Voice For Liberty

Tag: TIF districts

  • Testimony Opposing Tax Increment Financing for the Ken Mar Redevelopment Project

    Testimony of John Todd, opposing the formation of a tax increment financing (TIF) district, delivered to the Wichita City Council on August 12, 2008.

    Mr. Mayor and members of the Wichita City Council, thank you for allowing me this opportunity to speak before you today. My name is John Todd. I stand before you today as a citizen in opposition to the Establishment of a Redevelopment District, Tax Increment Financing for the Ken Mar Redevelopment Project. (District I)

    There are dozens of neighborhood shopping centers across Wichita that have a greater need for redevelopment than the Ken Mar shopping center that you are considering for public taxpayer assistance today.

    The question that needs to be answered today is, “What is the Proper Role of Government Relating to Economic Development Activity?” And the specific question the council needs to answer before granting public money for this project is: “Why is the Ken Mar shopping center being considered for public money, and not the dozens of similar shopping centers across our city, with particular emphasis on those dozens of centers possessing greater redevelopment needs than Ken Mar?”

    It is my understanding that the proposed Ken Mar TIF is $2.5 million dollars. A commercial real estate broker friend of mine advised me that in his opinion, the Ken Mar center redevelopment project would not work without the $2.5 million public cash infusion. My reply to this observation: 1. If the potential owners/buyers for Ken Mar have not closed on their purchase transaction of the shopping center, perhaps as part of their contract “due diligence” clause, they need to negotiate $2.5 million dollars off the purchase price of the Ken Mar center, and in the event they fail to obtain the lower purchase price, they need to either scale back their plans for the redevelopment of the center or to simply walk away from the project since the project is not economically feasible for them. 2. Or, if on the other hand, the current owners of Ken Mar paid $2.5 million dollars more than the shopping center was worth, what makes them immune from taking responsibility for this $2.5 million dollar error in judgment? And 3. If this City Council were truly acting as stewards of the public treasury, why would you even consider using public money to correct this alleged $2.5 million developer-problem?

    In a free-market economic system, private business enterprises should have the opportunity and the freedom to succeed and to enjoy the fruits of their success. By the same token, they should also have the freedom to fail and suffer whatever consequences that brings. Thousands of other businesses enterprises across our city play by these rules every day without the government parachute or the backing of the public treasury that is being considered for this private group. Why should the Ken Mar shopping center group be an exception to these rules?

    Please vote against the proposed TIF.

  • Reverend Kevass Harding’s Wichita TIF District: A Bad Deal in Several Ways

    Remarks to be delivered to the Wichita City Council on August 12, 2008.

    There’s several reasons why this council should not approve this request for TIF financing.

    Material in today’s agenda packet doesn’t specify an amount, but past materials indicated that the project was $2.5 million short of the total needed for the project.

    Now some on this council feel that TIF financing isn’t an outright subsidy or gift to the developers of a project. But let me ask you this: if the project is $2.5 million short without TIF financing, and then with City of Wichita TIF financing the project is fully funded, what does that tell you about the value of the TIF district to the developers of this project?

    Under TIF financing, the City of Wichita doesn’t directly give developers the money. Instead, the city issues bonds, and then uses the proceeds from the bonds to do things that directly benefit the developers.

    Now if the developers borrowed that money from a bank, they’d have to pay back the loan. Each year the developers would have to make the loan payments, and also, just like everyone else, they’d have to pay their property taxes. (Those taxes have increased as now the development is worth more due to the improvements made by the developer. That’s the “increment” in TIF.)

    But with a TIF district, the bank is the City of Wichita, which issued bonds to pay for things the developers needed to make the project work. So the developers have to pay back the city. But instead of making payments on a loan from a bank and their property taxes, all the TIF developers have to do is pay their property taxes. By merely paying the same taxes that everyone else has to pay based on the value of their property, their loan is repaid.

    That’s why a TIF district allows developers to effectively avoid paying some or all of the increased property taxes on their development. When a development is undertaken without the benefit of a TIF district, developers have to repay loans and pay higher taxes. With a TIF district, all the developers have to pay is higher taxes.

