Voice For Liberty

Tag: TIF districts

  • Kansas and Wichita quick takes: Monday June 6, 2011

    Wichita school superintendent to speak. This Friday’s meeting (June 10) of the Wichita Pachyderm Club features John Allison, Superintendent of USD 259, the Wichita public school district, on “An update from USD 259.” The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. … Upcoming speakers: On June 17, The Honorable Lawton R. Nuss, Kansas Supreme Court Chief Justice on “The State of the Kansas Courts.” On June 24, Jim Mason, Naturalist at the Great Plains Nature Center will have a presentation and book signing. Mason is author of Wichita’s Riverside Parks, published in April 2011. On July 1, Jay M. Price, Director of the Public History Program at Wichita State University, speaking on “Classes of Values in Kansas History.” On July 8, Dave Trabert, President, Kansas Policy Institute, on “Stabilizing the Kansas Budget.”

    TIF in California and Kansas. In California’s Secret Government: Redevelopment agencies blight the Golden State Steven Greenhut discusses Redevelopment Agencies (RDAs) in California, which is the way that state implements tax increment financing (TIF). In California RDAs are separate agencies with their own boards. Fortunately, Kansas TIF law doesn’t create these separate agencies. But we have TIF and its wild claims. Greenhut cites the claims of RDA boosters in California: “… agencies explicitly advance various goals beyond blight removal, claiming to boost economic development, provide affordable housing, reenergize downtowns, and create hundreds of thousands of jobs in the process.” But: “Do these lofty growth claims hold water? Redevelopment officials arrive at them by taking credit for every new job and every new economic activity in a redevelopment area. But that isn’t a plausible boast. Crunching the numbers, [Michael] Dardia found that after correcting for local real-estate trends, ‘redevelopment projects do not increase property values by enough to account for the tax increment revenues they receive. Overall, the agencies stimulated enough growth to cover just above half of those tax revenues. The rest resulted from local trends.’” In the follow-up article Proving the Redevelopment Rule: Evidence from Southern California that RDAs don’t work Greenhut discusses eminent domain, or the threat of it. While Kansas has an eminent domain law that seemingly provides protection to property owners who don’t want to sell, the threat of its use is still available. Greenhut cites an attorney who fights these battles, noting “most cities don’t need to use eminent domain, any more than most muggers need to use the handgun pointed at their victims’ heads. Brandishing it usually is enough to convince an owner to give in.” The Wichita City Council, when considering TIF districts and other special tax districts, has been asked to explicitly disavow the use of eminent domain so that this threat is no longer available. But the mayor and council members will not extend that protection to citizens.

    More ‘Economics in One Lesson.’ Next Monday (June 13) Americans For Prosperity Foundation is sponsoring a continuation of the DVD presentation of videos based on Henry Hazlitt’s classic work Economics in One Lesson. The event is Monday (June 13) at 7:00 pm to 8:30 pm at the Lionel D. Alford Library located at 3447 S. Meridian in Wichita. The library is just north of the I-235 exit on Meridian. The event’s sponsor is Americans for Prosperity, Kansas. For more information on this event contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415.

    ‘Running on Empty’ tour in Kansas. This week Americans for Prosperity Foundation is bringing the Running on Empty tour to Topeka (Thursday June 9th) and Kansas City (Friday June 10th). AFP writes: “Since President Obama took office, gas prices have nearly doubled. The administration refuses to develop American energy sources … American energy sources that could help gas prices, electricity prices, and food prices come down. Americans are running on empty and the administration needs to hear how regulations and restriction to domestic resources are affecting working families who rely on affordable energy to commute to work, go to school activities and shop for family groceries. Join us on the Running on Empty Tour to learn what executive actions the Administration can take to bring down fuel costs and bring stability to the market and send them your gas bill!” For more information on these two area events, click on National Running on Empty Tour to Stop in Topeka & Kansas City.

    MRCTV announced. Media Research Center, a conservative media watchdog organization and think tank, has announced MRCTV, a video site. In its announcement, MRC wrote: “Many Conservatives have long felt that YouTube has two sets of rules, one for conservative videos and one for everyone else. Videos that are critical of liberals or present a conservative point of view are often mysteriously removed from YouTube. This is frustrating for everyone, but especially for conservative websites that rely on videos to get their message across. ”

    Kansas census data added. The Institute for Policy & Social Research at KU has added 2010 U.S. Census data. Besides this, the institute holds much other data and resources. Click on Kansas Data.

    Markets: exploitation or empowerment? Do markets lead to a centralization of political and economic power, or do markets decentralize and disseminate wealth? In an eight-minute video from LearnLiberty.org, a project of Institute for Humane Studies, Antony Davies presents evidence and concludes that markets and free trade empower individuals rather than exploit them.

  • For Wichita, Save-A-Lot teaches a lesson

    The announcement that a Save-A-Lot grocery store will proceed — contrary to the claims of developers and city staff who rely on their information — should provide a lesson that yes, economic development in Wichita can and will happen without public assistance. Additionally, examination of the public hearing for this matter before the Wichita City Council last September should teach us to be very cautious in relying on the claims of people who have a huge economic stake in obtaining public assistance.

