Tag Archives: Wichita city council

Tax increment financing in Wichita benefits few

Recently the City of Wichita formed a TIF (tax increment financing) district to aid a developer who wishes to build in the College Hill neighborhood.

How does a TIF district work? The Wichita Eagle reported: “A TIF district doesn’t cost local governments any existing tax money. It takes property taxes paid on new construction that would ordinarily go into government coffers and redirects it to the bond holders who are financing the project.”

In the present case, the value of the benefit the developer sought is estimated to be worth $3.5 million to $4 million. Whether this benefit is given at no cost to existing government, as The Wichita Eagle article implies, is open to debate. If the new development does not use any local government services, then perhaps there is no cost in giving the benefit. But if that’s true, we might ask this question: if the development does not consume any government services, why should it have to pay taxes at all?

There is evidence that TIF districts are great for the developers — after all, who wants to pay taxes — but not so good for the rest of the city and county. The article “Tax Increment Financing: A Tool for Local Economic Development” by economists Richard F. Dye and David F. Merriman states, in its conclusion:

TIF districts grow much faster than other areas in their host municipalities. TIF boosters or naive analysts might point to this as evidence of the success of tax increment financing, but they would be wrong. Observing high growth in an area targeted for development is unremarkable.

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

We find evidence that the non-TIF areas of municipalities that use TIF grow no more rapidly, and perhaps more slowly, than similar municipalities that do not use TIF.

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

There’s also evidence that TIF districts are simply a transfer of wealth from the taxpayers at large to a privileged few. In the paper titled “Do Tax Increment Finance Districts in Iowa Spur Regional Economic and Demographic Growth?” by Iowa State University economists David Swenson and Liesl Eathington, we can read this:

There is indirect statistical evidence that this profligate practice [establishing TIF districts] is resulting in a direct transfer of resources from existing tax payers to new firms without yielding region-wide economic and social gains to justify the public’s investment.

This analysis suggests that the enabling legislation for tax based incentives deserves revisiting. … there is virtually no evidence of broad economic or social benefits in light of the costs.

In the present case in Wichita, the developer says that without the benefit the TIF provides, the project is not economically viable. This is the standard rationale given for the requirement of the TIF district. Without the TIF, the development would not take place.

It may be true that this project in College Hill is not economically viable. If so, we have to wonder about the wisdom of investing in this project. More importantly, we should ask why our taxes are so high that they discourage investment and economic activity.

It may also be that the developer simply wishes to gain an advantage over the competition by lobbying for a favor from government. As government becomes more intrusive, this type of rent-seeking behavior is replacing productive economic activity.

There is one truth, however, if which I am certain: when businesses and individuals pay less tax, they have the opportunity to invest more. TIFs and tax abatements are tacit recognition that the cost of government is onerous and serves to decrease private economic activity and investment.

Here’s a better idea: reduce taxes for everyone, instead of only for companies and individuals that are successful in extracting favors from our local governments.

Consider carefully costs of a new Wichita airport terminal

As Wichita considers building a new terminal at its airport, we should pause to consider the effect an expensive new terminal would have on the cost of traveling to and from Wichita, and by extension, the economic health and vitality of our town.

My reading reveals that airlines are starting to become alarmed at the high costs some airports charge airlines for using their facilities. A recent Wall Street Journal article (“Airports Start to Feel the Sting Of Airline Cost-Cutting Efforts” published on May 17, 2006) reads, in part:

The same economic forces in the air-travel business that have created buy-your-own box lunches in coach and fully reclining seats for long flights in business class are now showing up in a split at airports. The split is creating tensions as cash-strapped airlines balk at paying for first-class airports. Air Canada, the main tenant of the new terminal in Toronto, says it can’t afford the high fees.

Airports have long been considered economic-development tools for the communities that own them. Many, like Toronto, erected palatial terminals to showcase their cities and passed on the costs to airlines and passengers. Even as airlines have gone bankrupt, airport earnings have risen.

Now, the combination of financial woes of traditional airlines and the explosion of low-cost competitors around the world is forcing big changes in airport design and operation. Airlines, which have already won concessions from employees, travel agents and suppliers, are now putting pressure on airports to cut costs and fees. And low-cost carriers have sparked the creation of bare-bones depots, like Schiphol’s “Pier H,” in Europe and Asia.

