Recent use of the Wichita City Council public agenda has highlighted the need for reform.
At meetings of the Wichita city council, non-council members generally have two opportunities to address the council members. One is as each agenda item is considered. There is (usually) an opportunity to speak only on that topic. If you want to speak about something else, there is also an opportunity near the start of the meeting called the public agenda.
The council has policies regarding the public agenda, particularly the need to sign up before the meeting, and far in advance: “Members of the public desiring to present matters to the council on the public agenda must submit a request in writing to the office of the city manager prior to twelve noon on the Tuesday preceding the council meeting.” 1
The practical problem is this: If the council takes action on Tuesday that inspires someone to address the council on the public agenda, that probably can’t happen at the next council meeting, if the policy is followed as stated. For one thing, the council might not take action until after noon, so the deadline for speaking at the next meeting has passed by then. But more likely and most importantly, many people are not able to watch the council meeting live. Instead, they may view a delayed broadcast on cable television, watch the meeting through the city’s website, or read news reporting. By the time any of these happen, the deadline for the next meeting’s public agenda has passed.
Why is this important? In Kansas cities of the first class, a law is not “officially passed” until it has passed on “second reading.” 2 This is a procedure whereby an ordinance that has passed “first reading” is voted upon again, and if it passes, it then may become law. Often second reading happens at the next council meeting, one week later. (“First reading” is what people see in meetings and is reported in news stories. A proposed ordinance is explained, usually by city staff. Then there may be discussion from the public and among council members, and then a vote.)
So if a person has a problem with an ordinance that passed first reading and wants to speak to the council before the second reading of the ordinance, that probably won’t be possible, for timing reasons explained above.
There’s the related issue that the second reading is placed on the consent agenda. A consent agenda is a group of items — perhaps as many as two dozen or so — that are voted on in bulk with a single vote. An item on a consent agenda will be discussed only if a council member requests the item to be “pulled.” If that is done, the item will be discussed. Then it might be withdrawn, voted on by itself, or folded back into the consent agenda with the other items. Generally, consent agenda items are considered by the city to be routine and non-controversial, but that is not always the case.
It is very rare for the second reading of an ordinance to be “pulled” from a consent agenda for discussion and separate vote. It may have happened, and if so, I can’t recall when. So even if you spoke on the public agenda regarding an ordinance at the meeting where that same ordinance appears on second reading, your speech might not mean much unless a council member “pulls” the item from the consent agenda for discussion and possibly, an individual vote.
By the way, one speaker said that the council’s policies meant there could be only 20 speakers per month. I think the arithmetic behind this comes from the council’s policy of five speakers per meeting and four meetings per month. It’s actually less than that. As explained on the council’s web site, the fourth meeting of a month is a “workshop” meeting. At these meetings the council considers consent agenda items only, along with information presentations (the workshop). There is no public agenda at these fourth Tuesday meetings, and the council doesn’t meet on fifth Tuesdays.
(You may be wondering: Does second reading ever happen in the fourth Tuesday meetings where there is no public agenda? Yes. It happened on January 23, 2018, for example.)
Would reform of the council’s public agenda make a difference? Do council members listen to and consider the opinions of speakers on the public agenda?
In this episode of WichitaLiberty.TV: John Todd explains how cities in Kansas are seeking additional power to seize property, and tells us why we should oppose this legislation. View below, or click here to view at YouTube. Episode 188, broadcast March 17, 2018.
Local governments in Kansas are again seeking expanded power to seize property.
In Kansas, officials of many city governments feel they don’t have enough power to deal with blight. This year, as in years past, there is legislation to expand the power of cities to seize property. 12
John Todd, along with Paul Soutar, made a video to explain the bill and the surrounding issues. It’s just five minutes in length. View it below, or click here to view at YouTube. Todd’s written testimony to the Kansas Legisalture has photographs and examples. It may be viewed here.
Presently, tools are in place. Cities already have much power to deal with blight and related problems. Last year Todd and I, along with others, had a luncheon meeting with a Kansas Senator who voted in favor of expanding cities’ powers. When we told him of our opposition, he asked questions like, “Well, don’t you want to fight blight? What will cities do to fight blight without this bill?” When we listed and explained the many tools cities already have, he said that he hadn’t been told of these. This is evidence that this bill is not needed. It’s also evidence of the ways cities try to increase their powers at the expense of the rights of people. 3
The Governor’s veto. A similar bill passed the legislature in 2016. Governor Brownback vetoed that bill, explaining, “The right to private property serves as a central pillar of the American constitutional tradition.” 4
The Governor’s veto provoked a response from Wichita government officials. It let us know that they are not as respectful of fundamental rights as was Brownback. 5
For example, in remarks from the bench, Wichita City Council Member Pete Meitzner (district 2, east Wichita) said there is no intent to be “aggressive in taking people’s property.” 6 But expanding the power of government — aggression, in other word — is what the bill does. Otherwise, why the need for the bill with its new methods and powers of taking property?
And once government is granted new powers, government nearly always finds ways to expand the power and put it to new uses. Even if we believe Meitzner — and we should not — he will not always be in office. Others will follow him who may not claim to be so wise and restrained in the use of government power.
Government expands and liberty recedes. Government continuously seeks new ways to expand its powers through enabling concepts like blight. Did you know the entire suburban town of Andover is blighted? 7 Across the country, when governments find they can take property with novel and creative interpretations of blight, they do so. 8
It’s easy to sense the frustration of government officials like Wichita Mayor Jeff Longwell. In his remarks, he asked opponents of SB 338 “what they would do” when confronted with blight. That is a weak argument, but is advanced nonetheless. Everyone has the right — the duty — to oppose bad legislation even if they do not have an alternate solution. Just because someone doesn’t have a solution, that doesn’t mean their criticism is not valid. This is especially true in this matter, as cities already have many tools to deal with blight.
Wichita leaders are proud of our region’s economic growth. Here are the numbers.
Greater Wichita Partnership is our region’s primary agency responsible for economic development. On its website, it tells us, “We are an organization built upon teamwork and the idea that, when everyone is advancing in the same direction, we can create a powerful force to effect change — and, thanks to our numerous investors and partners, we are.” One of the things GWP says we are doing is “Growing primary jobs.” 1
Recently Greater Wichita Partnership president Jeff Fluhr told a group of young people this:
From the innovation campus at Wichita State University and development along the Arkansas River in downtown, including a new baseball stadium, to the conversations happening now about a new convention center and performing arts facility, Fluhr said the momentum is pushing to keep Wichita on par with the development of other communities around the country.
That development, which has in recent years expanded to incorporate the entire region, is a critical component to attracting and retaining talent — the exact kind of talent in the ICT Millennial Summit crowd. 2
In announcing his candidacy for Sedgwick County Commission, Wichita city council member Wichita City Council Member Pete Meitzner (district 2, east Wichita) said, “We have enjoyed great progress and growth during my two terms as a City Council member and I plan to do my part to assure Sedgwick County is part of this continued success.” 4
Given all this, it ought to be easy to find economic data supporting momentum, progress, and growth. Let’s look at some indicators.
Personal income. For the Wichita metropolitan statistical area, personal income in 2016 rose slightly from the 2015 level, but is still below the 2014 level. In real (inflation-adjusted) dollars, personal income fell in 2016. 5
Population. In 1990 Wichita was the 80th largest metropolitan area. In 2016 its ranking had fallen to 87.
