Voice For Liberty

Tag: Wichita city council

  • Naftzger Park costs up, yet again

    Naftzger Park costs up, yet again

    The cost of fixing an oversight in the design of Naftzger Park in downtown Wichita is rising, and again we’re not to talk about it, even though there are troubling aspects.

    Last week the Wichita City Council was scheduled to consider an item regarding the rebuild of Wichita City Council. That item was removed from the agenda the day before the meeting. It now appears on the agenda for the February 12 meeting, and with a higher price tag.

    (“Consider” is not quite the right term, as the item was on the council’s consent agenda. That’s where items are passed in bulk, usually without discussion.)

    As the city explains in the agenda packet for this week, “Naftzger Park currently has a small pond that acts as a storm water retention facility during rain events. Proposed improvements to Naftzger Park will eliminate the pond and all available storm retention. The project does not include funding for replacing the retention capacity.” The cost is given as $115,000, up from last week’s $85,000.

    As explained last week, this seems like a major oversight in the original project plans. The city has regulations regarding stormwater retention that private sector developers must follow. Didn’t any city planners consider these regulations as the project was planned? Didn’t any council member or bureaucrat look at the plans and wonder about stormwater drainage? Wasn’t there a highly-regarded architect designing the park? What about TGC Development, the developer of the surrounding property, to whom the city effectively outsourced the development of Naftzger Park? The construction manager?

    Of note: This week the agenda tells us this: “Funding is available for transfer due to the scope of project being adjusted to remove some the structural repairs and the abutment treatment after discussion with the railroad were not successful.” This sounds like structural repairs were planned but not executed. This deserves discussion, but with the item being on the consent agenda, discussion is not likely.

    Of further note: The February 5 agenda stated, “Funding is available for transfer due to underruns of bid items upon project completion and favorable bid pricing.” This made it sound like all planned work was completed and the city spent less than budgeted, even if through happenstance. This week we’re being told something different.

  • From Pachyderm: Wichita Mayor Jeff Longwell

    From Pachyderm: Wichita Mayor Jeff Longwell

    From the Wichita Pachyderm Club: Jeff Longwell, Mayor of the City of Wichita. This was recorded February 8, 2019.

  • Facade improvement program raises issues in Wichita

    Facade improvement program raises issues in Wichita

    An incentive program in Wichita should cause us to question why investment in Wichita is not feasible without subsidy.

    At its February 5, 2019 meeting, the Wichita City Council will consider an item regarding economic development in Delano. The owner of a building there has applied for financial assistance under the city’s facade improvement program.

    The purpose of the facade improvement program, according to city documents, is to provide “low-cost loans and grants” to help improve the appearance of buildings “located in defined areas needing revitalization, including the City’s core area.”

    The matter before the council this week is to accept the petition of the property owner and set February 19, 2019 for the public hearing.

    Undoubtedly council members will praise the property owner for deciding to invest in Wichita. I’m glad he is, and it sounds like the project will improve the Delano area. But the need for this item raises a few questions regarding public policy in Wichita that are more important than any single project.

    First, city documents state: “The Office of Economic Development has reviewed the economic (‘gap’) analysis of the project and determined there is a financial need for incentives based on the current market.” In other words, the city has determined that this project is not economically feasible unless it receives a government subsidy. Will any council members ask why is it not possible to renovate a building in the core of Wichita without subsidy? What factors in Wichita — specifically Delano — make it impossible to have investment like this without subsidy?

    Second: Wichita officials, especially Wichita Mayor Jeff Longwell, tell us that the city doesn’t use cash as an economic development incentive. But this proposal includes a cash grant of $30,000. This is not a low-cost loan that must be repaid. Instead, it is an incentive, a gift — and it’s cash.

  • Naftzger Park cost rising, and we’re not to talk about it

    Naftzger Park cost rising, and we’re not to talk about it

    The cost of the Naftzger Park makeover is rising, will be paid for with borrowed funds, and possibly handled without public discussion.

    The cost of the Naftzger Park project in downtown Wichita is rising, according to an item the Wichita City Council will consider at its Tuesday February 5, 2019 meeting. According to city documents, an additional $85,000 is needed for stormwater retention, a function the former pond provided.

