postponement of the project in December. But since these developers applied for and were approved for TIF financing under a system that is now recognized as flawed, we really don’t know.

    There is one thing in particular I would like to know: The developers have been asked to agree to what the city calls a “Tax Increment Shortfall Guaranty.” It seems to me that this guaranty is only as good as the financial condition of the guarantor. Has the city examined financial statements of Reverend Harding and his partners, in order to determine whether they have the financial capacity to make good on this commitment, if it becomes necessary?

    I think the citizens of Wichita would sleep better at night if these developers would go through the new qualification process that the city is preparing. It’s been reported that this new process will be ready soon. Mr. Mayor, why don’t we wait a month or two and investigate these developers under the new process that is presently being developed? Then the citizens of Wichita can have confidence in this council and the project the taxpayers have been asked to subsidize.

    Mr. Mayor and members of the council, there’s another issue that I’d like to call your attention to. That’s the possibility that the city or county — perhaps both — might decide to raise their sales tax rates in exchange for lowering the property tax mill levy. If that were to happen, what would be the impact on TIF districts? The assumptions used in the projection for this TIF district assume that the mill levy in future years is the same as it is today. But if either the city or county were to reduce or eliminate its mill levy, it seems that this — and other — TIF districts would not generate enough property tax to service their debt.

  • Wichita city hall: more evidence of lax procedures

    Wichita Eagle reporting from yesterday (Past client: Developer admitted embezzling) provides more evidence of the need for improved procedures and greater accountability at Wichita city hall. In this story, investigative journalist Dion Lefler reports that Grant Gaudreau admitted stealing money from a business partner. This comes to light just after the City of Wichita nearly became a business partner with Gaudreau.

    Past articles on this website and in the Wichita Eagle (Wichita’s Faulty Due Diligence, Sharon Fearey Doesn’t Appreciate the Wichita Eagle, Wichita TIF Developer’s Ownership Restructuring not Very Reassuring, and Wichita City Council: Put Better Procedures in Place Before Proceeding) document the specifics. But a few new developments and questions have arisen.

    First, it’s been reported that Gaudreau has a warrant for failure to pay $12,332 in income tax. I asked Wichita police chief Norman Williams if Gaudreau was subject to arrest because of this warrant. He said yes, he is.

    Second, it’s unclear whether Joe Kramer and Len Marotte of the real estate firm Joel LLC were aware of the entire scope of Gaudreau’s problems when they teamed with him to develop the Renaissance Square project. It’s clear, however, that they knew a lot. Their business judgment must be questioned.

    Mayor Carl Brewer asked city staff to develop new procedures for vetting potential partners. The problem is that city hall is occupied with some transitions. A new city manager will start work in just about a month. The assistant city manager (now the interim manager) has been looking elsewhere for jobs, and given the mayor’s public treatment of him, I think he’s smart to do so. Three council seats are up for election in the March primary. The city botched a public hearing, but calls it “leadership.”

    My recommendation is that the City of Wichita stop participating in public/private partnerships. Instead, work on improving the business climate for everyone, across the entire city. But when the city considers partnering with someone, I recommend that the city hire an outside firm to conduct an independent investigation of potential partners. This is how we can have confidence in the procedures the city is developing.

  • Tax increment financing (TIF Districts) in Wichita, explained

    Last week I spoke to the Wichita Pachyderm Club about tax increment financing, or TIF districts, in Wichita. John Todd spoke about the same topic, too.

    Surprisingly, my remarks contained some different material from the talk given to the same group by Allen Bell, Wichita’s director of urban development.

    My talk was about 20 minutes in length. YouTube limits videos to 10 minutes, so my talk is contained in two videos. The first part is here, and the second part is here. Click here to download the handout mentioned in my talk.