Downtown Wichita. There’s been a lot of investment in downtown Wichita, both public and private. But since 2008 the trend is fewer business establishments, fewer people working downtown, and lower earnings generated in downtown Wichita. Almost every year these numbers are lower than the year before. This is movement in the wrong direction, the opposite of progress. There may be good news in that the number of people living downtown may be rising, but business activity is declining. 6
Employment. While officials promote the low Wichita-area unemployment rate, there is an alternative interpretation: The September 2017 unemployment rate declined to just about half the January 2011 rate. The number of employed persons rose by 1.2 percent, but the labor force fell by 3.1 percent. If we consider only the unemployment rate, it looks like the Wichita area is prospering. But the unemployment rate hides bad news: The number of jobs increased only slightly, and the labor force fell by a lot. While it’s good that there are more people working, the decline in the labor force is a problem. (More about employment below.) 7
Growth in output. The worst news, however, is that the Wichita-area economy shrank from 2015 to 2016. In real (inflation-adjusted) dollars, the Wichita metropolitan area gross domestic product fell by 1.4 percent. For all metropolitan areas, GDP grew by 1.7 percent. Since 2001, GDP for all metropolitan areas grew by 29.3 percent, while Wichita had 12.3 percent growth. 8
The GDP figures are for 2016, and figures for 2017 won’t be available until September. So what happened in 2017? Could 2017 be the genesis of momentum to drive our economy forward?
While GDP figures aren’t available, jobs numbers are. For the year 2016, total nonfarm employment in the Wichita metropolitan area grew by 0.62 percent. For 2017, the growth rate was 0.56 percent — a slowdown in the rate of job growth.
These job growth figures are far below the rate for the nation, which were 1.79 and 1.58 percent respectively.
Furthermore, Wichita’s job growth rate in 2016 was lower than 2015’s rate of 1.07 percent. This is momentum in the wrong direction. Nearby charts illustrate. 9
What to do?
You can’t change what you don’t acknowledge.
— Phillip C. McGraw
The failure of the Wichita-area economy to thrive is a tragedy. This is compounded by Wichita leaders failing — at least publicly — to acknowledge this. While we expect people like the mayor, council members, and the chamber of commerce to be cheerleaders for our city, we must wonder: Do these people know the economic statistics, or do they choose to ignore or disbelieve them?
From private conversations with some of these leaders and others, I think it’s a mix of both. Some are simply uninformed, while others are deliberately distorting the truth about the Wichita economy for political or personal gain. The people who are uninformed or misinformed can be educated, but the liars are beyond rehabilitation and should be replaced.
In Community Improvement Districts (CID), merchants charge additional sales tax for the benefit of the property owners, instead of the general public. Wichita may have an additional three, contributing to the problem of CID sprawl.
This week the Wichita City Council will hold public hearings considering the formation of three Community Improvement Districts. In Kansas Community Improvement Districts, merchants charge additional sales tax for the benefit of the property owners, instead of the general public. 1
Each of these CIDs will charge customers additional sales tax, with a cap on the amount that may be raised, and a separate cap on the length of the CID. For the three projects this week, here are the details: 2
Delano Catalyst CID: 2% additional tax, raising up to $3,000,000, up to 22 years
Spaghetti Works CID: 2% additional tax, raising up to $3,118,504, up to 22 years
Chicken N Pickle CID: 1.5% additional tax, raising up to $2,300,000, up to 15 years
All these CIDs are of the pay-as-you-go type, which means the city is not borrowing money that would be repaid by the CID tax proceeds. Instead, the CID tax proceeds are periodically sent to the landowners as they are collected. The city retains a 5% administrative fee.
Additionally, two of these CIDs earmark 10% of the CID tax collections for public benefits, which are extra park maintenance for the Spaghetti Works CID, and street improvements for the Chicken N Pickle CID. While these earmarks may seem magnanimous gestures, they directly work to the developers’ benefit. For Spaghetti Works, Naftzger Park is, in effect, becoming the front yard to a development. It will be of great benefit for it to be maintained well, especially considering that the developers will be able to close the park for private events. For the Chicken N Pickle CID, the street improvements the CID will fund are usually paid for by special tax assessments on the nearby landowners, which in this case is the Chicken N Pickle. This is a large savings.
By the way, none of the applications for these economic development incentives pleads economic necessity. They simply want more money, and are willing to let government take the blame when customers notice they’re paying 9% or 9.5% sales tax in these districts.
Of additional note: The Delano and Spaghetti Works developments are receiving many millions of taxpayer-provided subsidy from other economic development incentive programs. 34
It will be interesting to see how the council’s two new members, Brandon Johnson (district 1, northeast Wichita) and Cindy Claycomb (district 6, north central Wichita), will vote in these matters. As Progressives, we might expect them to be opposed to higher sales taxes, which affect low-income households disproportionally. We also might expect them to be opposed to targeted tax incentives for the “wealthy,” such as the now-defunct exemption on pass-through business income in Kansas. Here, they are asked to vote on a highly targeted tax incentive that will benefit identifiable wealthy parties.
Issues regarding CID
Perhaps the most important public policy issue regarding CIDs is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? But the premise of this question is not accurate, as it is not the merchants who receive CID funds. The more accurate question is why don’t landlords raise their rents? That puts them at a competitive disadvantage with property owners that are not within CIDs. Better for us, they rationalize, that unwitting customers pay higher sales taxes for our benefit.
Customers of merchants in CIDS ought to know in advance that an extra CID tax is charged. Some have recommended warning signage that protects customers from unknowingly shopping in stores, restaurants, and hotels that will be adding extra sales tax to purchases. Developers who want to benefit from CID money say that merchants object to signage, fearing it will drive away customers.
One of the follies in government economic development policy is the categorization of costs into eligible and non-eligible costs. The proceeds from programs like CIDs and tax increment financing may be used only for costs in the “eligible” category. I suggest that we stop arbitrarily distinguishing between “eligible costs” and other costs. When city bureaucrats and politicians use a term like “eligible costs” it makes this process seem benign. It makes it seem as though we’re not really supplying corporate welfare and subsidy.
As long as the developer has to spend money on what we call “eligible costs,” the fact that the city subsidy is restricted to these costs has no economic meaning. Suppose I gave you $10 with the stipulation that you could spend it only on next Monday. Would you deny that I had enriched you by $10? Of course not. As long as you were planning to spend $10 next Monday, or could shift your spending from some other day to Monday, this restriction has no economic meaning.
Notification and withdrawal
If a merchant moves into an existing CID, how might they know beforehand that they will have to charge the extra sales tax? It’s a simple matter to learn the property taxes a piece of property must pay. But if a retail store moves into a vacant storefront in a CID, how would this store know that it will have to charge the extra CID sales tax? This is an important matter, as the extra tax could place the store at a competitive disadvantage, and the prospective retailer needs to know of the district’s existence and its terms.
Then, if a business tires of being in a CID — perhaps because it realizes it has put itself at a competitive disadvantage — how can the district be dissolved?
The nature of taxation
CIDs allow property owners to establish their own private taxing district for their exclusive benefit. This goes against the grain of the way taxes are usually thought of. Generally, we use taxation as a way to pay for services that everyone benefits from, and from which we can’t exclude people. An example would be police protection. Everyone benefits from being safe, and we can’t exclude people from participating in — and benefiting from — police protection.
But CIDs allow taxes to be collected for the benefit of one specific entity. This goes against the principle of broad-based taxation to pay for an array of services for everyone. But in this case, the people who benefit from the CID are quite easy to identify: the property owners in the district.