    This seems like a major oversight in the original project plans. The city has regulations regarding stormwater retention that private sector developers must follow. Didn’t any city planners consider these regulations as the project was planned? Didn’t any council member or bureaucrat look at the plans and wonder about stormwater drainage? Wasn’t there a highly-regarded architect designing the park? What about TGC Development, the developer of the surrounding property, to whom the city effectively outsourced the development of Naftzger Park? The construction manager?

    The extra cost is proposed to come from savings realized in another nearby project. That requires a waiver of policy, according to the agenda: “Staff requested waiver of City Council Policy No. 2 regarding the use of projects savings to allow this transfer of funds.”

    On top of that, this money will be borrowed. An accompanying resolution (number 19-048) provides the authorization: “Section 2. Project Financing. All or a portion of the costs of the Project, interest on financing and administrative and financing costs shall be financed with the proceeds of general obligation bonds of the City.”

    Borrowing this money, even though it is a small amount, is a significant public policy issue. The city decided to use tax increment financing (TIF) to pay for this project. City officials pitch this as a method of financing that costs the general public nothing, as the TIF bonds are repaid from a project’s future property taxes.

    In this case, as the surrounding development by TGC starts to pay higher property taxes, these taxes would be used to pay for Naftzger Park. (Never mind who pays for the public services the development will consume.)

    But now, some expenses of the project have been shifted away from TIF to the general city.

    The equitable way of handling this is to charge this expense to the TIF district. Either that, or to the responsible parties whose oversight, we now see, was lacking.

    By the way, this item is on the consent agenda, meaning there will be no discussion unless a city council member requests the item to be “pulled” for discussion and a potentially separate vote. (A consent agenda is a group of items 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.)

    Following, an excerpt from the February 5, 2019 city council agenda:

    Background: Naftzger Park currently has a small pond that acts as a storm water retention facility during rain events. Proposed improvements to Naftzger Park will eliminate the pond and all available storm retention. The project does not include funding for replacing the retention capacity.

    Analysis: With the elimination of the existing pond, underground on-site storage is necessary to prevent a negative impact on the area storm sewer system and the surrounding developments during rain events.

    Financial Considerations: Currently, the Stormwater Utility does not have funding available for these improvements. Staff proposes transferring $85,000 in General Obligation bond funding from the Douglas Underpass project. Funding is available for transfer due to underruns of bid items upon project completion and favorable bid pricing. Staff requested waiver of City Council Policy No. 2 regarding the use of projects savings to allow this transfer of funds. The total budget for the stormwater retention facility would be $85,000 and the revised budget for Douglas Underpass would be $2,015,000.

  • In Wichita, a gentle clawback

    In Wichita, a gentle clawback

    Despite the mayor’s bluster, Wichita mostly lets a company off the hook.

    As reported in Wichita City Council to consider a clawback, a company failed to meet the targets of an economic development incentive, and according to that agreement, owes the city $253,000 in clawbacks.

    The city council, however, decided to require the company to pay only $100,000 of that. The city reasoned that because the company is planning an expansion, that would offset the other $153,000 of the clawback.

    Wichita Mayor Jeff Longwell described this is holding the company accountable. The Wichita Eagle quoted him as saying, “This is why we’ve done it, to make sure that everyone is accountable and that the taxpayers, at the end of the day, win.”

    But despite the mayor’s bluster, the city failed to enforce the agreement it made to protect taxpayers. Instead, the company receives $153,000 in free taxes that it didn’t deserve, along with an interest-free loan of $100,000 amortized over four years.

    By the way, the same Eagle article reported: “Fiber Dynamics, a company founded by Darrin Teeter to commercialize technology developed at Wichita State’s National Institute for Aviation Research in the early ‘90s, hasn’t had to pay city property taxes since 2008, an estimated value of more than $500,000.”

    Actually, the company didn’t pay any property taxes on the exempted property. That includes county, school, and state taxes.

  • Wichita City Council to consider a clawback

    Wichita City Council to consider a clawback

    The unrealized potential of an economic development incentive teaches lessons.

