Tag Archives: Wichita city government

Economic development incentives at the margin

The evaluation of economic development incentives in Wichita and Kansas requires thinking at the margin, not the entirety.

When considering the effect of economic development incentives, cities like Wichita use a benefit-cost analysis to determine whether the incentive is in the best interests of the city. The analysis usually also considers the county, state, and school districts (although these jurisdictions have no say over whether the incentive is granted, with a few exceptions). The idea is that by paying money now or forgiving future taxes, the city gains even more in increased tax collections. This is then pitched as a good deal for taxpayers: The city gets more jobs (usually) and a “profit,” too.

Economic activity usually generates tax revenue that flows to governmental agencies. When people work, they pay income taxes. When they make purchases, they pay sales taxes. When they buy existing property or create new property, they pay property taxes. This happens whether or not the economic activity is a result of government incentives. This is a key point that deserves more exploration.

Government often claims that without an incentive provided by government, a company would not have located in Wichita. Or, without the incentive, it would not have expanded in Wichita. Now, the city says incentives are necessary to persuade companies to consider remaining in Wichita rather than moving somewhere else.1

But there are a few problems with the arguments that cities, states, and their economic development agencies promote. One is that the increase in tax revenue happens regardless of whether the company has received incentives. Therefore, the benefit-cost ratio calculations are valid only if incentives were absolutely necessary. Otherwise, government claims credit for something that was going to happen anyway. This is a big question that deserves exploration.

For example, what about all the companies that locate to Wichita, or expand in Wichita, or simply remain in Wichita without receiving incentives? How do we calculate the benefit-cost ratio when a company receives no incentives? The answer is it can’t be calculated, as there is no government cost, so the divisor in the equation is zero. Instead, there is only benefit.

Then, we don’t often ask why some companies need incentives, and others do not. Do the companies that receive incentives really need them? Is it really true that a business investment is not feasible without subsidy? Why do some companies receive incentives multiple times while others thrive without incentives?

We may never know

We may never know the answer to these questions. Here’s why. Suppose fictional company XYZ Enterprises, Inc. dangles the idea of moving from Wichita to some other city. XYZ cites incentive packages offered by other cities. Wichita and the state then come up with millions in incentives, and XYZ decides to remain in Wichita. Question: Were the incentives necessary? Was the threat to move genuine? If XYZ admits the threat was not real, then it has falsely held Wichita and Kansas hostage for incentives. If the city or state admits the threat was not real, then citizens wonder why government gave away so much.2

So we’ll never really know. Everyone involved has incentive to maintain the fiction and avoid letting the truth leak out.

A small lever moves big boulders, they say

Related is that jurisdictions may grant relatively small incentives and then take credit for the entire deal. I’ve been told that when economic development agencies learn of a company moving to an area or expanding their Wichita operations, they swoop in with small incentives and take credit for the entire deal. The agency is then able to point to a small incentive and take credit for the entire deal. As you can imagine, it’s difficult to get the involved parties to speak on the record about this.

Further, governments may not credit the contribution of other governments. In the past when the Wichita economic development office presented information about an incentive it proposed to offer to a company, it would sometimes list the incentives the company is receiving from other governments. As an example, when the city offered incentives to NetApp in 2012, the city’s contribution was given as a maximum of $418,000. The agenda material mentioned — obliquely — that the State of Kansas was involved in the incentive package. Inquiry to the Kansas Department of Commerce revealed that the state had promoted incentives worth $35,160,017 to NetApp.3 Wichita’s incentive contribution is just 1.2 percent of what the state offered, which makes us wonder if the Wichita incentive was truly needed. Nonetheless, Wichita city officials spoke as though the city alone was responsible for NetApp’s decision.

The importance of marginal thinking

When evaluating economic development incentives, we often fail to properly evaluate the marginal gains. Here’s an example of the importance of looking at marginal gains rather than the whole. In 2012, the City of Wichita developed a program called New HOME (New Home Ownership Made Easy). The crux of the program is to rebate Wichita city property taxes for five years to those who buy newly-built homes in certain neighborhoods under certain conditions.

Wichita City HallThe important question is how much new activity this program will induce. Often government takes credit for all economic activity that takes place. This ignores the economic activity that was going to take place naturally — in this case, new homes that are going to be built even without this subsidy program. According to data compiled by Wichita Area Builders Association and the WSU Center for Economic Development and Business Research — this is the data that was current at the time the Wichita city council made its decision to authorize the program — in 2011 462 new homes were started in the City of Wichita. The HOME program contemplated subsidizing 1,000 homes in a period of 22 months. That’s a rate of 545 homes per year — not much more than the present rate of 462 per year. But, the city has to give up collecting property tax on all these homes — even the ones that would be built anyway.

What we’re talking about is possibly inducing a small amount of additional activity over what would happen naturally and organically. But we have to subsidize a very large number of houses in order to achieve that. The lesson is that we need to evaluate the costs of this program based on the marginal activity it may induce, not all activity.

For more, see Wichita new home tax rebate program: The analysis.