The city has finalized a proposal for a development near Naftzger Park. It includes a few new and creative provisions.
This week the City of Wichita will consider a development agreement for land and buildings near Naftzger Park in downtown Wichita. 1
Community Improvement District
The plan includes the formation of a Community Improvement District. In CIDs, merchants charge additional sales tax for the benefit of the property owners, instead of the general public.2 In this CID, the proposed additional sales tax is two cents per dollar, the maximum available under state law, and could generate up to $3.1 million over a period as long as 22 years.3
This proposed CID contains a “sweetener,” likely designed to reduce public opposition. Ten percent of the CID revenue would be used to maintain Naftzger Park. We’ve seen this before, as in the Cabela’s CID where some of the funds paid for road improvements near the store.4
The action the city council will consider this week is whether to accept the petitions to form the CID and set January 9, 2018 as the date for the public hearing.
Industrial Revenue Bonds and tax forgiveness
This project is also requesting Industrial Revenue Bonds. under this program, the city will not be lending money, nor will it be responsible for repaying any loans. Instead, the program allows the developers to avoid paying sales tax on construction.5 City documents don’t give an amount of tax savings, but it could be over one million dollars. 6
City documents state that a property tax abatement is not being requested. That isn’t available for this project, as its property taxes are already allocated by TIF.
Tax Increment Financing (TIF)
The project has already been approved for of Tax Increment Financing. In this case, future property tax revenues from this project will be rerouted from their normal flow to reconstruct Naftzger Park, something that is seen as a large benefit to the developers.
Construction administration fee
The city will pay the developers up to $250,000 for construction administration of the park.
This agreement also contains something I’m sure is considered as creative. We also saw this as an incentive offered to Cargill earlier this year. In this case, the city will pay the developers a fee for using their parking spaces. In this case, the city proposes paying a one-time easement fee of $10,000 per spot for from 80 to 90 parking spots. The total payment would be from $800,000 to $900,000. These parking spots would be available to the public outside of business hours, which are defined as 6:00 a.m. to 6:00 p.m. Monday through Friday.
Buried with the development agreement is a provision that the developers may use the park for private events: “The City and the Board will cooperate with Developers, upon Developers’ request, to create an Annual Master Calendar of private and public events for the Park, with the expectation that the Developers will have the use of the Park for certain private events.”
Little else is mentioned regarding these private events, such as the maximum number of private events. This seems subject to abuse.
Council Agenda: “The Developer and Park Board control the land within the proposed CID. The requested CID would provide pay-as-you-go financing for qualified project costs through the imposition of a 2% special retail sales tax on all taxable retail sales within the district for a maximum of 22 years. The eligible project costs identified in the CID petition include costs of renovating the building at 691 E. William and construction of the Class A commercial building. The City will receive 10% of the CID revenue to fund Naftzger Park maintenance and or ROW repairs and improvements, in addition to the 5% administrative fee. The revenue is estimated to be $310,000. The maximum amount of project costs that can be reimbursed is $3,118,504 based on the projected revenue of the project, exclusive of the City’s administrative fee and Naftzger Park maintenance.” ↩
“The Developer is also requesting the issuance of a letter of intent to issue Industrial Revenue Bonds (IRBs), valid through December 31, 2022, in an amount not-to-exceed $26,000,000 to achieve a sales tax exemption on items purchased for the redevelopment project. No property tax abatement is being requested.” ↩
In today’s Wichita Eagle Chase Billingham has an excellent column explaining the recent changes to panhandling laws in the City of Wichita (Chase Billingham: New laws will criminalize homeless). An assistant professor of sociology at Wichita State University, he makes important observations and warnings about the effect of these laws.
In his column, Billingham notes a problem with the ordinance designed to regulate “aggressive” panhandling: “Importantly, though, the ordinance defines ‘contact’ in an extremely vague manner.” I may have noticed the same problem in this example from Ordinance No. 50-643:
Section 2: “Contact” means the intentional action by any person which attempts to attract the attention of any other person for the purpose of inducing such other person to slow, stop or which obstructs or hinders the movement of such other person to facilitate a transfer of anything to or from either person.
What is an example of attracting someone’s attention to induce them to slow or stop? Busking. And it’s designed to encourage — “facilitate” — the transfer of money to the busker.
In the ordinance, the city says its purpose is to “regulate behaviors that are intimidating, threatening or harassing.” At the same time, the city takes actions that work in cross-purposes. In particular, the city has taken steps to allow — if not to encourage — more alcohol consumption. In 2016 laws were changed that both restricted and liberalized alcohol consumption. This year the city lobbied the state for laws that would establish “common consumption areas.” These are geographically-defined areas where free-range drinking is allowed. That is, you can drink outside in public, like on Bourbon Street in New Orleans. Besides Old Town, the city mentioned Delano and College Hill as possible common consumption areas.
There is a reason why cities have long outlawed drinking on the streets and sidewalks. But I guess that no longer applies.
I wonder if the city is running the risk of creating a Disneyland downtown, where everything is planned, staged, and regulated. Our city planners set design standards for buildings, and then use the lure of our tax money to encourage compliance. Is there a purportedly problematic public park interfering with you plans for development? No problem. Just ask the city to redirect your tax dollars away from police and schools so that the park can be rebuilt at no cost to you — in a Disneyland style. Too much crime on the streets? The city will install expensive and obtrusive surveillance systems to protect you, and also to harvest revenue if you forget to activate your turn signal in time.
Vibrant urban areas need organic, grass-roots use of public spaces. It’s a big part of what makes a city a city and not a carefully manicured suburb. It’s knowing that the unexpected could be around any corner and fully embracing that possibility.
Funny thing is, the entities that are pushing for this crackdown on panhandling know this. Visit Indy, Indianapolis Downtown Inc. and Ballard’s administration called for the promotion of organic urban experiences in the Velocity Action Plan released earlier this month.
They want a freer, livelier atmosphere Downtown. They want “guerrilla-style” takeovers of public spaces. They want visitors and residents to be surprised by randomness. In short, they want a true urban environment.
But here’s the inconvenient truth: To get that kind of organic, vibrant urban atmosphere, you cannot control everything. And part of not being able to control everything is that, to a certain extent, you have to accept the good with the bad. The pretty with the ugly.
The mime outside Bankers Life Fieldhouse and the man sitting quietly with a sign asking for money. The woman sprawled on the sidewalk with a cup and the saxophone-playing busker who sends people to the Chatterbox club to hear more jazz.
This is the messiness of an urban environment. It’s not always pretty. But it’s not supposed to be. The people who live Downtown know this. We understand it. It’s why we moved here and not to Carmel.
A development near downtown Wichita may receive subsidy through four different avenues.
This week the Wichita City Council will consider approval of a development agreement with EPC Real Estate, LLC, for the Delano catalyst site. This is vacant land north of Douglas, between the Advanced Learning Library and the River Vista project.
Update: The measure passed four votes to three, with Bluebaugh, Frye, and Longwell in the minority.
One form of additional subsidy is forgiveness of sales tax on the construction of buildings. The Letter of Intent for Industrial Revenue Bonds the council will consider states: “The City’s governing body has authorized an application for sales tax exemption with an estimated value of $1,611,822.”
But a really big gift to the developers is the price of the land. City document state the selling price for the 7.2 acre plot is $750,000. That’s about ($750000 / 7.2 acres) = $104,167 per acre. It’s a pretty good deal for the buyers. A look at some current commercial land listings in Wichita finds these:
1.20 acres at 47th South and Seneca for $425,000, or $354,167 per acre.