    This week the Wichita City Council will consider an amendment to an economic development incentive agreement. 1

    In 2008 the city awarded an incentive to a company in the form of exemption from paying property taxes, estimated by the city to be $93,175 annually at the time the incentive was awarded. 2

    The incentive was awarded based on the applicant company creating a certain number of jobs and making a certain level of investment. It was rewarded on a five plus five basis, meaning that the city council reviewed the deal after five years. The plan was if the company met goals, the city would extend the incentive for another five years.

    At the five-year review, however, the applicant company had not met the job goals. The city invoked an exception that allowed extension of the incentive based on a downturn in the economy as measured by the Wichita Current Conditions Index, which is produced by the Center for Economic Development and Business Research at Wichita State University. 3

    Now is the end of the second five-year period. The job goals have not been met, and the city has decided the applicant company is in default of the agreement. The city is proposing a clawback, that is, recovery of the value of the incentive for the second five-year period. According to the agenda packet: “The value of the abated taxes for the second five-years is approximately $253,000. The City Council could clawback the entire amount, or some portion, per the incentive agreement.”

    But: The agreement that the council will consider is that the applicant company build an expansion to its facilities at a cost of $2,500,000, using no incentives. Also, the company will repay $100,000 of the abated taxes, in four annual payments of $25,000.

    A few things to learn:

    First, economic development incentives don’t always work. This reflects the uncertainty of business. When the city presents projections like benefit-cost ratios, it might want to remind us that these values will be achieved only if the project targets are reached. When businesses describe their plans, these are called forward-looking statements. They are accompanied by disclaimers like “subject to risks and uncertainties that could cause actual results to differ materially.” Investors and interested parties are “cautioned not to place undue reliance on these forward-looking statements.” The same cautions hold for citizens of Wichita, as they are the investors paying the cost of incentives and expecting to receive the benefits. That is, after all, the foundation of the benefit-cost analysis that accompanies requests for incentives: That by spending now or by giving up future tax collections, the city receives even more in benefits.

    Second, cities often don’t have the fortitude to strictly enforce clawbacks. Here, the company is receiving credit of $153,000 for construction an expansion to its facility, something the company was contemplating anyway. In other words, receiving credit for something it was going to do anyway. This is the usual case. 4

    Third, when the city and its officials say we no longer use cash as an incentive, here’s a case where the city canceled $153,000 of debt the city is entitled to, based on its agreement with the applicant company. That’s just like cash.

    For more on this topic, see Clawbacks illustrate difficulty of economic development and In Wichita, a gentle clawback

    —
    Notes

    1. Wichita City Council Agenda Packet for January 8, 2019. Item V-1. ↩
    2. Wichita City Council Agenda Packet for February 12, 2008. Item No. 34 ↩
    3. See http://kansaseconomy.org/local-indices/wichita-current-index. ↩
    4. Bartik, Timothy J. 2018. “‘But For’ Percentages for Economic Development Incentives: What percentage estimates are plausible based on the research literature?” Upjohn Institute Working Paper 18-289. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research. https://doi.org/10.17848/wp18-289. ↩
  • Starlite loan isn’t needed

    Starlite loan isn’t needed

    The Wichita City Council seems poised to enter an unnecessarily complicated transaction.

    This week the Wichita City Council will consider a loan to the operator of the Starlite Drive-In Theater in Wichita. According to city documents, the proposal is for a five-year loan of $200,000 with an annual interest rate of one percent. The city is requiring both a personal guarantee and a letter of credit, presumably from a reputable bank. 1

    We have to wonder why the city asks for both a letter of credit and a personal guarantee. When issuing a letter of credit, a bank will be careful. It is, in effect, making a promise to issue credit to a borrower (the operator of the Starlite) if the borrower does not perform according to the agreement with the city. That alone ought to be enough security.

    Moreover, if a bank has enough confidence in a customer to issue a letter of credit for $200,000, it would probably make a loan for the same amount. But that would cost more than one percent in interest.

    This is really what the city is doing: Reducing the cost of a loan that a borrower ought to be able to obtain on his own.