Notes

  1. “But the Hawker Beechcraft deal is different, focused on saving existing jobs, not creating new jobs, and the result diverts millions in limited taxpayer funds, primarily state income tax revenues, from state coffers to a company’s benefit, simply to have an existing business stay put.” Flentje, Edward. Brinkmanship with jobs. https://wichitaliberty.org/economics/brinkmanship-with-jobs/.
  2. For more on this, see LeRoy, Greg. The Great American Jobs Scam. Especially chapter two, titled Site Location 101: How Companies Decide Where to Expand or Relocate. The entire book may be read online at http://www.greatamericanjobsscam.com/pages/preview-book.html. A relevant excerpt: “These prisoners’ dilemma games also enable companies to create fictions about cause and effect. These fictions can be used to create public versions of how deals happened that no one can credibly contradict, because the company’s real decision-making process will never be revealed. The most important fiction to maintain, of course, is that subsidies matter in deciding where a company expands or relocates. For example, being able to send secret signals to competing cities means companies can tell contradictory stories to different cities and have no fear of being exposed. If a company really has its heart set on City A, it can tell that city that it is in the hunt, but needs to do better. Meanwhile, it can send less urgent signals to Cities B and C, even if they offered bigger packages at first. Eventually, City A offers the biggest package, and the company announces its decision to go there.”
  3. Weeks, Bob. NetApp economic development incentives: all of them. https://wichitaliberty.org/wichita-government/netapp-economic-development-incentives-all-of-them/.

Wichita to grant property and sales tax relief

Several large employers in Wichita ask to avoid paying millions in taxes, which increases the cost of government for everyone else, including young companies struggling to break through.

This week the Wichita City Council will hold public hearings concerning the issuance of Industrial Revenue Bonds to Spirit AeroSystems, Inc and other companies.1 In the IRB program, government is not lending money, and Wichita taxpayers are not at risk if the bonds are not repaid. In fact, in the case of Spirit, the applicant company plans to purchase the bonds itself, according to city documents. Instead, the purpose of the IRB process is to allow Spirit to escape paying property taxes and, often, sales taxes.

These bonds will allow Spirit to avoid paying property taxes on taxable property purchased with bond proceeds for a period of five years. The abatement may then be extended for another five years. Usually these IRB issues also carry a sales tax exemption, but the agenda packet for this item does not mention such

City documents state that the property tax abatement will be shared among the taxing jurisdictions in these estimated amounts:

City: $424,918
State: $19,500
County: $381,979
USD 259: $731,614

The listing of USD 259, the Wichita public school district, is likely a mistake by the city, as the Spirit properties lie in the Derby school district. This is evident below.

The forgiveness of taxes is justified by the city because it believes it will receive a return that is greater than the foregone taxes. This benefit-cost ratio is calculated by the Center for Economic Development and Business Research (CEDBR) at Wichita State University based on data supplied by the applicant company and the city. The rationale behind these calculations is a matter of debate. Even if valid, calculating the ratio with any degree of precision is folly, reminding us of the old saw “Economists use a decimal point to remind us they have a sense of humor.”

City of Wichita: 5.38 to 1
City General Fund: 2.60 to 1
City Debt Service Fund: NA to 1
Sedgwick County: 2.69 to 1
U.S.D. 260: 1.16 to 1
State of Kansas: 5.51 to 1

These figures reveal that the City of Wichita is forcing a decision on a neighboring jurisdiction that it would not accept for itself, unless it uses one of many exceptions or loopholes. This adverse decision is forced upon the Derby School District. It faces a benefit-cost ratio of 1.16 to 1, which is below the city’s standard of 1.30 to 1, unless an exception is cited. 2 The Derby School District is not involved in this action and has no ability to influence the issuance of these bonds, should it desire to.

We have to wonder why the City of Wichita imposes upon the Derby school district an economic development incentive that costs the Derby schools $731,614 per year, with a substandard payoff?
Of note, the Derby school district extends into Wichita, including parts of city council districts 2 and 3. These districts are represented by Pete Meitzner and James Clendenin, respectively.

In a second agenda item, the city will consider IRBs for a building being developed by Air Capital Flight Line. The beneficiary, however, is Spirit, as city documents state: “The requested sales tax exemption and property tax abatement will be passed on as a benefit to Spirit.”

The annual benefit in tax savings is given by the city as:

City: $294,174
State: $13,500
County: $264,447
USD 259: $506,502

These values are offset by a Payment-In-Lieu-Of-Taxes (PILOT) estimated at $13,251 annually.

For benefit-cost ratios, the city supplies these:

City of Wichita: 3.65 to 1
City of Wichita Gen Fund: 1.83 to 1
City of Wichita Debt Serv: NA to 1
Sedgwick County: 2.09 to 1
USD 260: 1.00 to 1
State of Kansas 2.48: to 1

Here we see the same mistake with the Wichita and Derby school districts. We also see the Derby school district giving up $506,502 in tax revenue, with no positive return.

Spirit is not the only company asking for tax relief through IRBs this week. Three other companies are making similar requests. In none of these cases is economic necessity cited as a reason for escaping taxes. None are threatening to leave Wichita if the relief is not granted.

The problem with these actions

Part of the cost of these companies’ investment, along with the accompanying risk, is spread to a class of business firms that can’t afford additional cost and risk. These are young startup firms, the entrepreneurial firms that we need to nurture in order to have real and sustainable economic growth and jobs. But we can’t identify which firms will be successful. So we need an economic development strategy that creates an environment where these young entrepreneurial firms have the greatest chance to survive. The action the Wichita city council is considering this week works against entrepreneurial firms. (See Kansas economic growth policy should embrace dynamism and How to grow the Kansas economy.)

A major reason why these tax abatements are harmful to the Wichita economy is its strangling effect on entrepreneurship and young companies. As these companies and others escape paying taxes, others have to pay. This increases the burden of the cost of government on everyone else — in particular on the companies we need to nurture.

There’s plenty of evidence that entrepreneurship, in particular young business firms, are the key to economic growth. But Wichita’s economic development policies, as evidenced by these actions, are definitely stacked against the entrepreneur. As Wichita props up its established industries, it makes it more difficult for young firms to thrive. Wichita relies on targeted investment in our future. Our elected officials and bureaucrats believe they have the ability to select which companies are worthy of public investment, and which are not. It’s a form of centralized planning by government that shapes the future direction of the Wichita economy.