0.50 acres at 140 N. West St. for $225,000, or $450,000 per acre.
20.00 acres at 1462 S. Maize Road “Great for entertainment, retail, etc.” for $4,251,456, or $212,573 per acre.
0.52 acres at 640 N. Webb Road for $368,570, or $708,788 per acre.
It’s clear that the developers are buying the land from the city for a small fraction of its value.
By the way: Wichita Mayor Jeff Longwell says the city will no longer offer cash incentives for economic development. But selling land a deeply discounted price: Is that different from a cash incentive?
We might also note that this project will receive millions in benefits from Tax Increment Financing. This was a program born out of a perceived need to help redevelop blighted property. This development site, however, is vacant land.
Finally: If downtown Wichita is really progressing as well as its boosters say, why is it necessary to offer so much subsidy to develop a project like this?
It’s good news that Spirit AeroSystems is expanding in Wichita. Let’s look at the cost.
While it is good news that Spirit AeroSystems is expanding its Wichita operations, it is not without cost to several governmental agencies. Here’s a summary of what is publicly available so far.
First, a new “entity” will be formed in order to facilitate the construction and ownership of a new building on the Spirit campus. 1
This entity will be funded with $7 million in cash from Sedgwick County and $3 million cash from the City of Wichita. Further, the city will forgive Spirit’s debt of $3.5 million associated with a water project. 2
Second, through the mechanism of Industrial Revenue Bonds,3 Spirit receives a property tax exemption of one hundred percent for five years, with renewal for another five years if goals are met. Despite the use of the term “bond,” no governmental entity is lending money to Spirit, and no one except Spirit is liable for bond repayment.
Third: The bonds confer another benefit to Spirit: According to city documents, “IRBs will, pursuant to STATE law, provide for a sales tax exemption on materials and labor subject to sales tax necessary to construct and equip FACILITY.” 4 City documents give no dollar amount is given for the sales tax exemption. But in the analysis conducted by Center for Economic Development and Business Research at Wichita State University these figures are used for the amount of sales tax exemption: City of Wichita: $279,445. Sedgwick County: $137,354. State of Kansas: $5,370,270. Total: $5,787,069. 5
Fourth, this project will undoubtedly qualify for PEAK, or Promoting Employment Across Kansas. This is a State of Kansas program that allows companies to keep the state income taxes their employees pay through paycheck withholding, less a small fee. 6 It isn’t possible to know in advance how much PEAK benefit the company will receive, because the individual circumstances of each employee determine the income tax withheld. The following calculation, however, gives an indication of the magnitude of the amount of PEAK benefits Spirit can expect:
$56,000 annual salary / 26 pay periods = $2,154 per bi-weekly pay period. For a married worker with two children, withholding tables show $55 to be withheld each pay period, or $55 * 26 = $1,430 per year. For 1,000 employees, the PEAK benefit is $1,430,000 per year. 7
There may be other programs that this project qualifies for.
Are these incentives necessary?
Taxpayers might be wondering if these incentives are necessary for Spirit to be able to expand its operations, and for it to select Wichita as the site. Spirit says it has received generous offers from other locations. If so, Spirit could do itself a favor by revealing these offers. So too, could other Wichita companies that have claimed intense courtship by other cities. But the economic development industry operates in darkness.
One thing that would also increase the credibility of economic development efforts is for Wichita Mayor Jeff Longwell (and others) to stop making claims of “no more cash incentives.” The city explicitly offers cash in this proposal. The city also offers to cancel a debt, which is just like cash. Forgiveness of future taxes is as good as cash, too.
For years we’ve been told that Wichita needs to diversify its economy, meaning that it relies too heavily on the aircraft industry. This expansion by Spirit will undoubtedly heighten that concentration. We should not turn down this expansion of our local economy. But the incentives that are offered have a cost, and that cost is paid — partly — by other business firms in other industries that are trying to grow in Wichita.
Many will undoubtedly cheer the Spirit announcement as an economic development win on a large scale. It will add many jobs. But the Wichita-area economy is so far behind it will take much more growth than this to catch up with the rest of the nation. In fact, the Wichita-area economy shrank last year. 8 And while many cheer our low unemployment rate, sole reliance on that number hides a shrinking labor force. 9
Also, let’s be appropriately humble when boasting about this expansion. A region’s largest employer deciding to expand in the same city: This is the minimum level of competence we ought to expect from our economic development machinery.
Further, economists caution us to look beyond any single project, no matter how large, and consider the entirety of the local economy. As economist Art Hall has noted, large-employer businesses have no measurable net economic effect on local economies when properly measured. “The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.” 10
That’s assuming that the incentives even work as advertised in the first place. Alan Peters and Peter Fisher, in their paper titled The Failures of Economic Development Incentives published in Journal of the American Planning Association, wrote on the effects of incentives. A few quotes from the study, with emphasis added:
Given the weak effects of incentives on the location choices of businesses at the interstate level, state governments and their local governments in the aggregate probably lose far more revenue, by cutting taxes to firms that would have located in that state anyway than they gain from the few firms induced to change location.
On the three major questions — Do economic development incentives create new jobs? Are those jobs taken by targeted populations in targeted places? Are incentives, at worst, only moderately revenue negative? — traditional economic development incentives do not fare well. It is possible that incentives do induce significant new growth, that the beneficiaries of that growth are mainly those who have greatest difficulty in the labor market, and that both states and local governments benefit fiscally from that growth. But after decades of policy experimentation and literally hundreds of scholarly studies, none of these claims is clearly substantiated. Indeed, as we have argued in this article, there is a good chance that all of these claims are false.
The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering their expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government — providing the foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.
“The CITY, COUNTY and COMPANY would each take action to establish a new legal entity separate and apart from the CITY, COUNTY and COMPANY for development of the PROJECT (the “ENTITY”) which will take such form as the PARTIES may approve.” Memorandum of Understanding for Project Eclipse, Section I.A. Contained within agenda packet for Wichita City Council meeting for December 13, 2017. ↩
“The COUNTY participation of $7 million US is anticipated to be available cash; the CITY participation would consist of cash in the amount of $3 million US, forgiveness of $3.5 million US in future COMPANY payments associated with the CAPITAL COMPONENT and an agreement to make additional capital improvements relating to the WATER AGREEMENT in an approximate cost of $1 million US.” Memorandum of Understanding for Project Eclipse, Section I.B ↩
Wichita Eagle Opinion Line, December 5, 2017: “So Wichita wants to put its flag on license plates. I hope not. Every time I see it, it reminds me of how much it looks like the KKK emblem.” I’ve noticed this too. Have you? Here is the center of the Wichita flag along with the blood cross used by the Ku Klux Klan.
Wichita hotel resurgence?
At the meeting of the Wichita City Council today, there was self-congratulation on the success of the city and its convention and tourism bureau in generating business for Wichita hotels. But: Looking at hotel guest tax receipts, which are a surrogate for total hotel room revenue, we observe that of the largest markets in Kansas, Wichita has experienced the least growth in hotel guest tax collections since 2010. While Wichita is the largest city in Kansas, Overland Park collects the most hotel guest tax. See Kansas hotel tax collections.