“Many airport monopolies still operate in the dark ages. And our patience has worn out,” says Giovanni Bisignani, director general of the International Air Transport Association, the airline trade group that has spearheaded an attack on airport charges in Europe, Asia and the Americas.

Closer to home, and very relevant to Wichita’s desire to attract additional low-cost carriers such as Southwest Airlines, we learn from the same article that Southwest is quite sensitive to the costs it faces:

Denver International, which was attacked for its high fees when it opened in 1995, has since cut costs and reduced fees, winning back low-cost Southwest Airlines. And some airports, such as Schiphol and the Cologne Bonn Airport in Germany, have moved ahead by luring new airlines with low operating costs. In the low-margin airline world, a savings of a few dollars per passenger can turn an unprofitable flight into a money-maker, especially among discount airlines charging less than $100 per ticket.

“Nowadays if you start to build a new terminal, you are no longer able to build a castle,” says Michael Garvens, chairman of the Cologne Bonn Airport, which opened a terminal for low-cost airlines in December 2004.

We certainly don’t want to be placed in the position of Seattle, where Southwest cut its service there because of costs. From the article “Airport costs climb” from the Puget Sound Business Journal (Seattle) on March 5, 2004 we can read this:

The $587 million cost of the South Terminal expansion at Seattle-Tacoma International Airport is driving away at least one of the very carriers it was intended to attract. … But Southwest Airlines in January cut its daily flights between Seattle and Spokane from eight to five, reducing its overall daily flights through Sea-Tac to 36. According to Southwest manager of properties Amy Weaver, the move was largely due to the airport’s rising per-passenger costs for carriers.

Talking to some people and reading some remarks, it seems as though not many are too concerned about the costs of a new terminal, as it will be paid for by federal money and airline fees. But someone pays those federal tax dollars, and now we learn that airlines, especially discount carriers, are sensitive to the fees they must pay to use airports.

The Wichita Eagle recently reported that Wichita airport officials have been talking with the airlines, and the airlines are “happy with the prospect of a new terminal.” That is directly contradictory to the reporting contained in the two articles cited above.

Local business leaders tell us that we must have an airport that makes a good first impression for Wichita. A grand airport terminal is impressive until you realize who pays for such things. I have been in terminals in fine cities — Denver and Salt Lake City come to mind — where the gate area is quite spartan, being built from corrugated steel in the manner of a warehouse. And if I remember correctly, in Salt Lake City the concourse I used was not even sealed to the elements.

In Cincinnati, Comair, part of the Delta network, has its own remote gate area. That building is plain in its construction, but worked very well. (As Delta and Comair no longer fly to this destination from Wichita, I guess it doesn’t matter now.) I appreciated these facilities for what appeared to be their concerted effort to hold down costs.

In Wichita, we should remember that fewer passengers used our airport in 2005 than did in 2004. In 2006, each month’s traffic has been less than that for same month from last year. We are told not to worry about this, that air traffic is down nationwide, but the decline in Wichita is several times that of the nationwide trend.

(From the ATA Monthly Passenger Traffic Report, enplanements nationwide are down 0.6% for the first five months of 2006, compared to the same months from 2005. In Wichita, enplanements for the first five months of 2006 are 284,848, compared to 300,169 for the first five months of 2005. That is a drop of 5.1%.)

At the same time our airport traffic is rapidly declining, AirTran, the local discount carrier, is experiencing increased passenger counts, meaning that we are becoming increasingly dependent on a discount carrier. (For the first five months of 2005, AirTran’s share of traffic in Wichita was 6.7%. For the first five months of 2006, AirTran’s share is 10.6%.)

As the articles cited above tell us, these low-costs carriers are very sensitive to the cost of using airports. AirTran may not be concerned, at least not regarding its cost in using the Wichita airport, as our local governments reimburse AirTran for its losses.

Airport officials tell us that fixing what is wrong with our existing terminal will cost nearly as much as building a new terminal. It is difficult for me to believe this. We must find a way to hold down the costs that airlines and travelers face when flying to and from Wichita. Our current airport officials do not seem to agree.

Wichita City Council Meeting, April 19, 2005

Some quotes and my remarks from the April 19, 2005 meeting of the Wichita City Council, where the AirTran subsidy was considered. Representatives from Delta attended and spoke.

Allen Bell, Economic Development Director for the City of Wichita:

Previous contracts had a dollar amount cap on them. The new contact, we refer to it as a no-cap contract. There is not, in the terms of the agreement, a specific dollar amount that is the not-to-exceed amount. In place of that there is a termination clause that allows the City to terminate its contract with 75 days notice for whatever reason. And the reason, of course, the major reason, would be that we know that within that 75 days, we will deplete the funds that the City believes is appropriate to spend on this.