These targeted economic development efforts fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. This lack of knowledge, however, does not stop governments from creating policies for the awarding of incentives. This “active investor” approach to economic development is what has led to companies receiving grants or escaping hundreds of millions in taxes — taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form. Young entrepreneurial companies are particularly vulnerable.

Embracing Dynamism: The Next Phase in Kansas Economic Development PolicyProfessor Art Hall of the Center for Applied Economics at the Kansas University School of Business is critical of this approach to economic development. In his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy, Hall quotes Alan Peters and Peter Fisher: “The most fundamental problem is that many public officials appear to believe that they can influence the course of their state and 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 expectations about their ability to micro-manage economic growth and making the case for a more sensible view of the role of government — providing foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.”

In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”

In making his argument, Hall cites research on the futility of chasing large employers as an economic development strategy: “Large-employer businesses have no measurable net economic effect on local economies when properly measured. To quote from the most comprehensive study: ‘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.'”

(For a summary of the peer-reviewed academic research that examines the local impact of targeted tax incentives from an empirical point of view, see Research on economic development incentives. A sample finding is “General fiscal policy found to be mildly effective, while targeted incentives reduced economic performance (as measured by per capita income).”)

There is also substantial research that is it young firms — distinguished from small business in general — that are the engine of economic growth for the future. We can’t detect which of the young firms will blossom into major success — or even small-scale successes. The only way to nurture them is through economic policies that all companies can benefit from. Reducing tax rates for everyone is an example of such a policy. Abating taxes for specific companies through programs like the Wichita city council is considering this week is an example of precisely the wrong policy.

In explaining the importance of dynamism, Hall wrote: “Generally speaking, dynamism represents persistent, annual change in about one-third of Kansas jobs. Job creation may be a key goal of economic development policy but job creation is a residual economic outcome of business dynamism. The policy challenge centers on promoting dynamism by establishing a business environment that induces business birth and expansion without bias related to the size or type of business.”

We need to move away from economic development based on this active investor approach, especially the policies that prop up our established companies to the detriment of dynamism. We need to advocate for policies — at Wichita City Hall, at the Sedgwick County Commission, and at the Kansas Statehouse — that lead to sustainable economic development. We need political leaders who have the wisdom to realize this, and the courage to act appropriately. Which is to say, to not act in most circumstances.

Small business

This year American City Business Journals presented the results of a study of small business vitality in cities. 3 Wichita ranked at number 104 out of 106 cities studied. Awarding incentives to large companies places small business at a disadvantage. Not only must small business pay for the cost of government that incentivized companies avoid, small companies must also compete with subsidized companies for inputs such as capital and labor.

Pursuing large companies

Research has found that the pursuit of large companies doesn’t produce the desired growth: “The results show that large firms fail to produce significant net benefits for their host communities, calling into question the high-stakes bidding war over jobs and investment.” 4

This finding is counterintuitive. People can easily see the large companies. They are likely to know someone that works there. But it is the unseen effects that must be considered too, and that is rarely done.


Notes

  1. City of Wichita. City Council agenda packet for December 6, 2016.
  2. Sedgwick County/City of Wichita Economic Development Policy. Available at www.wichita.gov/Government/Departments/Economic/EconomicDevelopmentDocuments/City%20of%20Wichita%20Economic%20Development%20Policy.pdf.
  3. Wichita Business Journal. The State of Small Business: Wichita scores low in small biz vitality. Available at www.bizjournals.com/wichita/print-edition/2016/04/29/the-state-of-small-business-wichita-scores-low-in.html.
  4. William F. Fox and Matthew N. Murray, “Do Economic Effects Justify the Use of Fiscal Incentives?” Southern Economic Journal, Vol. 71, No. 1, 2004, p. 79.

Wichita bridges, well memorialized

Drivers — like me — on East Twenty-First Street in Wichita are happy that the work on a small bridge is complete, but may not be pleased with one aspect of the project.

The memorial plaque celebrating the accomplishment on East Twenty-First Street in Wichita. The flare from the sun is a defect of this photograph, not the marker. Click for larger.
The memorial plaque celebrating the accomplishment on East Twenty-First Street in Wichita. The flare from the sun is a defect of this photograph, not the marker. Click for larger.
It’s a small bridge, on East Twenty-First Street between Mosely and New York Streets. At 49 feet long it is designated a bridge by the Federal Highway Administration. And we’re glad it’s there.

But with city lane width guidelines for arterial streets at 11 feet, this four-lane bridge may not be not much longer than it is wide.1

The bridge on East Twenty-First Street. Click for larger.
The bridge on East Twenty-First Street. Click for larger.
Does it warrant the full commemorative treatment of a bronze plaque memorializing the elected officials and bureaucrats who happened to be in office at the time taxpayers paid for this bridge?

A city official told me that the plaque cost around $2500, and noted that the City Council approves them for each project.2

Why does the city spend so much on plaques for bridges that, in some cases, may not be much longer than wide? It’s a small matter, but these issues are symbolic of government’s attitude towards costs, and of some officials’ view of their own self-importance.

It’s presumptuous, that such a mundane accomplishment would be decorated so at the expense of taxpayers. More than this, it’s preposterous.

West Twenty-Ninth Street in Sedgwick County. Click for larger.
West Twenty-Ninth Street in Sedgwick County. Click for larger.
The City of Wichita is not alone. As I reported in The bridges of Sedgwick County are well marked, Sedgwick County does this, too. And doubly so. The bridge in Twenty-First Street in Wichita has one plaque, but even small bridges in Sedgwick County have two, one on each side.