    At a city council public hearing on both the Community Improvement District and Tax Increment financing district last September, developer Rob Snyder sought public assistance in the form of a tax increment financing district (TIF) and a Community Improvement District (CID). Over a period of years, the two forms of subsidy were estimated to be worth $900,000 to the developer. The project’s total cost was presented as slightly over $2 million.

    (By the way, in its recent coverage of this matter, the Wichita Eagle has an incorrect recording of events. The Eagle reported, referring to the Wichita City Council and Sedgwick County Commission: “The boards ultimately rejected the financing, despite support from some officials.” Actually, the city council unanimously approved both the CID and TIF. Then, the county commission exercised its statutory prerogative to veto the formation of a TIF district. The commission has no authority to intervene in the formation of CIDs.)

    As part of his presentation to the council Allen Bell, Wichita’s Director of Urban Development explained that to be eligible for TIF, developers must demonstrate a “gap,” that is, an analytical finding that conventional financing is not sufficient for the project, and public assistance is required: “We’ve done that. We know, for example, from the developer’s perspective in terms of how much they will make in lease payments from the Save-A-Lot operator, how much that is, and how much debt that will support, and how much funds the developer can raise personally for this project. That has, in fact, left a gap, and these numbers that you’ve seen today reflect what that gap is.”

    Snyder told the council that without the public assistance, there will be no grocery store: “We have researched every possible way, how do we make this project work with the existing funding that’s available to us. … We might as well say if for some reason we can’t figure out how to get this funding to go through, there won’t be a shopping center over there.”

    Greg Ferris, a former city council member who lobbies local government on behalf of clients, was adamant in his insistence that the grocery store could not be built without public financing: “There will not be a building on that corner if this is not passed today. … That new building would not be built. I absolutely can tell you that because we have spent months … trying to figure out a way to finance a project in that area. A grocery store is not going to move into the Planeview area to service those people just like they didn’t move into the area at 13th and Grove until the city subsidized that with several hundred thousand dollars of city money. … What you’ve heard is misinformation. … This project just won’t happen and the people of Planeview will suffer.”

    Now, we see that the financing gap has been closed, and without government assistance. The claims that a grocery store can’t be built in that neighborhood without welfare for developers have been demonstrated to be false.

    Wichita Mayor Carl Brewer has referred to those who oppose government intervention like TIF and CID as “naysayers.” Here’s an example where free markets, capitalism, and economic freedom have overcome Wichita’s true naysayers: those who say it can’t happen without government intervention.

    A message from John Todd: “This Wednesday (June 8th) at 2:00 pm there will be a groundbreaking ceremony for the new Planeview Save-A-Lot grocery store located on the southeast corner of George Washington Boulevard and Pawnee. This project was initially proposed with $900,000 in CID and TIF public subsidies for the developer that were approved by the Wichita City Council last fall. When the Sedgwick County Commission rejected giving the county’s portion of the TIF generated real estate taxes to the developer and away from the public treasury, the project appeared to be dead. The Wichita Eagle recently reported that the Save-A-Lot grocery store owner has now decided to develop the project on his own with his own financing. Perhaps it is appropriate for those citizens who appreciate businesses who develop market-driven projects in Wichita and Sedgwick County on their own nickel to show their appreciation to the grocery store owner/developer by attending the groundbreaking ceremony and personally thanking him.”

  • Kansas and Wichita quick takes: Sunday June 5, 2011

    Wichita City Council this week. This week the Wichita City Council will consider these items of particular interest: The Wichita Art Museum has $265,738 in funds that it did not spend. The council will be asked to allow the museum to retain this unspent money. … Mid-Continent Instrument, Inc. is asking for a forgivable loan of $10,000. It received the same last week from Sedgwick County. According to city documents, the State of Kansas is also chipping in $503,055 in forgivable loans, sales tax exemptions, training grants, and tax credits. … Council members will receive the city’s 2010 Comprehensive Annual Financial Report. … An item deferred from two weeks ago will consider hiring an outside firm to inspect the roofs at the airport for storm damage. Wichita Eagle reporting from that time has detail. Some, including Council Member Michael O’Donnell (south and southwest Wichita) have wondered why the city can’t do the inspection with its own engineering staff and resources. … Of further note is that the city — two weeks ago — proposed to use general obligation bonds to borrow the funds to pay for this inspection. This is similar to last December, when the city decided to also use bonds to borrow money to pay for an analysis of nine aging fire stations and what repairs and upgrades they might require. Material for this week’s meeting indicates the project will be “funded with Airport revenues either directly or through the repayment of General Obligation bonds.” … A “receive and file” item notes that as established by city ordinance, the salaries for council members, the vice-mayor, and the mayor will increase by 3.2 percent effective June 7. This is a cost-of-living increase based on the consumer price index. Last year all these parties decided to decline the increase. … A consent agenda item recommends settling a lawsuit for damages resulting from a shooting on August 3, 2008 for the amount of $575,000. The agenda material is not specific, but Wichita Eagle reporting indicates that Wichita police officers on that date shot James Ware “at least seven times” in the parking lot of a club after Ware retrieved a rifle from his car. Ware was charged with a crime in the matter, but acquitted in a jury trial. Consent agenda items will not be discussed by the council unless a member asks to “pull” an item for discussion and a possible vote separate from the other consent agenda items. … As always, the agenda packet — all 376 pages for this week’s meeting — is available at Wichita city council agendas.