I was startled to hear this information, that the new contract has no dollar cap, as this has not been, in my memory, reported. It has been reported that AirTran sought a no-cap contract, but that Wichita would not agree to that. But it turns out that the city has agreed to what, in effect, is a no-cap contract. Yes, I believe Mr. Bell when he says that Wichita can cancel the contract, with notice, if the city believes it will spend more than the $2.5 million it has committed to. I would submit, however, that if the City spends the $2.5 million and realizes it needs to spend more to keep AirTran in town, the City Council would vote to do so. Therefore, the no-cap contract is in effect.

Councilmember Schlapp extracted an admission from the Delta representative that Delta is not profitable on the Wichita route now, but they believe they will be soon. Ms. Schlapp concluded that there is no need, then, for a subsidy to Delta.

Mayor Mayans said we have been discriminated against, rate-wise.

Mayor Mayans: “Many of us, actually, are opposed philosophically to government interventions, because we feel that sometimes tilts the playing field.” The Mayor says one thing, but acts in a different way. What good is it to have a philosophical belief if it doesn’t guide your actions?

Mayor Mayans and the Delta representative disagreed on who made telephone calls to whom and at what time. (Mayor Mayans: “So you didn’t call me back!” “Communications is a two way street!” Delta: “My recollection of it differs slightly from yours.” “I don’t recall it was my responsibility to get back to you.”) It is disheartening to realize that major public policy decisions may be made based on incomplete information, because someone didn’t get a telephone message.

Councilmember Martz:

“I guess to me, when I look at competition, if you’re losing money, then you ought to raise your rates enough so that you’re not losing money.”

“I’m a firm believer in competition.”

“I would prefer not having any financial help from the city, but rather through pure competition, all carriers reduce their rates to a level that they number one, can make a profit, at the same time make it economical for the citizens of the whole state of Kansas to be able to fly in and out of Wichita …”

Like the mayor, Mr. Martz says one thing but acts in a different manner. His advice to airlines on how to set their fares is misplaced. We have to assume that businesses act in their best interests, and let it go at that.

Sam Williams, Chairman of Fair Fares, who evidently is so well-known to Council members that he doesn’t introduce himself when he started to speak:

“You know, Kansas in 1861 became a very important state in the history of this country, just before we went into the great dark area of the civil war. You know, we were a key state. What we did at that time had a lot to do with what happened and where we went from there. I would submit that little old Wichita, Kansas is doing that to the airline industry right now. Because of your vision, you are looking at different ways to bring fair pricing in an industry that is kind of broken, in getting them to look at themselves, us to look at ourselves, and how can we partner together to do this. Kansas again is a key, integral part of a change in this country.”

First, to equate our state’s role in the civil war with subsidizing an airline is ludicrous. Second, I feel very sad that Kansas may become the leader in subsidies, and that business leaders applaud this. Mr. Williams, I would ask you if you would welcome a governmental body deciding whether the rates that your business charges are fair, and if not fair, subsidizing your competitor?

Poetry: Welcome New Council Members

Contributed by Kenneth Kindler


WELCOME NEW COUNCIL MEMBERS

I AM OLD AND SICK AND GETTING GRAY
I DON’T KNOW WHERE I WILL GET THE MONEY THAT THE CITY WANTS ME TO PAY.

I WONDER ABOUT THIS TOWN THAT WE LIVE IN.
WHERE THE MAYOR SPENDS HIS TIME DOWN IN OLD TOWN FIGHTING SIN.

WE SUBSUDIZE A AIRLINE THAT MANY OF US CANNOT AFFORD TO FLY.
WE HAVE SPENT MILLIONS DOWNTOWN, I WONDER WHY.

HOW MANY OF US CAN AFFORD TO PAY
FOR PLACES THAT ONLY A FEW CAN PLAY.

DO WE NEED A DOWNTOWN ARENA?
A WATER WALK.
NOW WE ARE GOING TO SELL CENTURY II OR IS THAT JUST TALK.

OUR LEADERS HAVE HAD MANY MONEY LOSING SCEMES IN THE PAST.
EXPLORATION PLACE AND THE ICE RINK WERE A COUPLE
BUT THEY WERN’T THE LAST.