Customer-focused vs government
Wichita Eagle Opinion Line, December 5, 2017: “Why did the mailbox get taken down at the corner of Pershing and Douglas? No outcry from those who use it. Citizens arise! Demand the mailbox be returned. It was an ill-conceived action and should be corrected.” Writer, welcome to the world of government bureaucracy. Wouldn’t it be great if mail could be delivered by organizations that actually want your business? Although, I have to say that the new Informed Delivery service from USPS is pretty good. It’s the rare exception, however, that confirms the usual.
All this for one weekend?
Writing about the plans to transform Naftzger Park in downtown Wichita, the Wichita Eagle opined, “The plan seemed to come out of nowhere and with a goal of looking good for the NCAAs — an awful lot to ask for one weekend of tourists.” (What we learned in six busy months of Naftzger Park design project. Wichita Eagle editorial, November 22, 2017.) This is a rare admission from the Wichita elite, that the upcoming NCAA mens basketball tournament is just one weekend of activity. Yet, the tournament was cited as a justification for building the downtown arena and for the remodeling of an entrance. We were told that having the NCAA tournament would transform Wichita. We’d be famous!
In Wichita, we see another example of how once government starts a surveillance program, the urge to expand it is irresistible.
Earlier this year the City of Wichita installed 70 cameras in Old Town for the purpose of enhancing public safety. 1
Now we’ve learned two things, according to Wichita Eagle reporting: The cameras aided in making one arrest for a serious crime, and the role of the cameras has expanded to include traffic enforcement. 2
When the city council approved the cameras in February, city documents didn’t specify how many video cameras would be installed as part of the $618,261 program (for one-time installation costs only), except that it may be “as many as 100.” The city also asked council members to pass an ordinance with bonding authority of up to $750,000 to pay for this project. In other words, the city borrowed to pay for this system.3
These expansions of camera surveillance are additional examples of the expansion of police powers in Wichita at the loss of civil liberties.4 It started with a small program of a few cameras owned by private property owners. Then in 2014 the city designated Old Town an “entertainment district,” giving the city increased powers to attempt to control crime.5 Critics are concerned that the extra enforcement measures granted to entertainment districts are discriminatory to certain minority groups.6
Now we have dozens of city-owned and monitored cameras, used first for public safety, and now for traffic enforcement.
This proposed expansion of cameras is not likely to be the last. Wichita’s police chief is seeking to add more surveillance and cameras.7
Across the county, those concerned with the loss of civil liberties and privacy are concerned about the expansion of the surveillance state. Adding irony to this debate are the remarks of Wichita City Council Member Janet Miller (district 6, north central Wichita). She called the addition of the new cameras “huge” and “exciting,” adding that she is “very, very happy” at their addition.8 The irony is that she would insist that she is a protector of civil rights.
Civil rights are important
Why are civil rights important in this matter? Discussing this matter on Facebook, one local political activist wondered, “How long before someone is being blackmailed with footage from a police surveillance cam, for stumbling down the road, or some other harmless but embarrassing scenario?”
In response, I added, “Or blackmailed for marital infidelity, or entering a gay bar, a marijuana dispensary, a church, a soup kitchen, an STD clinic, an abortion doctor’s office, or maybe being spotted dropping off an anonymous tip to the Wichita Eagle.” (Well, we don’t have marijuana dispensaries, but we do have stores that sell complementary products.)
We also have to wonder whether the cameras work as advertised. The American Civil Liberties Union comes to this conclusion: “An increasing number of American cities and towns are investing millions of taxpayer dollars in surveillance camera systems. But few are closely examining the costs and benefits of those investments, or creating mechanisms for measuring those costs and benefits over time. There is extensive academic literature on the subject — studies carried out over many years — and that research demonstrates that video surveillance has no statistically significant effect on crime rates. Several studies on video surveillance have been conducted in the UK, where surveillance cameras are pervasive. The two main meta-analyses conducted for the British Home Office (equivalent to the US departments of Justice and Homeland Security) show that video surveillance has no impact on crime whatsoever. If it did, then there would be little crime in London, a city estimated to have about 500,000 cameras.”
An irony is that law enforcement likes recording citizens, but not the other way around. As John Stossel has noted, police don’t like to be recorded. In some states its a crime to tape a police officer making an arrest. A video excerpt from Stossel’s television shows the attitudes of police towards being recorded. At ReasonRadley Balko details the problem, writing “As citizens increase their scrutiny of law enforcement officials through technologies such as cell phones, miniature cameras, and devices that wirelessly connect to video-sharing sites such as YouTube and LiveLeak, the cops are increasingly fighting back with force and even jail time—and not just in Illinois. Police across the country are using decades-old wiretapping statutes that did not anticipate iPhones or Droids, combined with broadly written laws against obstructing or interfering with law enforcement, to arrest people who point microphones or video cameras at them. Even in the wake of gross injustices, state legislatures have largely neglected the issue.”
It is also unlikely that cameras will be especially helpful in deterring such attacks. Even when it comes to ordinary crime — where the perpetrators are generally motivated by the desire to make a quick buck without getting caught — studies have been mixed and inconclusive about the value of CCTV cameras as a crime deterrent.
Some show significant declines in crime in some regions of cities with camera networks, which may be attributable to the cameras — but many show no discernible effect at all.
Wichita decides to have someone else conduct public engagement.
At the November 7, 2017 meeting of the Wichita City Council, the council will be asked to approve a request for proposal (RFP) document relating to Century II.
The RFP is a document that spells out what the city wants done relating to public engagement regarding the future of Century II. Specifically, interested parties are invited to “design and implement a transparent public engagement process that involves a broad cross-section of Wichita residents in a discussion of interests related to the future of Century II as a performing arts center.”
A “Screening and Selection Panel” selected by the Wichita city manager will evaluate the proposals based on several criteria and select a winner.
The introduction to the RFP states: “The primary purpose of this engagement is to identify the community’s interests and recommendations related to Century II as a performing arts center, to include the option of its removal and replacement, as well as its relationship to the convention center, both in function and spatial proximity.” No cost ceiling is given by the city.
Of note, the schedule in the RFP gives November 3 as the due date for proposals. But it is four days after that, on November 7, that the city council will be asked to, according to city documents, “approve the scope of services and amendment for the Request for Proposals.”
While some may criticize the city for relying on an outside consultant to conduct public engagement, the reason given is a recommendation by the city manager that the process be “be led by an independent third party to ensure neutral framing of the issues.”
That makes a lot of sense, as Wichita doesn’t have a good track record in this regard. For example, in even-numbered years the city has surveyed residents asking them to rate “the job Wichita does at welcoming citizen involvement.” The results are shown in the nearby chart created from data found in versions of the Wichita Performance Measure Report. The numbers are the percent of respondents giving “excellent” or “good” as their response to the question.
The report says this performance is “much below” a benchmark set by the National Research Center National Citizen Survey, the group that conducted the survey for the city.
There’s also the 2014 city sales tax election, where the city was proud of its engagement with citizens, convincing them of the need for the tax. On election day, 62 percent voted against the tax.
Wichita economic development officials use a circuitous method of estimating the population of downtown Wichita, producing a number much higher than Census Bureau estimates.
Recently the Wichita Business Journal reported:
Getting more people to live in the core was clearly one of the most important tasks for the city. Back in 2010, the report said downtown Wichita was ripe for an additional 1,000 housing units.