    Resources on Austrian economics. The prolific and best-selling author Thomas E. Woods, Jr. has compiled a very useful collection of resources regarding Austrian economics. In an essay by Lew Rockwell that Woods refers to, we can learn the essence of the Austrian way: “It is not a field within economics, but an alternative way of looking at the entire science. Whereas other schools rely primarily on idealized mathematical models of the economy, and suggest ways the government can make the world conform, Austrian theory is more realistic and thus more socially scientific. Austrians view economics as a tool for understanding how people both cooperate and compete in the process of meeting needs, allocating resources, and discovering ways of building a prosperous social order. Austrians view entrepreneurship as a critical force in economic development, private property as essential to an efficient use of resources, and government intervention in the market process as always and everywhere destructive.” Concluding his essay, Rockwell wrote: “The future of Austrian economics is bright, which bodes well for the future of liberty itself. For if we are to reverse the trends of statism in this century, and reestablish a free market, the intellectual foundation must be the Austrian School.” … Woods’ collection is at Learn Austrian Economics. … The local chapter of Americans for Prosperity, Kansas has been showing some of the video presentations Woods recommends at its monthly meetings, and will conclude the series at its June 13th meeting. Details to follow.

    Wichita Save-A-Lot owner commended. Susan Estes of Americans for Prosperity, Kansas contributed this letter to the Wichita Eagle, and it appeared today. Following is the letter as submitted to me: “News the grocery store project in Planeview will proceed — without tax incentives — is a major win for Wichita taxpayers. We commend Ron Rhodes and his company for finding a way to make this project happen without asking for tax money. Rather than giving up the store entirely when the Tax Increment Financing (TIF) district was vetoed by the county, the Rhodes family continued to explore the possibility of building a grocery store here. The planned Save-A-Lot store will create jobs and serve the needs of the neighborhood without adding on to their grocery bills through tax increases, which is certainly good news for Wichitans.” … For more on this matter, see In Wichita, corporate welfare not needed, after all.

    Pompeo public forum. On Monday June 6 at 6:30 pm, U.S. Representative Mike Pompeo, a Wichita Republican serving his first term, will hold a public forum at Andover City Hall, 1609 E. Central. Pompeo’s office says: “Congressman Pompeo will take questions from those in attendance and discuss issues related to Congress and the federal government.”

  • In Wichita, corporate welfare not needed, after all

    Last fall the City of Wichita awarded two forms of economic development subsidy to a proposed Save-A-Lot grocery store to be built in the Planeview neighborhood. The developer of the store was able to persuade Wichita economic development officials and city council members that the store could not be built without public assistance. But now a different developer is going ahead with the project — without any of the subsidies Wichita approved, raising questions as to whether the city’s original offer of public assistance was genuine economic development, or just another instance of corporate welfare.

    The subsidies approved were in the form of a tax increment financing district (TIF) and a Community Improvement District (CID). Over a period of years, the two forms of subsidy were estimated to be worth $900,000 to the developer.

    Kansas law allows affected counties and school districts to veto the formation of a TIF district. The Sedgwick County Commission did just that, and the developer said he would not proceed with the project.

    But now, according to Wichita Eagle reporting, a different developer is proceeding with the project, and without subsidy, according to the article. While TIF is not available, it seems the authorizing ordinance for the CID is still in effect, and could be used by the new developer, if desired.

    Economic development, or corporate welfare?

    That the Planeview Save-A-Lot grocery store is able to proceed, and in a larger and more expensive form than originally proposed, tells us that the arguments of its supporters — that economic development assistance was absolutely required — were not true. Actually, these arguments might have been true in the mind of Rob Snyder, the original developer. Developers who seek public subsidy have a powerful incentive to make the case to local governments that their projects need financial assistance. In this case, Snyder was able to convince Wichita city staff that there was indeed a “gap,” according to city documents, of “approximately $950,000 on a total project cost of over $2,000,000.” In other words, the purported “gap” was nearly half the total project cost.

    But in the hands of a different developer, that gap has evaporated, and the project is able to stand on its own without public assistance.

    We need to realize that the “gap” analysis performed by the City of Wichita is not thorough. There’s an imbalance of power in the relationship between city officials and developers. As mentioned above, developers have powerful financial motives to present their projects in a way that makes them eligible for public assistance. Government officials want these projects to happen. Economic activity is good for everyone, after all. So the motives of local economic development officials and elected representatives to turn over a lot of rocks — examining deals too closely — is weak. As a result, we’ve seen examples where outsiders brought information to the City of Wichita that would not have been considered otherwise.

    In one instance a former Wichita City Council member was unhappy that the Wichita Eagle uncovered negative information about a potential recipient of Wichita public assistance.

    Wichita officials and council members need to take a look at their economic development programs and decide whether the city is willing to — and wants to — distinguish between real and valid economic development programs and corporate welfare. In the case of Wichita’s public assistance offer to Rob Snyder’s Save-A-Lot grocery store, recent developments confirm what a few people suspected at the time — it was corporate welfare, plain and simple.