Notes

  1. City of Wichita. *Street Design Guidelines, Approved by the City Council, December 2014. http://www.wichita.gov/Government/Departments/Planning/PlanningDocument/Street%20Design%20Guidelines-Final.pdf
  2. Email correspondence with Gary Janzen, Wichita City Engineer and Assistant Director Public Works & Utilities, November 28, 2016.

Beware of government arts spending

Art is too important to be dependent on politicians and injecting politics into anything inevitably tarnishes it, writes Lawrence W. Reed of Foundation for Economic Education.

Economist Lawrence W. Reed is president of the Foundation for Economic Education in Atlanta, Georgia. He is the author of the forthcoming book, Real Heroes: Inspiring True Stories of Courage, Character and Conviction. Follow on Twitter and Like on Facebook.

While in Wichita Reed appeared on WichitaLiberty.TV in this episode. An abridged version of the following appeared in the Wichita Eagle.

Beware of Government Arts Spending
By Lawrence W. Reed

While visiting Wichita in October, I learned that city government subsidies for the arts is a local, contentious issue. I’d like to offer a perspective: Don’t do it. Art is too important to be dependent on politicians and injecting politics into anything inevitably tarnishes it.

Proponents of art subsidies argue that because a large majority of people enjoy art and even personally engage in it, it’s therefore a government responsibility. But even larger majorities of people enjoy things like clothing, pets and good movies; this fact is actually an argument for government to butt out and stick to doing its proper duties.

Lawrence W. Reed
Lawrence W. Reed
Those “studies” that purport to show X return on Y amount of government arts spending are a laughingstock among economists. The numbers are cooked and almost never compared to alternative uses of tax money. Even less frequently do subsidy advocates consider what people might choose to do if their earnings weren’t taxed away in the first place.

Every interest group with a claim on the treasury argues that spending for its projects produces some magical “multiplier” effect. Routing other people’s money through politicians and bureaucracy is supposed to somehow magnify wealth, while leaving it in the pockets of those who earned it is somehow a drag. Assuming for a moment that such preposterous claims are correct, wouldn’t it then make sense to direct all income through the government?

What if “public investment” simply displaces a certain amount of private investment? Arts subsidy advocates never raise this issue, but I know that I personally am far less likely to make a charitable donation to something I know is on the dole than to something that depends on the good hearts of willing givers.

What if I, as a taxpayer, could keep what the government would otherwise spend on the arts and invest it in my child’s education and get twice the return than the government would ever get on the arts? The more that government takes, the less we can purchase of the things we value, including tickets to the theatre or a concert.

Money which comes voluntarily from the heart is more meaningful than money that comes at gunpoint (taxes). For that reason I don’t believe in either arts welfare or shotgun marriages. There’s an endless list of desirable, enriching things, very few of which carry a tag that says, “Must be provided by taxes and politicians.”

If we don’t rob Peter the worker to pay Paul the artist, perhaps Paul may have to become a better artist or a better marketer of his art, or perhaps find another profession entirely. Welcome, Paul, to the real world of willing customers and earning an honest living.

WichitaLiberty.TV: Wichita and Kansas economics, and government investment

In this episode of WichitaLiberty.TV: Wichita sells a hotel, more subsidy for downtown, Kansas newspaper editorialists fall for a lobbyist’s tale, how Kansas can learn from Arizona schools, and government investment. View below, or click here to view at YouTube. Episode 131, broadcast October 30, 2016.

Shownotes

Cost per visitor to Wichita cultural attractions

Wichitans might be surprised to learn the cost of cultural attractions.

The price of adult admission to the Wichita Art Museum is $7.00, or free on Saturdays thanks to the generosity of Colby Sandlian, a Wichita businessman.

But the cost of admission is much higher. For 2015, Wichita city documents report a cost per visitor of $55.37. This was eight percent over the target cost of $51.24.

Cost per visitor to Wichita cultural attractions. Click for larger.
Cost per visitor to Wichita cultural attractions. Click for larger.

The cost per visitor figures the city reports each year are presented in a nearby table. For each year the city reports the cost per visitor along with a target for the next years. In the nearby chart, the target values are represented by dotted lines of the same color as the actual cost.

We should note that for these attractions much of their costs are fixed, meaning they do not vary with the number of visitors. An example is the employment cost of a museum director. As the number of visitors rises or falls, the salary stays the same. This means that if attendance increased, the cost per visitor would fall, and fall dramatically. (Of course, if attendance really boomed, the museum might need more directors. But that’s a long term decision.)

The source of this data is Wichita city budgets and performance reports. All are available on the city’s website at wichita.gov.

Cost per visitor to Wichita cultural attractions. Click for larger.
Cost per visitor to Wichita cultural attractions. Click for larger.

CID and other incentives approved in downtown Wichita

The Wichita City Council approves economic development incentives, but citizens should not be proud of the discussion and deliberation.

Today’s meeting of the Wichita City Council saw the council discuss and approve economic development incentives for a project in downtown Wichita.

The item contemplated economic development incentives for redevelopment of an empty building in downtown Wichita to become a Hilton Garden Inn Hotel. The incentives being considered were a Community Improvement District (CID), Industrial Revenue Bonds (IRB), a parking agreement, and a skywalk easement. The discussion by the council was useful for revealing two members who are opposed to some targeted economic development incentives, but it also showed a troubling lack of knowledge and consideration by others.

Property tax

The hotel is requesting industrial revenue bonds. These bonds do not mean the city is lending any money. Instead, IRBs in Kansas are a mechanism to convey property tax abatements and sales tax exemptions.