That goal seems to have been met. According to a recent report from the group Downtown Wichita, 835 residential units have been completed since 2010. An additional 742 units are in development downtown, where about 2,100 people live today. 1
The report referred to is the 2017 State of Downtown Report. 2 While this report highlights the number of people living in downtown Wichita, it no longer reports the number of people working in downtown. 3
How does Downtown Wichita arrive at the number of residents in downtown? An endnote from the report gives the details:
The 2010 U.S. Census states the population in the 67202 area code is 1,393. Per Downtown Wichita records, 702 units rental units have opened in the Downtown SSMID district since 2010 when the Census was taken. Per data provided directly from the Downtown residential rental properties, the absorption rates of the market rate units has an average of 85%. Per the U.S. Census Bureau, 2011-2015 American Community Survey 5-Year Estimates, the average size of renter-occupied units is 1.25 persons. Therefore, an estimate for the current population is 2,138. 4
What DW has done is to take a reliable figure (the 2010 decennial census) and extrapolate forward to 2016. (Presumably 2016, as the report doesn’t say.)
But there are a few issues, as follows:
First, the calculation includes 702 rental units that have opened since 2010. Have any rental units closed since then? That would be good to know. Curious is that the report prominently mentions “835 units completed since 2010.” There have been condominiums that have opened since 2010. Why would DW use only rental units in its calculation?
Second, the DW calculation makes use of two estimates, absorption rate 5 and size of renter-occupied units. (What about size of owner-occupied units?) Each of these is an estimate that has its own error probabilities, and those errors compound when multiplied.
Third, there is no need to go through this roundabout calculation, as the Census Bureau has provided an estimate for the population of downtown in 2015. Data from the American Community Survey 6 estimates that the population in downtown Wichita for 2015 was 1,438, with a 90 percent confidence interval of plus or minus 242. 7 This means the Census Bureau is confident the population of downtown Wichita in 2015 was in the range of 1,196 to 1,680, that confidence factor being 90 percent.
But DW says the population of downtown is 2,138, which is far — really far — outside the range the Census Bureau gives for the 2015 population. While DW’s population estimate is probably for 2016, it still lies far outside the range of probability, based on Census Bureau estimates.
It’s really curious that DW doesn’t use the Census Bureau estimate of population. That population estimate comes directly from the Bureau’s American Community Survey 5-Year Estimates for 2011 to 2015. DW didn’t use that number, but it relied on the same body of data to get “average size of renter-occupied units” for 2015.
Why would DW use the Census Bureau for one datum but not another, especially when the Census Bureau data reports the statistic DW is trying on its own to estimate in a roundabout manner?
It’s simple. DW’s calculations produce 2,138 people living in downtown. The Census Bureau estimate is a much smaller number: 1,438.
By the way, DW’s calculations start with the 2010 Census Bureau population for downtown. Of the downtown population of 1,393 that year, 253 were men living in institutions like the Kansas Department of Corrections Wichita Work Release facility at Emporia and Waterman Streets. It has a capacity of 250. 8
“Absorption is the amount of space or units leased within a market or submarket over a given period of time (usually one year). Absorption considers both construction of new space and demolition or removal from the market of existing space.” Institute of Real Estate Management. Calculating Absorption. Available at https://www.irem.org/education/learning-toolbox/calculating-absorption. ↩
U.S. Census Bureau, 2011-2015 American Community Survey 5-Year Estimates ↩
Previous versions of the report prominently mentioned the number of daytime workers in downtown Wichita. 3The number most often given was 26,000. But that number is missing from this year’s report. Unless I overlooked it, there is no mention of the number of workers in downtown Wichita.
Why was this number omitted from this year’s report? Earlier this year I found out that the U.S. Census Bureau data series which was the source of this statistic is not a valid measure of the number of people working downtown. That’s because the series counts all the employees of the Wichita public school district as downtown workers solely because the district’s headquarters building is downtown.4 This means the statistic is not valid and meaningful, because most school workers don’t work at the downtown building. Instead, they’re working in schools and other facilities dispersed throughout the district. A similar anomaly exists for Wichita city workers: All are counted as though they work in the city hall building. 5
When I asked Jeff Fluhr, the president of Downtown Wichita, about this he referred my question to Jeremy Hill, the Director of Center for Economic Development and Business Research at Wichita State University. This was — seemingly — reasonable as CEDBR supplied the number to Fluhr’s organization. Hill’s response was unsatisfactory in resolving the issue. In conclusion, Hill wrote to me: “Although the center systematically questions all data sources (federal, state, private, and nonprofit) for reasonableness, limited resources (e.g. time and costs) prevent us from validating and/or cross checking every statistic. In this situation, the center used the appropriate source for the research question and the total number of people estimated to work downtown was within reason.”
Here’s what concerns me. This data comes from a Census Bureau application called “OnTheMap.” When using the OnTheMap application for downtown Wichita, which is zip code 67202, there are two large bright blue dots that stand out from all others. These represent the two highest concentrations of workers in downtown Wichita. One is Census block 201730043001036, which has 7,740 employees. This is a one square block area from First to Second Streets, and Wichita to Water Streets. That block, for the year of this data, held the Wichita school district headquarters building.
7,740 employees is a lot. It’s about one-fourth of the total downtown employee count claimed by Downtown Wichita and CEDBR. It’s more employees than McConnell Air Force Base has, and about twice as many that work at Koch Industries in Wichita.
Importantly, this number is eleven times the number that work at Cargill, a company which Wichita is granting many millions of dollars in incentives just to retain the company in Wichita.
We just have to wonder: Didn’t anyone look at this data in a serious and critical manner? A quick glance at the data by CEDBR, much less “systematically” checking for “reasonableness” should have led to questions. A quick look by Downtown Wichita staff should have spurred these inquiries: Who do all these people work for in that one block? This is a wonderful success story! How can we replicate this great accomplishment in other blocks in downtown Wichita?
And didn’t anyone at the City of Wichita — council members and bureaucrats alike — wonder about these numbers?
That didn’t happen. Or maybe it did, and someone in authority nonetheless decided to proceed to use a statistic that doesn’t mean what city leaders say it means.
That’s why I wrote it was seemingly reasonable for Fluhr to refer me to CEDBR with my questions about the data. In retrospect, it is clear this is a multi-year episode of incompetence, ineptitude, or dishonesty.
But at least this statistic is no longer used.
I asked Cindy Claycomb, who is Chair of the Executive Committee of Downtown Wichita, about this. She replied that all data sources are listed in the report, and that the board relies on the expertise of the Wichita Downtown Development Corporation staff to decide what is presented in each year’s report. She said Jeff Fluhr was the best person to address my concerns. He, as we saw, demurred to CEDBR at WSU.
(By the way, Claycomb is nearly certain to be elected to the Wichita City Council in November. Jeff Fluhr is now, besides president of Downtown Wichita, also president of Greater Wichita Partnership, the new organization regional governments rely on for economic development.)
So: How many jobs are in downtown Wichita? There is another series of census data that is better, but not perfect, as it counts private-sector employees only. That data shows 13,581 workers in downtown Wichita for 2015. 6 But what’s remarkable — and disappointing — about this data series is its trend: It’s going down. The recent peak was 16,658 workers in 2008. By 2015 that number was down by 18 percent. (Again, these are private sector workers only.)
The Wichita city council will consider an item that, I believe, is of sufficient interest and controversial enough that it should appear on a regular agenda, not a consent agenda.
Update: at Tuesday’s meeting, the council passed the consent agenda without discussion of this agenda item.
Meetings of governmental bodies like the Wichita City Council may contain a consent agenda. That’s a collection of agenda items that are voted on in bulk, with one single vote, unless a council member requests an item be “pulled” for discussion and possibly a separate vote. Generally, items on consent agendas are not controversial, and it may hold two dozen or more items. If no council member asks to pull an item, there is no discussion.