    Given this, why doesn’t the city simply subsidize the interest cost of the loan? I don’t know what rate a bank would charge this borrower, but it might be 12 percent or so. Then the borrower would have interest costs of $24,000 per year as compared to $2,000 per year for the City of Wichita loan. If the city would simply pay the borrower the difference between the two, things would be much simpler for the city. It wouldn’t have to worry about the loan being repaid.

    Well, the city shouldn’t have to worry about repayment, because of the letter of credit. But if the borrower qualifies for that, he can also qualify for a loan.

    There are other reasons why the city shouldn’t get involved in the Starlite theater, but if it must, let’s try to keep things simple. Based on what we know so far, I don’t think we’re being told the entire story.

    Further evidence of lack of transparency is that this matter has been elevated to an emergency. According to city documents, the mayor will make this declaration regarding the enabling ordinance: “I, Jeff Longwell, Mayor of the City of Wichita, Kansas, hereby request that the City Council declare that a public emergency exists requiring the final adoption and passage on the day of its introduction, to wit, December 18, 2018 …” 2

    —

    Notes

    1. “The $200,000 loan from the City will be structured to be repaid over five years as an interest only loan with an interest rate of 1% per annum, with quarterly interest payments for the first four years. The borrower will pay one-twelfth of the principal amount plus interest in each month of year five. The borrower is Blake Smith through Starlite, LLC, a Kansas limited liability company. Smith will provide the City with a personal guarantee as well as a letter of credit securing the entire loan. The letter of credit will be structured as a declining letter of credit. If any principal amount of the loan is prepaid, the letter of credit can be reduced by an equal amount. For instance, if $25,000 is paid at the end of year one, the letter of credit may be reduced to $175,000, the remaining balance of the loan.” City of Wichita, Agenda Packet for December 18, 2018. Item V-5. ↩
    2. REQUEST FOR DECLARATION OF EMERGENCY
      REQUEST OF THE MAYOR OF THE CITY OF WICHITA, KANSAS, FOR THE DECLARATION BY THE CITY COUNCIL OF SAID CITY OF THE EXISTENCE OF A PUBLIC EMERGENCY REQUIRING THE ADOPTION OF AN ORDINANCE BELOW DESIGNATED.
      TO THE MEMBERS OF THE CITY COUNCIL OF THE CITY OF WICHITA, KANSAS:
      I, Jeff Longwell, Mayor of the City of Wichita, Kansas, hereby request that the City Council declare that a public emergency exists requiring the final adoption and passage on the day of its introduction, to wit, December 18, 2018 of an ordinance entitled:
      ORDINANCE NO. _____
      AMENDMENTS TO ORDINANCE 50-585 OF THE CITY OF WICHITA, KANSAS, PERTAINING TO HYATT GRANT PROCEEDS FOR COMMUNITY IMPROVEMENT PROJECTS, GRANTS AND GRANT PROGRAMS
      The general nature of such public emergency lies in the need to pass and publish this ordinance to authorize the release of funds for the purchase of special digital projection equipment and for costs related to its installation for Wichita’s Starlite Drive-In, which was recently purchased by an anonymous buyer to prevent its closure.
      It is therefore expedient at this time that the City Council find and determine that a public emergency exists by reason of the foregoing and that the above entitled Ordinance be finally adopted on the day of its introduction.
      Executed at Wichita, Kansas on this day of December 18, 2018.
      MAYOR OF THE CITY OF WICHITA, KANSAS. ibid. ↩
  • On big contracts, Wichita has had problems

    On big contracts, Wichita has had problems

    As Wichita prepares to award a large construction contract, let’s hope the city acts in an ethical manner this time.

    As the Wichita City Council prepares to make a decision regarding a contract for the new baseball stadium, the council’s past reputation in these matters can’t be overlooked.