    I’m tempted to ask this rhetorical question: Why don’t we strip away all the confusion and obfuscation surrounding TIF districts and just give the developers $2.5 million? This way, we fund the development, the shopping center is remodeled, and we wouldn’t have to come back year after year, evaluating the TIF district to see if it is meeting its goals, perhaps pouring in more funds if it isn’t. Instead, we could just give Reverend Harding’s group $2.5 million, wish them good luck, and be done with it.

    But I don’t want to seriously pose that question, because I’m afraid of what this council’s response might be.

    Besides this, there’s another reason to oppose this TIF district, or at least insist this be handled in a special way. Reverend Harding is a member of a board that has to give its tacit approval to the formation of this TIF district. That board doesn’t have to take any positive action; all it has to do is nothing. I spoke to this council about the thorny ethical issues surrounding this on July 8th. At that time Reverend Harding said that he informed the city and his colleagues on the Wichita school board of what he was doing. But it’s not to them that he has an ethical obligation. Instead, it is to the citizens of Wichita and the residents of USD 259 that he has the ethical obligation to make sure that this matter is handled with appropriate transparency. To my knowledge, he has not done that.

    Finally, I have asked Reverend Harding several questions, but he has not answered me, even though I am his constituent: How much tax revenue will the Wichita public school district forgo if this TIF district is granted? And given Reverend Harding’s votes to increase property taxes and his urging for taxpayers to pass an expanded bond issue, shouldn’t he set an example and pay his full share of taxes like everyone else?

  • Questions Wichita Reverend Kevass Harding Will Not Answer

    The Reverend Kevass Harding, a member of the board of USD 259, the Wichita public school district, is also a real estate developer (New life for Ken-Mar Shopping Center: Harding plans to revitalize 13th Street mall, March 14, 2008 Wichita Business Journal).

    The problem is that Harding plans to ask the taxpayers of the City of Wichita to pay for part of his development. Not outright, but through a scheme known as tax increment financing, or TIF. Through this scheme, property taxes that the development pays — taxes that would normally be used to fund general city, county, and school district operations — would instead be rebated to Harding and his team of developers. Well, not directly to Harding’s company, but the increased taxes the development will pay will be used to repay bonds that paid for things that benefited the development.

    This is bad enough. But Harding, as member of the school board, must know that the effect of the TIF district is that less money will flow to USD 259. As the school board firmly believes that taxpayers never send enough tax money to USD 259, I wonder how board members will react to one of their own seeking to avoid paying property taxes. (Well, not really avoiding paying property taxes, but asking that the taxes he pays directly benefit himself, rather than the city, county, and school district.)

    It may turn out, however, that we’ll never know how Harding’s colleagues on the school board feel about this. As explained in Reverend Kevass Harding and His Wichita TIF District, the board of USD 259 doesn’t have to approve the Reverend’s request. All they have to do is nothing, and the request will pass. This is a problem, too.

    I’ve sent these questions several times to two email addresses for Reverend Harding. I’ve called and left telephone messages at the number listed on his USD 259 contact page, and at his church, too. He hasn’t responded.

    Reverend Harding, if you do decide to answer these questions, I will gladly post your responses. You can contact me here

    1. Why is there a financing shortfall for this project that makes it necessary to seek the TIF district financing?

    2. The TIF district financing provides your company with the benefit that the property taxes that would otherwise go to various governmental entities would instead be redirected back to your project. Specifically, the funds would be used, according to City of Wichita documents, to pay for site acquisition costs. Would you please comment on the equity of your firm having its site acquisition costs paid for by the public, when most real estate development companies in Wichita do not have this privilege?

    3. As a member of the Wichita public school district board, you have voted to increase taxes and are on record as supporting a bond issue that would further increase taxes. Have you calculated how much tax revenue the Wichita school district would forgo if your TIF district request is approved?

    4. Please comment on the apparent hypocrisy of your company seeking to avoid paying the property taxes that you, in your role as school board member, demand others pay.