Tomorrow the Wichita city council will consider an item that, I believe, is of sufficient interest and possibly controversial enough that it should appear on a regular agenda, not a consent agenda. It involves the hiring of a consultant to help the city find a baseball team. 1
Tomorrow’s meeting, being on the fourth Tuesday of a month, is traditionally for consent agenda items only, plus workshops. But the council has, a few times, declared this meeting to be a “regular” meeting in order to conduct business other than consent agenda items.
The Wichita city council has a history of placing controversial items on the consent agenda. It has, at least once, removed an item from the consent agenda to place it on a regular agenda. 2 There are some things the council doesn’t want to talk about.
In addition, Current Mayor Jeff Longwell has wondered if the city holds too many public hearings. 3 Some things, the mayor feels, don’t need public input.
Wichita considers hiring a consultant to help find a baseball team.
In August the Wichita Eagle reported:
Wichitans can hope for an announcement on a new affiliated baseball team coming to Wichita by the end of 2017, Mayor Jeff Longwell says.
“By the end of this calendar year, we feel confident that we will be able to announce a team, who the team is, all of the above,” Longwell told The Eagle Tuesday afternoon. “We hope that we can complete all of those conversations by the end of this year and be able to announce a contract in place.” 1
Evidently the mayor and the city are feeling less confident. Next week’s city council agenda includes a proposal to hire a consulting firm to help the city. The contract the council will consider states: “Wichita desires to retain Beacon Sports as its advisor and exclusive representative for the Assignment, and perform such other advisory services as are mutually agreed upon between the two parties.” 2
The city’s analysis advises: “Based on the encouraging findings, City staff have reached the conclusion that, due to Minor League Baseball (MiLB) rules and protocols, it is necessary to formally contract with a specialized baseball consultant.”
The contract has a cap of $50,000. For this, the contract states, “Beacon Sports will use its best efforts and endeavor to assist Wichita in obtaining and having present to it qualified offers on terms that are acceptable to Wichita, but makes no representation regarding the successful outcome of this Assignment.”
Of note, this item appears on the consent agenda. That’s a collection of agenda items that are voted on in bulk, with one single vote, unless a council member requests an item be “pulled” for discussion and possibly a separate vote. Generally, items on consent agendas are not controversial, and it may hold two dozen or more items.
In this episode of WichitaLiberty.TV: Karl Peterjohn and Bob Weeks continue discussing Century II, Wichita’s convention and performing arts center. But first, some unfortunate economic news for Wichita. View below, or click here to view at YouTube. Episode 166, broadcast September 24, 2017.
Wichita economic development efforts viewed in context.
Greater Wichita Partnership is the organization with primary responsibility for economic development in the Wichita area. Data provided by GWP shows that since 2004, GWP takes credit for creating an average 1,847 jobs per year through its economic development efforts. 1
To determine whether this is an impressive amount, we need context.
Over the past ten years the labor force for the Wichita MSA has averaged 314,877 each month (in May 2017 it was 306,809), and there were an average of 295,785 people working each month (May 2017 value was 293,763).
So one level of context is that the jobs for which GWP credits itself amount to 1,847 of 295,785 jobs, or 0.6 percent of the number of people working.
Another way to look at this level of job creation is to consider it in relation to the number of hires. Over the past ten years, the national average monthly rate of hires is about 3.4 percent, meaning that each month 3.4 percent of jobs have a new person filling them, or the jobs are newly-created. With an average of 295,785 people working in the Wichita MSA each month, this means that about 10,057 jobs have a new worker, each month. That’s 120,684 per year. With GWP taking credit for 1,847 jobs, this means that GWP’s efforts are responsible for 1.5 percent of the new hires each year.
Another context: Employment in the Wichita MSA reached a peak of 312,100 in July 2008. In June 2017 it was 298,800. To get back to the peak, Wichita needs 13,300 new jobs. At the GWP rate of 1,847 per year, it will take seven more years to recover.
All this shows that the efforts of our economic development machinery are responsible for small proportions of the jobs we need to create. This assumes that the data regarding jobs and investment that GWP provides is correct.
Here’s one example of problems with the data GWP provides. GWP reported that companies made investments of $1.2 billion in 2016 when the average for years before that was $138 million. That looks like an impressive jump. This figure, however, contains over one billion dollars of investment by Spirit Aerosystems projected to occur over the next five years. Not in 2016, but possible over the next five years. Yet GWP presents this investment as through it occurred in 2016.
Furthermore, when Spirit asked the city for authority to issue $280 bonds over five years, it told the city this would result in 349 new jobs over the same time period. That’s creating jobs at the rate of 70 per year. These jobs are welcome, but we need thousands of jobs per year. 2
Does GWP deserve credit? GWP says, “We only incorporate data and dollar amounts from projects which we helped attract, retain or expand; we do not include announcements that we have not assisted with.” 3 “Helped” and “assisted” are not very precise. How much “help” did Spirit need to decide to remain in Wichita, except for hundreds of millions of dollars in forgiven taxes? That is something the people of Wichita pay for, not GWP.
We must also be concerned about the reliability of GWP statistics. Earlier this year GWP was prominently promoting on its website the success of NetApp, a technology company. The problem is that NetApp never met the job creation numbers GWP promoted, and in fact, had been downsizing its Wichita operations. 4
Still, GWP promoted NetApp as a success. An important question is, the NetApp jobs that were announced but never created: Are they included in the jobs and investment totals GWP provides? We don’t know, because GWP will not disclose the data used to build its report.
There are other instances of GWP’s predecessor, Greater Wichita Economic Development Coalition (GWEDC), promoting Wichita as home to companies that had closed their Wichita facilities, or were in the process of closing. 5
GWP also promotes this on its website: “Downtown Wichita is work central, boasting 26,000 daytime workers in the financial, healthcare, education, oil & gas and creative services industries.” This claim of 26,000 workers is based on blatant misuse and misrepresentation of U.S. Census data, and GWP leadership has known of this for several months. 6 Still, the use of incorrect data remains.
Capacity to create
When the Wichita area offered incentives to a company that planned to add 50 jobs, the president of the chamber of commerce told commissioners that staff worked very hard to acquire these jobs. He called it “a great moment” in economic development. 7 But 50 jobs, while welcome, is just a drop in the bucket compared to what Wichita needs.
For Spirit to create 349 jobs over five years, we must let the company escape paying property tax and sales tax on $280 million of property.
For BG Products to add 11 well-paying jobs, we must let them avoid paying $204,280 per year in property taxes and $368,417 in sales tax.
In order to prepare the incentives package for another company, several events took place. There was a visit to the company. Then another visit and tour. Then economic development officials helped the company apply for benefits from the Kansas Department of Commerce. Then these officials worked closely with Wichita city staff on an incentive package. City documents stated that the expansion will create 28 jobs over the next five years. Obtaining these jobs took a lot of effort from Wichita and Kansas economic development machinery. Multiple agencies and fleets of bureaucrats at GWEDC, the City of Wichita, Sedgwick County, and the State of Kansas were involved. Wichita State University had to be involved. All this to create 5.6 jobs per year for five years.
This illustrates a capacity problem. Acquiring these jobs took a lot of bureaucratic effort, which has a cost. It required expensive incentives. Occasionally the city works with a large number of jobs, as in the recent case of Cargill. But those jobs required many expensive incentives, and no jobs were created. The incentives and effort were spent simply to persuade Cargill to remain in Wichita instead of moving elsewhere.