  • Kansas and Wichita quick takes: Friday May 27, 2011

    Valuing teachers. Writing in Education Next, Eric A. Hanushek explains the importance of academic achievement of schoolchildren, the low achievement of American schools relative to the world, and the huge impact this poor performance has on our economic future. It’s very important, he writes: “From studying the historical relationship, we can estimate that closing just half of the performance gap with Finland, one of the top international performers in terms of student achievement, could add more than $50 trillion to our gross domestic product between 2010 and 2090. By way of comparison, the drop in economic output over the course of the last recession is believed to be less than $3 trillion. Thus the achievement gap between the U.S. and the world’s top-performing countries can be said to be causing the equivalent of a permanent recession.” … Teacher effectiveness is one factor that is under control of schools, and is more important than many other factors also under control of schools: “The quality of the teachers in our schools is paramount: no other measured aspect of schools is nearly as important in determining student achievement. The initiatives we have emphasized in policy discussions — class-size reduction, curriculum revamping, reorganization of school schedule, investment in technology — all fall far short of the impact that good teachers can have in the classroom. Moreover, many of these interventions can be very costly.” … Reforms: “better recruitment so that ineffective or poor teachers do not make it into our schools.” We can also work to improve poor teachers, but Hanushek says this is often not effective, as “there is no substantial evidence that certification, in-service training, master’s degrees, or mentoring programs systematically make a difference in whether teachers are in fact effective at driving student achievement.” … There is also the possibility of a “clearer evaluation and retention strategy for teachers.” This means better evaluation systems to identify the best and worst teachers, but Hanushek calls current evaluation systems dysfunctional. Currently, salaries are based on longevity and earned credentials, which he warns are “factors that are at best weakly related to productivity.” … Of note: it is the teachers unions which support the current failing system, and which block any attempt at meaningful reform. In Kansas this year, tinkering with the teacher tenure formula is all that has been accomplished this year regarding school reform. This is in a state that ranks very low among the states in policies relating to teacher effectiveness, according to the National Council on Teacher Quality.

    Job recovery is slow. USA Today: “Nearly two years after the economic recovery officially began, job creation continues to stagger at the slowest post-recession rate since the Great Depression. The nation has 5% fewer jobs today — a loss of 7 million — than it did when the recession began in December 2007. That is by far the worst performance of job generation following any of the dozen recessions since the 1930s. In the past, the economy recovered lost jobs 13 months on average after a recession. If this were a typical recovery, nearly 10 million more people would be working today than when the recession officially ended in June 2009.”

    Obamacare waivers. Michael Barone: “If Obamacare is so great, why do so many people want to get out from under it?” Barone cites the high concentration of waivers granted to labor unions, which are a big source of political support for Obama. Then there’s the recent revelation of the large number of waivers to companies in Nancy Pelosi’s district. This is harmful, writes Barone: “One basic principle of the rule of law is that laws apply to everybody. If the sign says ‘No Parking,’ you’re not supposed to park there even if you’re a pal of the alderman. Another principle of the rule of law is that government can’t make up new rules to help its cronies and hurt its adversaries except through due process, such as getting a legislature to pass a new law. The Obamacare waiver process appears to violate that first rule. Two other recent Obama administration actions appear to violate the second.”

    Tax increment financing. From Randal O’Toole: “Tax-increment financing (TIF) costs taxpayers around $10 billion per year and is growing as fast as 10 percent per year, according to a new report, Crony Capitalism and Social Engineering: The Case against Tax-Increment Financing published by the Cato Institute. Though originally created to help renew “blighted” neighborhoods, TIF today is used primarily as an economic development tool for areas that are often far from blighted. The report argues that TIF does not actually generate economic development. At best, it moves development that would have taken place somewhere else in a community to the TIF district. That means it generates no net tax revenues, so the TIF district effectively takes taxes from schools and other tax entities. At worst, TIF actually slows economic development, both by putting a larger burden on taxpayers and by discouraging other developers from making investments unless they are also supported by TIF.” … Tax increment financing — TIF districts — are expected to be a major source of revenue for the revitalization of downtown Wichita — and the accompanying social engineering directed from Wichita city hall. Wichita has also shown itself to be totally incapable of turning away from crony capitalism.

    Assumptions about capitalism. Burton W. Folsom in The Myth of the Robber Barons: “This shallow conclusion dovetails with another set of assumptions: First, that the free market, with its economic uncertainty, competitive stress, and constant potential for failure, needs the steadying hand of government regulation; second, that businessmen tend to be unscrupulous, reflecting the classic cliché image of the ‘robber baron,’ eager to seize any opportunity to steal from the public; and third, that because government can mobilize a wide array of forces across the political and business landscape, government programs therefore can move the economy more effectively than can the varied and often conflicting efforts of private enterprise. But the closer we look at public-sector economic initiatives, the more difficult it becomes to defend government as a wellspring of progress. Indeed, an honest examination of our economic history — going back long before the twentieth century — reveals that, more often than not, when government programs and individual enterprise have gone head to head, the private sector has achieved more progress at less cost with greater benefit to consumers and the economy at large.” … Folsom goes on to give examples from the history of steamships, railroads, and the steel and oil industries that show how our true economic history has been distorted. Concluding, he writes: “Time and again, experience has shown that while private enterprise, carried on in an environment of open competition, delivers the best products and services at the best price, government intervention stifles initiative, subsidizes inefficiency, and raises costs. But if we have difficulty learning from history, it is often because our true economic history is largely hidden from us. We would be hard pressed to find anything about Vanderbilt’s success or Collins’s government-backed failure in the steamship business by examining the conventional history textbooks or taking a history course at most colleges or universities. The information simply isn’t included.” … Folsom’s book on this topic is The Myth of the Robber Barons: A New Look at the Rise of Big Business in America.