The agenda packet for this item states: “[Hotel developer] WDH is not requesting abatement of property taxes in conjunction with the IRBs.”1 This is presented as a magnanimous gesture, as something the hotel developers (WDH) could have requested, but did not, presumably out of some sort of civic duty.

But: Property tax abatements may not be granted within the boundaries of a TIF district, which this hotel is located within.2 3 So the developers did not request something that they are not entitled to request. This is not news. Nonetheless, several council members were grateful.

As to property taxes, Wichita City Council Member James Clendenin (district 3, southeast and south Wichita) asked what would be the increase in value in the building, once finished. Later Wichita City Council Member Jeff Blubaugh (district 4, south and southwest Wichita) praised the property taxes that will be paid. He also mentioned the “nearly-empty parking garage.” When the city built this garage and accompanying retail space it was to be a showpiece, but has been suffering from blight and lack of tenants paying market rates for rent.4

Asking about tax abatements, Wichita City Council Member Pete Meitzner (district 2, east Wichita) asked “They didn’t apply for other …” His voice trailed off before finishing the question, but the “other” tax abatement that could be applied for is the property tax abatement. Except, the law does not allow for a property tax abatement for this project.

All these questions alluded to the increased property taxes the renovated building will pay. Except, being within a TIF district, property taxes may not be abated. So where will the hotel’s property taxes go?

First, the property tax generated by the present value of the property (the “base”) will be distributed as before. But the increment — which will be substantial — will go to the TIF district, not the city, county, and school district. Except: This is an unusual TIF district, in that an agreement between the city and county provides that only 70 percent of the incremental property taxes will go to the TIF district, with the remainder being distributed as usual. This was not mentioned during today’s discussion.

There was talk about a “gap.” Some economic development incentives require documenting of a “financing gap” that makes the project not economically feasible. But that is not required for the incentives considered for this hotel.

Sales tax

Regarding the sales tax exemption: City document do not state how much sales tax will be forgiven, so we’re left to speculate. Previous city documents5 indicate spending $3,000,000 on furniture and fixtures, which is taxable. Sales tax on this is $225,000.

The same city document mentioned spending of $6,250,000 on construction of the hotel, and of $1,000,000 for construction of retail space. Sales tax on this combined total is $543,750. Based on material from the Kansas Department of Revenue, these amounts would be due if not for the action of the city council.6

In total, the development of this hotel will escape paying $768,750 in sales tax. It should be noted that Kansas is one of the few states that charges sales tax on groceries at the same rate as other purchases, making Kansas food sales tax among the highest in the nation.7

Curiously, council members Clendenin and Williams, who represent low-income districts where families may be struggling to buy groceries — and the sales tax on them — did not object to this special sales tax treatment for a commercial developer.

No more cash?

In his remarks, the mayor talked about how we can continue with economic development “without handing cash to corporations.” But when a project is going to buy materials and services on which $768,750 in sales tax is normally due, and the city council takes action to extinguish that liability, well, that’s better than cash to the receiver.

Good news

Kudos to Wichita City Council Member Bryan Frye (district 5, west and northwest Wichita), who actually cited the United States Constitution in his statement from the bench. He said that the issues surrounding this project are a far cry from what our Founding Fathers envisioned as the role of government, saying “I struggle with using city resources to collect and distribute sales tax for the sole benefit of one commercial entity.” He offered a substitute motion which would have approved all the parts of the agreement except for the CID tax. His motion failed, with only he and Wichita Mayor Jeff Longwell voting in favor.

On the original motion, which was to approve all parts of the incentive agreement, Longwell and Frye voted in opposition, with everyone else voting in favor.


Notes

  1. City of Wichita. Agenda packet for September 6, 2016. Available here.
  2. “Certain property, even though funded by industrial revenue bonds, does not qualify for exemption: … property located in a redevelopment project area established under K.S.A. 12-1770 et seq. cannot be exempt from taxation.” Kansas Department of Revenue. Property Tax Abatements. Available at www.ksrevenue.org/taxincent-proptaxabate.html. Also, Kansas Department of Commerce. Industrial Revenue Bond Exemptions. Available at www.kansascommerce.com/DocumentCenter/Home/View/1082.
  3. Gilmore & Bell PC. Economic Development tools. Available here.
  4. Weeks, Bob. As landlord, Wichita has a few issues. Available at https://wichitaliberty.org/wichita-government/landlord-wichita-issues/.
  5. Wichita City Council Agenda packet for August 16, 2016. Available at wichita.gov/Government/Council/Agendas/08-16-2016%20City%20Council%20Agenda%20Packet.pdf.
  6. “General rule: Materials are taxable.” (p. 4) Also: “Taxable labor services in Kansas are the services of installing, applying, servicing, repairing, altering, or maintaining tangible personal property performed on real property projects in the general category of commercial remodel work.” (p. 8) Kansas Department of Revenue. Sales & Use Tax for Contractors, Subcontractors, and Repairmen. Available at www.ksrevenue.org/pdf/pub1525.pdf.
  7. Food sales tax a point of shame for Kansas. Wichita Eagle. January 25, 2016. Available at http://www.kansas.com/opinion/editorials/article56532903.html.

Wichita has no city sales tax, except for these

There is no Wichita city retail sales tax, but the city collects tax revenue from citizens when they buy utilities, just like a sales tax.

Some Wichita city officials tout the fact that Wichita has no city sales tax, even though this is contrary to their and the city’s recommendation to voters in November 2014.

But the city has a sales tax. It’s called a “franchise fee” or “franchise tax,” depending on which city documents you’re reading. Either way, it’s just like a sales tax applied to your utility bill: gas, electric, cable television, water, sewer, or telephone.