  • Testimony Opposing Expansion of the Wichita City South Redevelopment Tax Increment Financing District

    From John Todd.

    Mr. Mayor and members of the Wichita City Council, thank you for allowing me this opportunity to speak before you today. My name is John Todd. I stand before you today as a citizen in opposition to the Expansion of the City South Redevelopment District (Tax Increment Financing) (Districts I & VI).

    I testified before you on July 1, 2008 in opposition to the Old Town Warren Theater Loan that you recently approved. The City Council at that time cited the need for taxpayer assistance to prop up an “under-performing” $9.5 million dollar Tax Increment Financing (TIF) subsidy program that a previous city council awarded to Old Town developers in 1998.

    The size of the Old Town TIF project pales in comparison to the $61,772,000 projected in “parking and infrastructure improvements in the Arena Neighborhood Redevelopment Plan area, to be paid for by the TIF” that you are considering today. What vision for a successful TIF in 2008 does this city council have that the 1998 council lacked? What will another “under-performing” TIF cost future taxpayers? Is it the proper role of city government to speculate in real estate ventures using taxpayer money?

    Sedgwick County voters approved the $184.5 (now $205) million dollar downtown arena and have been assured repeatedly by the three county commissioners who originally voted for the arena that adequate parking exists for the arena. I am a little more than suspect when I see the word “parking” in the TIF proposal you are considering today?

    Voters of the arena were told that their approval of the new arena would provide the “economic boost” and the “synergy” needed for effective downtown redevelopment. No mention was made of the need for additional taxpayer subsidy. I believe our new downtown arena project should be given the chance to perform economically as promised before additional taxpayer money is committed to the project.

    If you approve this TIF, please keep in mind that approximately 45% of the $61.8 million dollar proposal or roughly $28 million will be diverted away from The Wichita Public Schools over a 20-year period and another 27% or roughly $16 million from the Sedgwick County taxpayers.

    If you approve this TIF, I believe an excerpt from the July 5, 2008 Wall Street Journal article entitled “Blame Taxes for Baltimore’s Rot” (written by Steve H. Hanke and Stephen J.K. Walters) is on target for Wichita, “True enough, the ability to hand out subsidies gives officials great power. But it also gives them a reason, and incentive, to dismiss the common sense that if tax breaks for the well-connected are a good idea, lower tax rates across the board would lead to broad-based redevelopment.”

    We need to rely on privately funded redevelopment downtown and not on taxpayer-subsidized redevelopment that favors the politically well-connected developers to the exclusion of all other private developers.

    Please vote against the proposed TIF.

  • Downtown Wichita Arena TIF District

    Remarks to Wichita City Council, August 5, 2008.

    When I’ve been talking to people in Wichita, I find there is great confusion about the way that TIF districts work. This confusion serves to obfuscate what really happens with TIF districts: the TIF developers get to use their own property taxes to pay for things that non-TIF developers have to pay for out-of-pocket, or through special tax assessments on top of their regular property taxes.

    It is really this simple. To deny this is to deny simple arithmetic.

    Then, do TIF districts perform as promised? One of the troubling things I learned from recent Wichita Eagle reporting is that in the past four years, assessed valuations in the downtown TIF areas have grown at 14.9 percent per year, just 1.4 times the rate of all commercial property. A few weeks ago I was assured by one council member that the taxes paid by property owners in TIF districts grows “exponentially.” But now we have evidence that the growth is quite modest.

    I was going to say that I have no doubt that the members of this council have good and noble intentions in wanting downtown Wichita and the area around the arena to succeed. But establishing this TIF district is not good for the arena district or the city as a whole.

    Entrepreneurs in Wichita, or anywhere for that matter, have a difficult enough job to do in predicting what consumers want. For government to step in and create special tax-favored districts adds another measure of uncertainty and risk. It distorts the market allocation of capital. Investment will be driven by government incentives rather than market considerations.

    This is also a blow to those who have invested elsewhere. It is the city telling them they made a mistake, that they invested in the wrong part of town.

    For the arena district to succeed, it needs to be because entrepreneurs, using their own capital, decide that it is a worthwhile place to invest.