  • Kansas needs a dynamic economic growth policy

    Note: Since Dr. Hall’s address to the Wichita Pachyderm Club covered below, the business expensing that he proposed has been signed into law by Governor Brownback. The governor also issued an economic development plan that incorporates large portions of Hall’s advice, but legislation expanding some of the present-day “active investor” economic development practices has also been signed into law. The Promoting Employment Across Kansas (PEAK) program, which allows companies to retain their employees’ payroll withholding taxes, has been expanded, but not so that it covers all new business firms, as Hall recommended.

    A dynamic market where many new business startups attempt to succeed and thrive while letting old, unproductive firms die is what contributes to productivity and economic growth. But most economic development policies, including those of Kansas and Wichita, do not encourage this dynamism, and in fact, work against it.

    That’s the message of Dr. Art Hall, who spoke to the Wichita Pachyderm Club on the topic “Business Dynamics and Economic Development in Kansas.” Hall is Director of the Center for Applied Economics at the Kansas University School of Business.

    At the start of his talk, Hall said that economic development has become an industry of its own, a public industry sometimes implemented as public-private partnerships. But its agenda is often not genuine economic development, he said.

    In a short history lesson, Hall described how Walter Beech came to Wichita from North Carolina simply because Clyde Cessna was in Wichita. Sprint began in Abilene in 1899. Fred Koch, who founded the company that became Koch Industries, came to Wichita because Lewis Winkler was here. “Serendipity — that’s the theme.”

    Hall displayed a map of taxpayer migration. There is a huge and wide swath of deep blue — representing the highest rate of out-migration — stretching north to south through the Great Plains, including much of Kansas. The Plains are urbanizing, Hall said. Pockets are doing well, but generally the rural areas are losing population. Economic development strategies must realize this long-term trend, he said.

    A chart showed the geographic distribution of income earned in Kansas. In 1970, 55 percent of income was earned outside the state’s two major urban areas: Wichita and the Kansas City and Lawrence areas. In 2008, that number had declined to 38 percent. The cause of this is people moving to cities from small towns and rural areas.

    On a map of Kansas counties, Hall showed how jobs are moving — concentrating — to a few areas of the state. “I think this is a positive development, because density tends to be a precursor to productivity, and productivity — meaning the value of output per worker — is one of the core fundamental definitions of economic growth.” It’s the reason, generally speaking, as to why cities are prosperous.

    Hall said that we should care about our rural communities, but if we slow down the process of densification, we may be losing out on productivity growth and its benefit to economic development.

    Continuing on this important theme, Hall said that the key to real and sustainable economic development is productivity growth: “Productivity growth happens on the front lines of individual businesses. You cannot will productivity growth. You cannot legislate productivity growth. You must create the conditions under which individual businesspeople, slogging it out on the front lines every day, create prosperity and productivity by trying new things and working hard. That requires a climate in which they feel optimistic enough to try new things, are rewarded for their efforts, and are willing to test new ideas.”

    Dynamism is one of the most underappreciated aspects of the U.S. economy among those working in economic development, Hall told the audience. There is a high correlation between the average size of a business and economic growth, and particularly employment growth. In other words, small companies tend to grow faster than large companies. In the chart Hall displayed, there is a clear demarcation at companies with about 20 employees.

    But most of our economic development policies have a bias towards big business. Hall said this is understandable. Further, he said that Wichita is a big business town, meaning that statistically, it is not poised to be a fast-growing area. Hall said we should create an atmosphere where we have lots of small businesses, where there is lots of experimentation. “If our economic development policies are biased against that, that is not helpful.”

    A chart showed that each year many business firms die or contract, and many others are born or expand. These numbers are large, relatively speaking: in most years, around 150,000 jobs are created through new firms or expansion of existing firms, and about the same number are lost. Given that Kansas has about one million jobs, each year about 30 percent of Kansas jobs are in in play, just as a result of business dynamics.

    Hall said that when the Kansas Department of Commerce announces the creation of 80 new jobs in Kansas, we need to remember that the marketplace swamps anything that individual economic development agencies can do. Hall called for policies that can handle a large volume of businesses — 15,000 to 25,000 — in growth mode each year. Our state’s economic development policies can not handle this level of volume, he said.

    Another chart of the states illustrated the relationship between job reallocation rate — the “churn” of jobs — and the economic growth rate in a state. States with high growth rates have high turnover rates in jobs. Kansas ranks relatively low in economic growth.

    Economic development policy should encourage new business startups, Hall said, although there is a high correlation between newness and death of businesses. “What you’re trying to do is have enough experimentation that enough good experiments take hold, and they grow.” This concept of experimentation is related to serendipity, or “making desirable discoveries by accident” that Hall mentioned earlier.