Franchise fees collected by the City of Wichita for 2015.
Franchise fees collected by the City of Wichita for 2015.
In 2015, Wichita collected $44.3 million in franchise taxes. By comparison, the city’s share of the county-wide one cent per dollar sales tax was $58.0 million.1 Another context: In 2014 the city estimated that a one cent per dollar city sales tax would generate $80 million per year.

For 2017 the city is budgeting for $48.4 million in franchise fees.2 For 2018, $49.8 million.

What is the purpose of franchise taxes? The Wichita city budget explains: “Franchise Fees — These revenues are based on agreements between the City and local utilities. Generally, these agreements are long term and result in payments to the City of 5% of utility revenues. All franchise fee revenues are credited to the General Fund.”

The Wichita city code amplifies:

Sec. 3.93.350. — Payment of taxes — Franchise fee not a tax.
The franchise fees required herein as part of any franchise shall be in addition to, not in lieu of, all taxes, charges, assessments, licenses, fees and impositions otherwise applicable that are or may be imposed by the city, except that the franchisee shall be entitled to a credit in payment of franchise fees in the amount of any telecommunications service occupation tax due pursuant to Chapter 3.01 of this Code, as may be amended. The franchise fee is compensation for use of the right-of-way and shall in no way be deemed a tax of any kind.

Excerpt from an electric bill in Wichita.
Excerpt from an electric bill in Wichita.
There is some confusion over the naming of this concept. The city’s Comprehensive Annual Financial Report uses “franchise taxes.” The budget documents and the code shown above use “franchise fees.” Either way, this is extra money people must pay when they use utilities, as illustrated on these excerpts from electric and gas bills.

Excerpt from a gas bill in Wichita.
Excerpt from a gas bill in Wichita.
But should city residents have to pay this tax or fee? The city explains that the fee is “compensation for use of the right-of-way.” That makes sense. If someone owns something and someone else wants to use it, charging a fee is reasonable, if the parties agree.

Except: Who owns the right-of-way? The people of Wichita, of course. So our city government is charging us a tax (or fee) to use something we own. That’s clever — deviously clever. And something that only government can do.

I don’t want to give our city leaders any ideas, but when the city is complaining about not having enough revenue to fund everything it wants, it should look at franchise taxes. (Sorry, I mean fees.) While the city budget explains that the rates are the results of agreements between the utility companies and the city, why would utility companies object to an increase in franchise tax rates? They would simply pass along the tax to their customers, just as retail stores do when the state raises the sales tax rate. Certainly the water and sewer utilities would not object, as they are owned by the city.


Notes

  1. Wichita, City of. Comprehensive Annual Financial Report for Fiscal Year Ended December 31, 2015. Page A-6.
  2. City of Wichita, Kansas 2017-2018 Proposed Budget. Page 61.

CID and other incentives proposed in downtown Wichita

A proposal for a community improvement district in downtown Wichita includes a public hearing, but much information the public needs is missing.

This week the Wichita City Council will consider starting the process of creating a community improvement district and other economic development incentives. The action the council will consider Tuesday is to accept the petition of the property owners and set September 6 as the date for the public hearing. Also, on September 6, “a development agreement defining the City and Developer’s responsibilities will be presented to the City Council.”1

A community improvement district, or CID, is a geographical district in which merchants add extra sales tax, known as the CID tax. This extra tax is then routed to the property owners. CIDs may be of two types. In one, the city borrows money to give to the developers, and the CID tax repays the bonds. In the second, no money is borrowed. Instead, the CID tax is periodically remitted to the developers as it is collected. The proposed CID is of the latter type. It is proposed to collect a CID tax of 1.5 percent for up to ten years, with a limit of $930,000. (For more information about how CIDs work, see Community improvement districts in Kansas.)

City documents also state the developers will request industrial bond financing. In this case, according to city documents, the purpose of the IRBs is to avoid paying sales tax on property purchased. The developers are also requesting use of the nearby state office building parking garage, but no details are given.

A public hearing?

The September 6th meeting will include a public hearing regarding the CID, industrial revenue bonds, parking agreement, and development agreement. As of today, we have information about the CID. But we have little or no information about the other items to be considered that day, which is billed as a public hearing.

If a public hearing is to include meaningful input from the public, the city needs to provide citizens with information about these items, and soon.

Rationale

What is the need for these economic development incentives? No reason is given. Some incentive programs require that the applicant demonstrate financial necessity. In other words, if the incentive is not given, it is impossible to proceed. No such argument has been advanced for this project. And if such an argument were to be made, we have to ask why are incentives needed to develop in downtown Wichita?

Since these incentives are proposed for a hotel, supporters argue that the cost of the incentives — at least the CID — will be borne by visitors to Wichita. This development, however, will contain a rooftop bar and ground floor commercial space. To the extent that Wichitans patronize these business firms, they will pay the CID tax. Even considering only the hotel, there are many Wichita-based companies whose employees travel to Wichita, staying in hotels at their companies’ expense. Wichita companies will be paying the CID tax in these cases. They will also pay the tourism fee, even though their employees are not tourists.

Besides, we shouldn’t view visitors to Wichita as a cash cow. Visitors staying in this hotel will pay these taxes:

State of Kansas sales tax, 6.5%
Sedgwick County sales tax, 1.0%
Wichita hotel tax, 6%
City tourism fee, 2.75%2
CID tax, 1.5%

The total of these taxes is 17.75%. (Yes, Wichita does charge visitors a “tourism fee.” If Wichita voters had followed the recommendation of the city, its bureaucrats, and the political class, there would be an additional tax of one percent.3)

Finally: As with all CIDs, why don’t the merchants simply raise their prices? Part of the answer is that the CID tax goes to benefit the landowners, which may not be the same party as the merchants who collect the tax.