  • Do Wichita TIF Districts Create Value?

    A recent Wichita Eagle article City tax districts aren’t breaking even reports on some of the problems with tax increment financing, or TIF, districts in Wichita:

    One promise of TIFs was that revitalizing certain areas — such as Old Town and the East Bank — would boost property values throughout downtown.

    In the past four years, assessed valuation has risen 14.9 percent a year within the downtown TIF areas where millions of dollars of public money have been invested.

    But take away those TIF districts and valuations have grown at 4.1 percent a year for the rest of the downtown area. Countywide, commercial property values have gone up about 10.7 percent a year.

    One question I have, and one that might be difficult to answer, is if property values in TIF districts are being assessed accurately and fairly. For assessed valuations in TIF districts to grow at only 1.4 times the rate as all commercial property seems to indicate that perhaps TIF district property is undervalued by the assessor. After all, it is in TIF districts that we expect to see rapid growth — “exponential,” as Wichita city council member Jeff Longwell explained to me — in value as developers renovate old buildings or build new buildings.

    The primary problem, however, is that these TIF districts represent the city government’s desire for more development in places or things that people don’t value it as much as they do in other places. It is government central planning, led by politicians and bureaucrats, making decisions rather than people expressing their preferences through voluntary transactions in a free market.

    Since politicians and bureaucrats have different goals than entrepreneurs, it is not surprising that TIF districts may not live up to the expectations of the public. Of course, it depends on your expectations. If you desire simply to get something built — this would be the politicians’ goal — then TIF districts work. Buildings, indeed, are built.

    If, on the other hand, your goal is to create wealth by building something that the public values enough that you can earn a profit — this being the goal of entrepreneurs — government central planning simply doesn’t work.

  • What Wichita Vice Mayor Sharon Fearey Doesn’t Understand

    In a Wichita Eagle article City tax districts aren’t breaking even we find this whopper of a quote:

    Vice Mayor Sharon Fearey likened the situation to what would happen if she put a swimming pool in her yard.

    “I’d probably actually lose money, but for the years that I’ve had that swimming pool, I’d have a quality of life I couldn’t get without it,” she said.

    Evidently Ms. Fearey does not understand the difference between making a free choice to spend one’s own money (the swimming pool in her backyard) with government taxation to pay for decisions politicians and bureaucrats make for us. Despite the reservations we express.

    Perhaps my headline is a little too harsh. Which is it:

    Vice Mayor Fearey doesn’t draw a distinction between people making free choices and government action, or

    Vice Mayor Fearey understands the difference between people making free choices and government action, but also knows that her judgment is superior to that of ordinary Wichitans.

    What do you think?

  • Wichita City Council’s misunderstanding of tax increment financing

    On July 8, 2008 I testified at a public hearing at a Wichita city council meeting. Afterward, a council member told me that I had a “glaring error” in my arguments. I won’t identify this member in order to avoid embarrassing the member. The minutes of the meeting don’t identify the member who said this, but video is available.

    My purpose in testifying that day was not to question the merits of tax increment financing (TIF) districts. Instead, I was identifying an ethics problem that a Wichita school board member has regarding his involvement in a proposed TIF district. (See Reverend Kevass Harding and His Wichita TIF District.) In my testimony I stated, with a qualification, that the applicant for this TIF district was asking for relief from paying some of the property tax for his real estate development. After my testimony, a council member told me that I was wrong, that the TIF district won’t allow someone to avoid paying property taxes. True, I said. It was sloppy for me to have said that without clarification, but it wasn’t the point I was making that day.

    But since the city council member brought up the point, let’s examine how TIF districts work. I am sure you will be able to agree that the use of TIF districts allow developers to effectively avoid paying some of their increased property taxes.

    In material prepared by Wichita’s Office of Urban Development and presented at the March 18, 2008 city council meeting, we may read this: “The developers have identified a financing shortfall of $2.5 million, for which they are seeking tax increment financing assistance. The preliminary project budget presented to City staff indicates that TIF funds would need to be used for site acquisition costs in order to spend $2.5 million on project costs eligible for TIF funding.”