    But much economic development policy focuses on retaining jobs. Hall said that if what we mean by job retention is saving jobs in companies that ought to die, the policy is not productive. Instead, job retainment policies should create a climate where people can find new jobs quickly here in Kansas. Job retention should not mean bailouts, he added.

    Hall emphasized that while there is a high correlation between new businesses and being small, he said it is new businesses that are most important to driving economic growth.

    Newness of business firms is vitally important, Hall said. Summarizing a chart of Kansas job creating by age of the firm, he told the audience: “Without year-zero businesses [meaning the newest firms], the entire state of Kansas is almost always losing jobs. It’s the same for the United States. It’s the newness that matters. We want new businesses, but new businesses create churn, as there’s a high correlation between birth and death.”

    Hall said this is a complicated process, and that most discussions of economic development do not recognize this complexity.

    Hall explained that the state, in conducting economic development activity, often acts as an investor in a company. Specifically, he said that the state acts as an “active manager” similar to an actively managed stock mutual fund. The other type of investor or mutual fund is the passively-managed index fund, where the fund invests in all stocks, usually weighted by the size of the firms. Which approach works best: active management, or investing in all companies. This historical record shows that very few actively-managed funds beat index funds, only 2.4 percent from 1994 to 2004.

    Hall said the data shows it is very difficult to predict which are the right firms to pick to come to Kansas. Therefore, we need policies that benefit all companies in order to have a dynamic market in new business firms. “Everyone gets the same deal,” he said.

    Hall recommended three specific policies: First, universal expensing of all new capital investment made in Kansas, which means that companies can deduct new investment immediately. Second, eliminate the tax on capital gains. Third, automatic property tax abatements for new or improved business investment for a period of five years.

    Hall’s talk was based on his paper from earlier this year titled Embracing Dynamism: The Next Phase in Kansas Economic Development Policy. That paper contains the charts referred to, and also more detail, additional information, and policy recommendations.

  • Kansas and Wichita quick takes: Tuesday May 3, 2011

    Why not school choice in Kansas? WhyNotKansas.com is a website that holds information about the benefits of giving families the freedom of school choice. The site is new this week, and is a project of Kansas Policy Institute and Foundation for Educational Choice. Innovation in school choice programs is common in many states. Kansas, however, still grants the education bureaucracy a monopoly on the use of public dollars in education.

    Economics in one lesson this Monday. On Monday (May 9), four videos based on Henry Hazlitt’s classic work Economics in One Lesson will be shown in Wichita. The four topics included in Monday’s presentation will be The Curse of Machinery, Disbanding Troops & Bureaucrats, Who’s “Protected” by Tariffs?, and “Parity” Prices. The event is Monday (May 9) at 7:00 pm to 8:30 pm at the Lionel D. Alford Library located at 3447 S. Meridian in Wichita. The library is just north of the I-235 exit on Meridian. The event’s sponsor is Americans for Prosperity, Kansas. For more information on this event contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415.

    Sowell on government intervention. Must government intervene to fix the economy? Politicians face tremendous pressure to be seen as active, writes Thomas Sowell: “It is not politically possible for either the Federal Reserve or the Obama administration to leave the economy alone and let it recover on its own. Both are under pressure to ‘do something.’ If one thing doesn’t work, then they have to try something else. And if that doesn’t work, they have to come up with yet another gimmick. … The idea that the federal government has to step in whenever there is a downturn in the economy is an economic dogma that ignores much of the history of the United States. During the first hundred years of the United States, there was no Federal Reserve. During the first one hundred and fifty years, the federal government did not engage in massive intervention when the economy turned down. No economic downturn in all those years ever lasted as long as the Great Depression of the 1930s, when both the Federal Reserve and the administrations of Hoover and of FDR intervened. The myth that has come down to us says that the government had to intervene when there was mass unemployment in the 1930s. But the hard data show that there was no mass unemployment until after the federal government intervened. Yet, once having intervened, it was politically impossible to stop and let the economy recover on its own. That was the fundamental problem then — and now.”

    Salina’s first TIF district. The Salina Journal looks at issues surrounding that city’s first TIF district. Of note: “TIF districts are prevalent in other cities and states. For instance, Manhattan uses TIF districts so much that it no longer considers it an incentive, [Dennis Lauver, president and CEO of the Salina Area Chamber of Commerce] said.”

    Charles on energy and stuff. “We are making it cool to use less stuff,” says Charles, Prince of Wales, KG KT GCB OM AK QSO CD SOM PC AdC(P) FRS. Irish documentary film makers Ann McElhinney and Phelim McAleer have a new short film that looks at the activities of England’s Prince Charles as compared to what he wants the rest of us to do. Write the documentariasts: “Prince Charles is the latest to be exposed as an eco-Hypocrite in our short film series. The Prince is coming to the US this week to speak at Georgetown University about ‘sustainability’ so we decided to see just how he lives up to his own standards. We’ve made a short film that exposes just how hypocritical the Prince is as he lives a fabulous, luxury life whilst lecturing the rest of us that we have to live with less. Prince Charles — Hypocrite exposes the double standard that is at the center of so much environmentalism. … He is coming to the US to lecture on sustainability and tells people they must live with less in order to save the planet but tells us we must end our ‘age of convenience.’ He wants to make our lives more inconvenient to save the planet from alleged climate change but the Prince refuses to make any changes in his own life.”