Other than that, it’s convenient to have someone to blame higher prices on.


Notes

  1. Wichita City Council Agenda packet for August 16, 2016. Available at wichita.gov/Government/Council/Agendas/08-16-2016%20City%20Council%20Agenda%20Packet.pdf.
  2. Weeks, Bob. Wichita seeks to add more tax to hotel bills. Available at wichitaliberty.org/wichita-government/wichita-seeks-add-tax-hotel-bills/.
  3. Ballotpedia. City of Wichita Sales Tax Measure (November 2014). Available at ballotpedia.org/City_of_Wichita_Sales_Tax_Measure_(November_2014).

Wichita water statistics update

With adequate river flow every day, the Wichita ASR water project produced water equivalent to six days design capacity during July 2016.

An important part of Wichita’s water supply infrastructure is the Aquifer Storage and Recovery program, or ASR. This is a program whereby water is taken from the Little Arkansas River, treated, and injected in the Equus Beds aquifer.1 2 That water is then available in the future as is other Equus Beds water.

With a cost so far of $247 million, the city believes that ASR is a proven technology that will provide water and drought protection for many years. In 2014 the city recommended that voters approve $250 million for its expansion, to be paid for by a sales tax.3 Voters rejected the tax in the November 2014 election.

July 2016 production

Flow of the Little Arkansas River at Valley Center. The ASR project is able to draw from the river when the flow is above 30 cfs at this measurement station. (Click charts for larger versions.)
Flow of the Little Arkansas River at Valley Center. The ASR project is able to draw from the river when the flow is above 30 cfs at this measurement station. (Click charts for larger versions.)
In July 2016, the ASR project recharged 158,770,175 gallons of water.4 The design capacity for ASR is 30,000,000 gallons per day, so production for the entire month of July was about six days design capacity. For other context, in 2015 the Wichita Water Utility produced 18,942 million gallons of water.5 The water recharged in July 2016 is 0.84 percent of this.

The ASR project is able to draw from the Little Arkansas River when the flow is above 30 cfs. As shown in the chart of the flow of the river, there was adequate river flow for ASR to operate every day of the month for July 2016. This is counting only those days when the flow was above 30 cfs for the entire day.6

ASR project background and production

According to city documents, the original capacity of the ASR phase II project to process water and pump it into the ground (the “recharge” process) was given as “Expected volume: 30 MGD for 120 days.” That translates to 3,600,000,000 (3.6 billion or 3,600 million) gallons per year. ASR phase II was completed in 2011.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative since July 2013.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative since July 2013.
At a city council workshop in April 2014, Director of Public Works and Utilities Alan King briefed the council on the history of ASR, mentioning the original belief that ASR would recharge 11,000 acre feet of water per year. But he gave a new estimate for production, telling the council that “What we’re finding is, we’re thinking we’re going to actually get 5,800 acre feet. Somewhere close to half of the original estimates.” The new estimate translates to 1,889,935,800 (1.9 billion) gallons per year.7

Based on experience, the city has produced a revised estimate of ASR production capability. What has been the actual experience of ASR? The U.S. Geological Survey has ASR figures available here. I’ve gathered the data and performed an analysis. (Click charts for larger versions.)

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase II, monthly.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase II, monthly.
I’ve produced a chart of the cumulative production of the Wichita ASR project compared with the original projections and the lower revised projections. The lines for projections rise smoothly, although it is expected that actual production is not smooth. The second phase of ASR was completed sometime in 2011, but no water was produced and recharged that year. Further, 2013 was a drought year, so to present ASR in the best possible light, I’ve prepared a chart starting in July 2013. That was when it started raining heavily, and data from USGS shows that the flow in the Little Arkansas River was much greater. Still, the ASR project is not keeping up with projections, even after goals were lowered.

On the chart of monthly production, the horizontal line represents the revised annual production projection expressed as a constant amount each month. This even rate of production is not likely, as river flow varies. In the three years that ASR phase II has been in production, that monthly target been exceeded in six months.

ASR days of flow and work through July 2016.
ASR days of flow and work through July 2016.

 ASR operating efficiency through July 2016.
ASR operating efficiency through July 2016.
Two nearby charts give an idea of the efficiency of operation of the ASR project. (Click charts for larger versions.) For each month, I counted how many days had a river flow above 30 cfs at every measurement for the day. (The flow is measured many times each day.) If a day had all measurements above 30 cfs, I counted that as a day of adequate river flow. I then calculated the number of days of work actually accomplished using the water produced each month, the number of days of adequate river flow for the month, and the ASR design capacity.

As can be seen in the charts, the ASR project is operating far below its design goal.

At one time the city was proud enough of the ASR project that it maintained an informative website at wichitawaterproject.org. That site no longer exists.
At one time the city was proud enough of the ASR project that it maintained an informative website at wichitawaterproject.org. That site no longer exists.


Notes

  1. City of Wichita. Wichita Area Future Water Supply: A Model Program for Other Municipalities. Available at www.wichita.gov/Government/Departments/PWU/UtilitiesDocuments/WICHITA%20AREA%20FUTURE%20WATER%20SUPPLY.pdf.
  2. City of Wichita. Equus Beds Aquifer Storage and Recovery Project. Available at www.wichita.gov/Government/Departments/PWU/Pages/PublicWaterSupply.aspx.
  3. City of Wichita. Plans and Background on Proposed 1 cent Sales Tax. Available at wichitaliberty.org/wp-content/uploads/2016/05/City-Sales-Tax-Information.pdf.
  4. United States Geological Survey. Equus Beds Water Recharge. Available at ks.water.usgs.gov/water-recharge.
  5. Wichita, City of. Comprehensive Annual Financial Report for Fiscal Year Ended December 31, 2015. Page J-14.
  6. United States Geological Survey. USGS 07144200 L ARKANSAS R AT VALLEY CENTER, KS. Available at waterdata.usgs.gov/usa/nwis/uv?site_no=07144200.
  7. Wichita City Council Workshop, April 8, 2014. Video available at wichitaks.granicus.com/MediaPlayer.php?view_id=2&clip_id=2548.