    The controversy over the stadium contract has been covered by the Wichita Eagle: “The Wichita City Council hasn’t officially approved a design-build team for the city’s new $75 million Minor League ballpark, but there’s already been a protest over the recommended group. … At issue in a protest by a competing team is whether the JE Dunn team meets a key requirement to be selected, which is that it has built at least three similar Major or Minor League ballparks.” 1

    The biggest potential for unethical behavior comes from Wichita Mayor Jeff Longwell. In 2012, as the Wichita city council was considering the award of the contract for the new airport terminal, Longwell (then a council member) received campaign contributions from executives of Walbridge, a Michigan construction company partnering with Key Construction to build the new Wichita airport terminal. 2

    Two Walbridge contributions were made on July 16, 2012, the day before the council, Longwell included, voted to award the contract to the Key/Walbridge partnership. More contributions from Walbridge arrived on July 20, according to Longwell’s campaign finance reports.

    When questioned about the Michigan contributions, Longwell told the Wichita Eagle, “We often get contributions from a wide variety of sources, including out-of-town people.” But analysis of past campaign finance documents filed by Longwell showed just three out-of-state contributions totaling $1,500. 3

    In deciding the airport contract issue, the council was asked to make decisions involving whether discretion was abused or whether laws were improperly applied. It’s not surprising that Jeff Longwell made these decisions in favor of his campaign contributors. But he shouldn’t have been involved in the decision.

    That was not the first time Jeff Longwell has placed the interests of his campaign contributors ahead of taxpayers. In 2011 the city council, with Longwell’s vote, decided to award Key a no-bid contract to build the parking garage that is part of the Ambassador Hotel project. The no-bid cost of the garage was to be $6 million, according to a letter of intent. Later the city decided to place the contract for competitive bid. Key Construction won the bidding, but for a price $1.3 million less.

    It’s not only Longwell with problematic behavior in the past. In 2012, before the vote on the airport contract, executives of Key Construction and spouses contributed heavily to the campaigns of both Wichita City Council Member Lavonta Williams (district 1, northeast Wichita) and Wichita City Council Member James Clendenin (district 3, southeast and south Wichita). These contributions were not known to the public until months after the vote was cast.

    Williams is no longer on the council, but Clendenin remains.

    Former Wichita Mayor Carl Brewer had his own issues, with a curious set of ethics principles. 4

    The city needs an adult in the room. That person is, or should be, Wichita city manager Robert Layton. In the past he has implemented policies to end the practice of no-bid contracts. We don’t know what will happen this week.

    —
    Notes

    1. Rengers, Carrie. City selects ballpark design-build group; competing bidder questions qualifications. Wichita Eagle, November 29, 2018. Available at https://www.kansas.com/news/business/biz-columns-blogs/carrie-rengers/article222372330.html (subscription may be required). ↩
    2. “A campaign finance report filed by Wichita City Council Member Jeff Longwell contains contributions from executives associated with Walbridge, a Michigan construction company partnering with Key Construction to build the new Wichita airport terminal. … These contributions are of interest because on July 17, 2012, the Wichita City Council, sitting in a quasi-judicial capacity, made a decision in favor of Key and Walbridge that will cost some group of taxpayers or airport customers an extra $2.1 million. Five council members, including Longwell, voted in favor of this decision. Two members were opposed.” Weeks, Bob. Michigan company involved in disputed Wichita airport contract contributes to Jeff Longwell. Available at https://wichitaliberty.org/wichita-government/michigan-company-involved-in-disputed-wichita-airport-contract-contributes-to-jeff-longwell/. ↩
    3. “Analysis of Longwell’s July 30, 2012 campaign finance report shows that the only contributions received from addresses outside Kansas are the Walbridge contributions from Michigan, which contradicts Longwell’s claim. Additionally, analysis of ten recent campaign finance reports filed by Longwell going back to 2007 found three contributions totaling $1,500 from California addresses.” Weeks, Bob. Jeff Longwell out-of-town campaign contributions. Available at https://wichitaliberty.org/wichita-government/jeff-longwell-out-of-town-campaign-contributions/. ↩
    4. Weeks, Bob. The odd ethics of Wichita Mayor Carl Brewer. Available at https://wichitaliberty.org/wichita-government/odd-ethics-wichita-mayor-carl-brewer/. ↩
  • It’s not the bonds, it’s the taxes

    It’s not the bonds, it’s the taxes

    A Wichita Eagle headline reads “Wichita aircraft supplier plans 45 new jobs with $7.5 million bond request,” but important information is buried and incomplete.