    Government and entrepreneurship. From an essay by Dane Stangler titled Entrepreneurship and Government, contained in Back on the Road to Serfdom: The Resurgence of Statism, edited by Thomas E. Woods, Jr.: “The third way in which the state can intrude on entrepreneurship is through distorted incentives: either with misguided regulations or unintended consequences, the government could end up creating the wrong incentives for entrepreneurs. Will Baumol discussed such institutional incentives in a famous article in which he argued. ‘How the entrepreneur acts at a given time and place depends heavily on the rules of the game — the reward structure in the economy — that happen to prevail.’ Problems arise when these rules of the game encourage ‘unproductive’ entrepreneurial behavior. The principal example of such unproductive behavior is rent seeking, which occurs when companies pursue a bigger slick of economic activity by means other than market competition — that is, when they graduate to seeking favors from Washington rather than seeking a competitive edge by means of innovation. A company’s entreaties to government for protective action often indicate a returns curve that has already turned negative.” … While the article mentions “favors from Washington,” we can easily substitute state capitols, city halls, or county courthouses. For example, Wichita’s economic development policy is firmly rooted in the belief that the city can direct entrepreneurial activity with no wrong incentives or ill consequences. Listening to the recent summit of aviation industry leaders with Kansas Governor Sam Brownback, it is apparent that this industry thrives on, and will continue to expect, large doses of incentives and special treatment and favor from government. But is the aviation industry best for the future of Wichita? While government leaders across Kansas pledge not to lose most important industry, we know it can happen (see Detroit). We have to be careful to make sure that our government policies don’t hasten this loss.

  • TIF, a Wichita ‘tool,’ might be on the way out in California

    In the Wall Street Journal, Steven Greenhut writes about California’s redevelopment agencies, which are very similar to tax increment financing districts (TIF) in Kansas. California governor Jerry Brown has proposed ending these agencies. Local government officials, who are beneficiaries of the agencies, are pushing back. A controller’s report in California finds that the agencies are a “source of waste and governmental abuse — not a generator of jobs and economic growth.” This is consistent with other economic research on TIF districts.

    Greenhut correctly diagnosis the problem with these agencies or districts: “Redevelopment has attracted the Brown administration’s attention for an obvious reason: The more aggressive cities have become in using this ‘tool,’ the more they divert tax dollars from traditional public services like schools, fire-fighting and police services.” The use of the term “tool” evokes the rhetoric of Wichita city council members, who are wishing for more “tools in the toolbox.”

    As part of its approval of the Goody Clancy plan for the revitalization of downtown Wichita, Susan Estes asked the city council to formally disavow the use of eminent domain for the purposes of transferring property from one person to another. While the city says it does not intend to use the power of eminent domain for this purpose, the reluctance of the council to add this provision to the plan means that it is held in reserve. Mayor Carl Brewer believes it is “one of the tools that is available to the city.” And when perceived to be needed, the power of eminent domain is usually too powerful to resist.

    TIF district money is expected to be a key component of the public financing contribution to downtown Wichita redevelopment.

    Greenhut concludes: “While economic development and local control are crucial issues, it’s hard to understand why any Republican would believe that a regime of government planning and subsidy is the best way to achieve those goals. They should be standing up against the abuses of property rights and the fiscal irresponsibility inherent in the redevelopment process and championing market-based alternatives to urban improvement — even if it means defending a proposal from a Democratic governor they often disagree with.” Or here in Wichita, a liberal Democratic mayor who champions the centralized government planning of the Wichita Downtown Development Corporation.

    Greenhut’s most recent book is Plunder: How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation.

    Jerry Brown’s Good Deed Gets Punished

    California’s governor wants to close his state’s redevelopment agencies, which abuse property rights and breed dependency among city governments.

    By Steven Greenhut

    Forced to choose between funding public schools and subsidizing ritzy golf courses, many California officials prefer the latter. That’s become painfully clear in the past few weeks as Golden State politicians have fiercely opposed Gov. Jerry Brown’s plan to shave $1.7 billion from the state’s budget deficit by shuttering California’s 400 redevelopment agencies.

    The roots of this story go back to 1945, when the California legislature allowed cities and counties to form these redevelopment agencies. Their purpose, at least in theory, was to fight urban blight. Once public officials deem an area blighted, redevelopment agencies can use eminent domain to clear old properties and sell bonds to pay for improvements.

    To pay off the bonds, the agencies gobble up any subsequent increase in tax revenue — what the state calls the “tax increment.” In addition, a portion of the sales taxes generated by the new retail and commercial centers go into city, not state, coffers. That’s the main reason redevelopment agencies are popular among local politicians, Republican and Democratic alike. (Plus, they allow pols to reward favored corporations and developers.)

    Continue reading at the Wall Street Journal (subscription required) or Pacific Research Institute (no subscription required).

  • Tax increment financing: TIF has a cost

    Tax increment financing, or TIF districts, is slated to be used as one of the primary means to raise money for the “public investment” portion of the costs of the revitalization of downtown Wichita. Touted by its supporters as being without cost, or good for the entire city, or the only way to get a project started, these arguments make sense only to those who see only the immediate effects of something and are unwilling — or unable — to see the secondary effects of this harmful form of government intervention.