    So without the formation of the TIF district, the developers are $2.5 million short. With the TIF district, they’ve got the money they need. We must conclude, then, that the TIF district financing, no matter what it is used for, is worth $2.5 million to the developers.

    Now if the developers borrowed that money from a bank, they’d pay back the loan over some period of years. Each year, out of the cash flow the project generates, the developers would have to make the loan payments, and also, just like everyone else, they’d have to pay their property taxes. (Those taxes have increased as now the development is worth more due to the improvements made by the developer. That’s the “increment” in TIF.)

    But with a TIF district, the “bank” is the City of Wichita, which issued bonds to pay for the benefits the developers needed to make the project work. So the developers have to pay back the city. But instead of making payments on a loan from a bank and their property taxes, all the TIF developers have to do is pay their property taxes. By merely paying the same taxes that everyone else has to pay, their loan (the bonds issued by the City of Wichita) is repaid.

    That’s why a TIF district allows developers to effectively avoid paying some of the increased property taxes on their development. When a development is undertaken without the benefit of a TIF district, developers have to repay loans and pay higher taxes. With a TIF district, all the developers have to pay is higher taxes.

    It is as simple as this.

  • Reverend Kevass Harding and His Wichita TIF District

    Remarks to be delivered to the Wichita City Council, July 8, 2008.

    Mr. Mayor and members of the council, today I will not discuss the desirability of tax increment financing (TIF) districts in general, or the merits of this one in particular. I’ll leave that for the August 12 public hearing. Instead, I wish to express my concerns about a thorny situation involving the applicant and overlapping governmental jurisdictions.

    In Wichita, Reverend Kevass Harding, a member of the USD 259 (Wichita public school district) board is also a real estate developer. His development group is asking the City of Wichita for the creation of a tax increment financing district (New life for Ken-Mar Shopping Center: Harding plans to revitalize 13th Street mall, March 14, 2008 Wichita Business Journal).

    In Kansas, when a city creates a TIF district, the affected county and school district have 30 days to veto its creation. When Wichita creates TIF districts, the county and school district usually agree. To my knowledge, there has been no veto by either. These overlapping taxing jurisdictions don’t have to pass a resolution to agree to the TIF district. All they have to do is not pass a resolution that vetoes it.

    In this case, Reverend Harding is asking Wichita for relief from paying some of the property tax for his real estate development. (Some might disagree that the TIF district provides relief from paying taxes, but that’s not important for now. It is undoubtedly a benefit of some type, and that’s what matters.) Then the Wichita public school board, Reverend Harding being a member of that, has to give its agreement for the TIF district to proceed.

    The problem is that the way the school board indicates its agreement to the establishment of the TIF district is by doing nothing. Only passive agreement is required. Negative action is what is required. If the school board was required to pass a resolution agreeing to the TIF district, Reverend Harding could declare a conflict of interest and sit out the vote. That’s positive action. That happened last week in this very chamber.

    But since no vote is required by Reverend Harding or his board — only passive assent — how can we ask him to recuse himself? Can we insist that he cease to do nothing? That’s the problem with requiring someone to take negative action.

    So what do we do?

    The best solution is for Reverend Harding to withdraw his request for the creation of the TIF district that benefits his development. Then there is no problem with conflicts of interest. This is also congruent with Reverend Harding’s votes to increase taxes while a member of the school board. His business would pay the same taxes he demands others pay.

    Failing that, one way we could handle this situation is that the city could ask the school board to agree to pass a resolution agreeing to the TIF, even through they aren’t required to do this. Then Reverend Harding could publicly acknowledge his conflict of interest and step aside.

    But should the City of Wichita even care about this? Is it the city’s responsibility to ensure that other governmental entities act ethically and transparently?

    In the end, it may not matter, as to my knowledge, neither Sedgwick County nor the Wichita public school district has vetoed the creation of a TIF district passed by the City of Wichita. But I think the citizens of Wichita and USD 259 would appreciate this situation resolved in a way that avoids all conflicts of interest.