    According to the agenda packet for the December 4, 2018 meeting of the Wichita City Council, a local aircraft supplier is “requesting issuance of bonds” worth $7.5 million. 1

    Even if you read the entire Wichita Eagle article2 on this matter, you wouldn’t really learn much about this item. You might think the city is lending the company this money, which many people assume is the purpose of the Industrial Revenue Bonds program. But in the IRB program, the city lends no money, nor does it guarantee repayment of the bonds. 3

    Instead, the purpose of the IRBs is to convey a tax holiday. In the very last paragraph, the article mentions this property tax abatement, but no dollar value is given, even though the “city documents” presumably used as a source for this story clearly state the dollar values. The sales tax exemption is also mentioned, with no dollar value given. City documents don’t hold that, either.

    The value of the tax holiday, according to the city, is estimated at $82,040 annually for up to ten years, shared among local taxing authorities thusly:

    City of Wichita: $22,837
    State of Kansas: $1,050
    Sedgwick County: $20,575
    USD 259 (Wichita school district): $37,578

    For the value of the sales tax exemption, no value is given. By city documents state the purpose of the bonds is to pay for “$4,000,000 for new machinery and equipment.” Sales tax on that would be $300,000. If the entire $7.5 million is spent on taxable purchases, sales tax savings would be $562,500.

    Why doesn’t the Wichita Eagle mention some of these important matters?

    The article also holds no mention of the important public policy issues involved. For example, why does the owner of the business want to escape paying the same taxes that (nearly) everyone else must pay? This question is especially pertinent as Kansas is one of the few states in which even low-income households pay the full sales tax rate on groceries.

    Perhaps the reason is that the cost of government makes this investment unprofitable. If that is true, we have a grave problem. If the city must issue bonds and create a tax holiday for this rather small investment, we have a capacity problem. A reader on Facebook left this wry comment to the Eagle story: “So, local area population 600,000+ people … About to add 45 jobs over 5 years?”

    The city justifies tax giveaways like this by using a benefit-cost analysis. That is, if the city gives up some taxes, it will receive even more in additional taxes. This analysis is useful to politicians and bureaucrats. But the analysis is valid and meaningful only if the investment is impossible without the tax giveaway.

    The question then becomes: Is this tax forgiveness necessary? City documents don’t say. Showing necessity is not a requirement of the IRB incentive program. We’re left wondering if the tax expenditure, which is potentially more than one million dollars over ten years, is truly needed.

    The city is proud of its requirements that the benefit-cost ratio must be at least 1.3 to 1. But for USD 259, the Wichita school district, the ratio is 1.17 to 1. So the city is pushing an “investment” on the school district that is below the standard it requires for itself. The school district has no say in the matter, based on Kansas state law. Note also that the school district gives up the most tax revenue, 1.6 times as much as the city.

    By the way, Wichita Mayor Jeff Longwell says the city is no longer using cash as economic development incentives. But when the city waves a magic legislative wand and says you don’t have to pay $82,040 per year in property tax, how is that different than giving the same amount in cash? Or when the city says don’t bother paying the sales tax on this, how is that different than giving a cash discount?

    The answer is there’s no difference. The mayor, city council members, and city bureaucrats hope you won’t notice the sleight of hand, that is, skillful deception. And with the Wichita Eagle being the watchdog, there’s little chance very many people will be informed.

    —
    Notes

    1. City of Wichita, agenda for December 4, 2018. V-2: Public Hearing and Issuance of Industrial Revenue Bonds, Etezazi Industries, Inc. Available at http://www.wichita.gov/Council/Agendas/12-04-2018%20Agenda.pdf. ↩
    2. Siebenmark, Jerry. Wichita aircraft supplier plans 45 new jobs with $7.5 million bond request. Wichita Eagle, November 30, 2018. ↩
    3. “Industrial Revenue Bonds are a mechanism that Kansas cities and counties use to allow companies to avoid paying property and sales taxes.” Weeks, Bob. Industrial revenue bonds in Kansas. Available at https://wichitaliberty.org/kansas-government/industrial-revenue-bonds-kansas/. ↩