    Cato Institute Senior Fellow Randal O’Toole has written extensively on the subject of urban planning, development, and tax increment financing (TIF) districts. The following article contains many points that the Wichita City Council may wish to consider as it decides whether to rely on this form of financing for downtown projects, or for projects anywhere in the city.

    O’Toole was in Wichita last year. Coverage of a lecture he delivered at that time is Randal O’Toole discusses urban planning in Wichita. The author of The Best-Laid Plans: How Government Planning Harms Your Quality of Life, Your Pocketbook, and Your Future, O’Toole’s latest book is Gridlock: Why We’re Stuck in Traffic and What to Do About It.

    TIF is Not “Free Money”

    By Randal O’Toole

    Originally created with good intentions, tax-increment financing (TIF) has become a way for city officials to enhance their power by taking money from schools and other essential urban services and giving it to politically connected developers. It is also often used to promote the social engineering goals of urban planners.

    TIF is based on the idea that public improvements to a neighborhood or district will lead developers to invest in that district. To finance such public improvements, cities are allowed to keep the “increment” or increased property taxes collected from the area. Typically, planners estimate in advance how much new property tax the city can collect and then sell bonds that will be repaid out of those taxes. The revenues from the bonds are used to pay for the improvements.

    TIF was invented in California in 1952 in response to a problem found in many cities after World War II. At the beginning of and during the war, most urban residents lived in apartments. After the war, huge numbers of people moved to single-family homes in the suburbs. This left inner-city neighborhoods with high vacancy rates. Since few wanted to rent the cramped housing in such neighborhoods, the landowners did not keep the housing in good condition, and the neighborhoods became “blighted.”

    So the California legislature allowed cities to create “redevelopment districts.” Typically, the cities evicted the residents of the districts and tore down the housing, thus leaving bare land that developers could use to build whatever met market demand. It sometimes worked, but often did not, and to this day some neighborhoods of New York City, New Jersey, and other urban areas remain little more than gravel pits.

    Eventually, every state but Arizona legalized TIFs — North Dakota doing so in 1973. (Arizona and some other states use a similar scheme involving sales taxes.) Thousands of cities have established TIF districts. But experience has proven that they don’t work as well as hoped.

    TIF is not “free money.” Studies have found that, at best, TIF is a zero-sum game, meaning for every winner in the TIF game others lose an equal amount. In other words, 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.

    Not only does TIF not stimulate urban growth, it may even slow it down. One study found that TIF is actually a negative-sum game because businesses that might have located or expanded in the cities decide to move to another place that has lower taxes or higher levels of urban services.

    TIF puts city officials on the verge of corruption, favoring some developers and property owners over others. TIF creates what economists call a moral hazard for developers. If you are a developer and your competitors are getting subsidies, you may simply fold your hands and wait until someone offers you a subsidy before you make any investments in new development. In many cities, TIF is a major source of government corruption, as city leaders hand tax dollars over to developers who then make campaign contributions to re-elect those leaders.

    TIF isn’t even necessary to promote redevelopment of declining neighborhoods. Eventually, property values fall low enough that people start to buy and restore or replace buildings in those districts. Rather than use TIF and eminent domain to redevelop a warehouse district, Anaheim recently decided to merely get out of the way of developers of what became known as the Platinum Triangle. Since then, developers have invested billions of dollars in the district.

    TIF is no longer about blight. Today, the inner-city slums that TIF was created to replace are long gone, yet TIF continues to grow. Bismarck wants to create a quiet rail zone. Fargo wants to revitalize its downtown. Whenever any kind of development “need” arises, city officials are happy to steal money from fire, police, schools and other services that rely on property taxes and use it to fund that need.

    Some states require cities to find that a neighborhood is blighted before they can use TIF. San Jose planners once found that a third of their city was blighted, including one posh neighborhood that was supposedly a slum because the residents had failed to rake the leaves from the private tennis courts in their backyards. Some cities go so far as to declare prime farmland to be “blighted” so they can maximize their share of the revenues when that land is developed.

    TIF today is often part of a social engineering agenda that Americans should reject. With no more slums to clear, urban planners see themselves as having a new mission: not to restore blighted neighborhoods but to re-engineer society to fit their fantasies of how people should live. Automobiles are evil, the planners think, and getting people to live in high-density housing will lead them to drive less because they won’t have as far to go to get anywhere. So cities like Denver, Minneapolis, and Portland are using TIF to subsidize high-density developments.

    Ironically, we seem to have come full circle. Once used to subsidize the removal of high-density developments that few wanted to live in, TIF is now used to subsidize the construction of high-density developments that few want to live in. After all, if there was truly a demand for such high-density housing, no subsidies would be needed.

    While we like to think that government officials have our best interests at heart, TIF is just too much of a temptation for many cities to resist. Two Democratic legislators in Colorado want to reform TIF in that state so that cities can’t declare farms to be blighted. A bill doing just that was proposed in, but not passed by, North Dakota’s 2003 legislature.

    But that doesn’t go far enough. Legislators should recognize that TIF no longer has a reason to exist, and it didn’t even work when it did. They should repeal the laws allowing cities to use TIF and encourage cities to instead rely on developers who build things that people want, not things that planners think they should have.