All this assumes, of course, that the incentives are necessary. Either that, or there is a larger problem. If companies can’t afford to make investments in Wichita unless they receive exemptions from paying taxes, we must conclude that taxes are too high. It’s either that, or these companies simply don’t want to participate in paying for the cost of government like most other companies and people do.
Civic leaders say that our economic development policies must be reformed. So far that isn’t happening. Our leaders say that we will no longer use cash incentives. But cash incentives like forgivable loans were a minor part of the incentives Wichita and the State of Kansas used. Furthermore, forgiveness of taxes is just as good as receiving cash. 8
The large amount of bureaucratic effort and cost spent to obtain relatively small numbers of jobs lets us know that we need to do something else to grow our local economy. We need to create a dynamic economy, focusing our efforts on creating an environment where growth can occur organically without management by government. Dr. Art Hall’s paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy provides much more information on the need for this. 9
In particular, Hall writes: “Embracing dynamism starts with a change in vision. Simply stated, the state government of Kansas should abandon its prevailing policy vision of the State as an active investor in businesses or industries and instead adopt the policy vision of the State as a caretaker of a competitive ‘platform’ — a platform that seeks to induce as much commercial experimentation as possible.” But our economic development policies are that of an “active investor,” and the cost of incentives increases the cost of experimentation.
Another thing we can do to help organically grow our economy and jobs is to reform our local regulatory regime.Kansas Policy Institute released a study of regulation and its impact at the state and local level. This is different from most investigations of regulation, as they usually focus on regulation at the federal level.
The study is titled “Business Perceptions of the Economic Impact of State and Local Government Regulation.” It was conducted by the Hugo Wall School of Public Affairs at Wichita State University. Click here to view the entire document.
Following is an excerpt from the introduction by James Franko, Vice President and Policy Director at Kansas Policy Institute. It points to a path forward.
Surprising to some, the businesses interviewed did not have as much of a problem with the regulations themselves, or the need for regulations, but with their application and enforcement. Across industries and focus group sessions the key themes were clear — give businesses transparency in what regulations are being applied, how they are employed, provide flexibility in meeting those goals, and allow an opportunity for compliance.
Sometimes things can be said so often as to lose their punch and become little more than the platitudes referenced above. The findings from Hugo Wall are clear that businesses will adapt and comply with regulations if they are transparent and accountable. Many in the public can be forgiven for thinking this was already the case. Thankfully, local and state governments can ensure this happens with minimal additional expense.
A transparent and accountable regulatory regime should be considered the “low hanging fruit” of government. Individuals and communities will always land on different places along the continuum of appropriate regulation. And, a give and take will always exist between regulators and the regulated. Those two truisms, however, should do nothing to undermine the need for regulations to be applied equally, based on clear rules and interpretations, and to give each business an opportunity to comply. (emphasis added)
Creating a dynamic economy and a reformed regulatory regime should cost very little. The benefits would apply to all companies — large or small, startup or established, local or relocations, in any industry.
Our civic leaders say that our economic development efforts must be reformed. Will the path forward be a dynamic economy and reformed regulation? Or will it be more bureaucracy, chasing jobs a handful at a time?
Greater Wichita Partnership – 2017 Investment Request. Part of the February 15, 2017 Sedgwick County Commission meeting. Available at https://goo.gl/hk6RHB. ↩
“Spirit is now requesting a new Letter of Intent (LOI) to issues IRBs in an amount not to exceed $280,000,000 for a period of five years. … Spirit projects it will create 349 new jobs over the next five years as a result of these expansions. In addition to the $280,000,000 Spirit expects to invest in facilities over the next five years, it also projects approximately $825,000,000 of capital investment in new machinery and equipment for a total capital investment in excess of $1 billion dollars.” Wichita City Council agenda packet for May 3, 2016. ↩
Personal correspondence from Andrew Nave, GWP executive vice president of economic development. ↩
Is it equitable for business firms to pay no sales tax, while low-income families pay sales tax on groceries?
Last week I wondered if the city’s agenda packet for economic development incentives proposed for BG Products was complete. 1 Since the city’s narrative had no mention of a sales tax exemption, but the accompanying ordinance that was passed authorized a sales tax exemption, I wondered if the analysis performed by the Wichita State University Center for Economic Development and Business Research was correct.
Now that I’ve received the document, it appears that CEDBR’s analysis properly included the cost of the sales tax exemption incentive. 2 The city’s narrative did not mention the sales tax exemption.
According to the CEDBR analysis, the sales tax exemption has a cost of $368,417. It is shared among the city, county and state, with 88 percent born by the state. 3
From a public policy perspective, we must wonder whether this incentive, and the other incentives BG Products received, are necessary for the company to proceed with its expansion in Wichita. The Industrial Revenue Bond program, which is the enabler of these incentives, does not require the applicant companies to demonstrate financial need. There are a few requirements, but none have to do with economic or financial necessity. 4
The State of Kansas applies the full sales tax rate to groceries, and is one of the few states to do this. 5 This tax disproportionally harms low-income families. 6 This is a problem in equity, in that business firms may request sales tax exemptions without showing need, while low-income families have no way to avoid the sales tax on their groceries.
From the analysis performed by the city by Center for Economic Development and Business Research at Wichita State University, these are the values of the sales tax incentives:
With the sales tax rate of 7.50%, this implies taxable spending of $4,912,227. ↩
“The percentage of taxes abated is based on capital investment and job creation. Majority of goods or services sold must be destined for customers outside of the Wichita Metropolitan Statistical Area (MSA). Company must pay average wages equal to or greater than the industry or Wichita MSA wage rate. City benefit/cost ration must be at least 1.3 to 1.” City of Wichita, Economic Development Incentives. Available at http://www.wichita.gov/Economic/Pages/Incentives.aspx. ↩
The report produced for the City of Wichita on Century II has a disclaimer that absolves pretty much everyone from any accountability.
The document is titled “Funding and Delivery Options Analysis for the Century II Facility Expansion: Delivery and Funding Strategy.” It was produced by Arup Advisory Inc. at a cost to the city of $294,000. The entire document is available at https://goo.gl/hq9iqR.
Following is the disclaimer at the front of the report. It is typical of what is found in reports produced by economic development consultants. It establishes several large loopholes for Arup, the City of Wichita, and boosters of public spending on downtown like Wichita Downtown Development Corporation and the Chamber of Commerce.
Current accepted professional practices and procedures were used in the development of this report. However, as with any forecast, there may be differences between forecasted and actual results. The report contains reasonable assumptions, estimates, and projections that may not be indicative of actual or future values or events and are therefore subject to substantial uncertainty. Future developments cannot be predicted with certainty, and this may affect the estimates or projections expressed in this report, consequently Arup specifically does not guarantee or warrant any estimate or projections contained in this report.
This document is intended only for the information of the City. It is not intended for and should not be relied upon by any third party, and no responsibility is undertaken to any third party.
Our findings are based on limited technical, financial, and commercial data concerning the project and its potential delivery options. Arup has relied upon the reasonable assurances of independent parties and is not aware of any facts that would make such information misleading.
We must emphasize that the realization of any prospective financial information set out within our report is dependent on the continuing validity of the assumptions on which it is based. We accept no responsibility for the realization of the prospective financial information. Actual results are likely to be different from those shown in the prospective financial information because events and circumstances frequently do not occur as expected, and the differences may be material.