WHEN WILL IT STOP THIS INSANE PLAN
TO EMPTY OUR POCKETS AS FAST AS THEY CAN.

WE HAVE BEEN BULLYED, LIED TO AND RAN INTO THE GROUND.
NOW IS THE TIME FOR US TO REBOUND.

SO COUNCIL MEMBERS WE WANT YOU TO KNOW
IF THIS KEEPS UP YOU ARE GOING TO GO.

SO NEW MEMBERS WE HOPE THAT YOU WILL TAKE HEED
AND PUT YOUR COMMUNITY AHEAD OF YOUR GREED.

Kenneth Kindler

Open letter to Wichita City Council regarding AirTran subsidy

January 24, 2005

Dear Councilmember:

I am writing to express my concern about the upcoming renewal of the subsidy being paid to AirTran Airways. You may recall that I appeared before the Council last May and spoke in opposition to the subsidy. Since then I have learned more about the Fair Fares program.

As an example, Mr. Troy Carlson, then Chairman of Fair Fares, wrote a letter that was published on September 16, 2004 in the Wichita Eagle. In that letter he claimed $2.4 billion economic benefit from the Fair Fares program ($4.8 billion for the entire state). I was curious about how these figures were derived. I learned that the basis for them is a study by the Center for Economic Development and Business Research at Wichita State University that estimates the economic impact of the airport at $1.6 billion annually. In this study, the salaries of the employees of Cessna and Bombardier, because these companies use the airport’s facilities, are counted as economic impact dollars that the airport is responsible for generating.

To me, this accounting doesn’t make sense on several levels. For one thing, if we count the economic impact of the income of these employees as belonging to the airport, what then do we say about the economic impact of Cessna and Bombardier? We would have to count it as very little, because the impact of their employees’ earnings has been assigned to the airport.

Or it may be that someday Cessna or Bombardier will ask the City of Wichita for some type of economic subsidy, and they will use these same economic impact dollars in their justification. But these dollars will have already been used, as they were attributed to the airport.

My primary opposition to the AirTran subsidy is based on the superiority of free markets to government subsidies. But I believe that if the Council should consider a subsidy, it should have sensible information at its disposal. The arguments the Fair Fares supporters make seem to be based on an overextended assessment of the airport’s economic impact.

I have written more about this in on my website “Voice for Liberty in Wichita” at wichitaliberty.org.

Sincerely,

Bob Weeks

Remarks to City Council, May 11, 2004, Regarding AirTran Airways Subsidy

I delivered these remarks to the Wichita City Council as they were preparing to vote on extending AirTran Airway’s subsidy for another two years. The extension passed with only one dissenting vote.

Mr. Mayor, Members of the Council:

I speak today in opposition to the continuation of the subsidy the City is paying to AirTran Airways.

There are several reasons why I believe this subsidy should not be continued. The primary reason is that the subsidy, since it is paid to one company and one company only, is not fair to the other companies. Yes, it is true that fares are lower. But is that a legitimate reason to enrich one company at the expense of others?

If creating an environment of unfair competition is good and correct, why should we not do this in other markets?

If we feel that gasoline prices are too high, why not select a chain of gasoline stations and pay it a subsidy so that it could lower its prices?

If we feel that a chain of grocery stores has too much market power and their prices are too high, why not create and subsidize stores to compete with them?

If we feel that the commissions that real estate companies charge are too high, why not pay one of Wichita’s major firms a subsidy so that they could reduce their commissions?

Let us all hope, then, that we do not find ourselves running, or being an employee of, a business whose prices the City believes are too high.

But the situation is even worse. Through the Fair Fares program, the City has organized the potential customers of the subsidized business to ensure that they purchase from it. For the companies that pledged to Fair Fares: How would they feel if the government started a public body for the purpose of organizing their customers, and then used its powers of persuasion to compel them to buy from a competitor at the same time the City is subsidizing the competitor?

All of this is in direct opposition to the American principles of limited government, individual liberty, and fair markets.

The distortion of the market that the subsidy creates has another aspect: By creating an environment of unfair competition, we make it unlikely that any airline will consider starting service to Wichita unless they too receive a subsidy.

If the Council feels that we must subsidize an airline, consider this alternative: why not subsidize one of the other established airlines, one that that flies to many destinations? Or, why not rotate the subsidy every year to a different airline? After all, if fares can be lowered if any airline reduces their fares, it shouldn’t matter which airline does it.