In Wichita, your house numbers may become illegal

House numbers that may become illegal in Wichita.
House numbers that may become illegal in Wichita.
Thousands of Wichita homeowners may soon be lawbreakers if the city council follows its staff’s recommendation.

An update is at the end of this article.

This week the Wichita City Council may make your house number illegal, even though those numbers may — literally — be set in stone. This will be the case if the council takes the action recommended by its Department of Public Works and Utilities.

Current city code requires address numbers three inches high. The proposed ordinance requires numbers four inches tall. The penalty for noncompliance is $500 per day, with each day being “a separate and distinct offence.”

Existing and proposed ordinances

The existing city code:1

Sec. 10.04.190. – Same — Duty of owner or occupant to place; size, etc.

The owner or occupant of each and every house or building in the city is required to place on the house or building, in a conspicuous place, numbers of at least three inches in height of a type to be selected by the owner or occupant, which numbers shall be in conformity with and according to the provisions of the two preceding sections of this chapter. (Ord. No. 14-491 § 2)

The proposed code.2

SECTION 10. Section 10.04.190 of the Code of the City of Wichita, Kansas, is hereby amended to read as follows:

“Duty of owner or occupant to place; size, etc.”

The owner or occupant of every house or building in the City is required to conspicuously place on the house or building house numbers of at least four (4) inches in height. Painting house numbers on the Curb alone shall not be sufficient to comply with this Section.

Such numbers shall be consistent with Sections 10.04.170 and 10.04.180. Such numbers shall be of a sufficient contrast such that police officers and firefighters can read the numbers from the abutting street. Any property owner failing to comply with this Section is guilty of a misdemeanor punishable by a fine not to exceed five hundred (500) dollars. Each day house numbers are not properly placed on the house or building is a separate and distinct offence.

Update
At its August 9 meeting, the city council deferred this item to September.


Notes

Wichita water statistics update

With adequate river flow every day, the Wichita ASR water project produced water equivalent to seven days design capacity during June 2016.

An important part of Wichita’s water supply infrastructure is the Aquifer Storage and Recovery program, or ASR. This is a program whereby water is taken from the Little Arkansas River, treated, and injected in the Equus Beds aquifer.1 2 That water is then available in the future as is other Equus Beds water.

With a cost so far of $247 million, the city believes that ASR is a proven technology that will provide water and drought protection for many years. In 2014 the city recommended that voters approve $250 million for its expansion, to be paid for by a sales tax.3 Voters rejected the tax in the November 2014 election.

June 2016 production

Flow of the Little Arkansas River at Valley Center. The ASR project is able to draw from the river when the flow is above 30 cfs at this measurement station. (Click charts for larger versions.)
Flow of the Little Arkansas River at Valley Center. The ASR project is able to draw from the river when the flow is above 30 cfs at this measurement station. (Click charts for larger versions.)
In June 2016, the ASR project recharged 194,182,850 gallons of water.4 The design capacity for ASR is 30,000,000 gallons per day, so production for the entire month of June is about seven days design capacity. For other context, in 2015 the Wichita Water Utility produced 18,942 million gallons of water.5 The water recharged in June 2016 is 1.03 percent of this.

The ASR project is able to draw from the Little Arkansas River when the flow is above 30 cfs. As shown in the chart of the flow of the river, there was adequate river flow for ASR to operate every day of the month for June 2016. This is counting only those days when the flow was above 30 cfs for the entire day.6

ASR project background and production

According to city documents, the original capacity of the ASR phase II project to process water and pump it into the ground (the “recharge” process) was given as “Expected volume: 30 MGD for 120 days.” That translates to 3,600,000,000 (3.6 billion or 3,600 million) gallons per year. ASR phase II was completed in 2011.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative since July 2013.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative since July 2013.
At a city council workshop in April 2014, Director of Public Works and Utilities Alan King briefed the council on the history of ASR, mentioning the original belief that ASR would recharge 11,000 acre feet of water per year. But he gave a new estimate for production, telling the council that “What we’re finding is, we’re thinking we’re going to actually get 5,800 acre feet. Somewhere close to half of the original estimates.” The new estimate translates to 1,889,935,800 (1.9 billion) gallons per year.7

Based on experience, the city has produced a revised estimate of ASR production capability. What has been the actual experience of ASR? The U.S. Geological Survey has ASR figures available here. I’ve gathered the data and performed an analysis. (Click charts for larger versions.)

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase II, monthly.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase II, monthly.
I’ve produced a chart of the cumulative production of the Wichita ASR project compared with the original projections and the lower revised projections. The lines for projections rise smoothly, although it is expected that actual production is not smooth. The second phase of ASR was completed sometime in 2011, but no water was produced and recharged that year. Further, 2013 was a drought year, so to present ASR in the best possible light, I’ve prepared a chart starting in July 2013. That was when it started raining heavily, and data from USGS shows that the flow in the Little Arkansas River was much greater. Still, the ASR project is not keeping up with projections, even after goals were lowered.

On the chart of monthly production, the horizontal line represents the revised annual production projection expressed as a constant amount each month. This even rate of production is not likely, as river flow varies. In the three years that ASR phase II has been in production, that monthly target been exceeded in five months.

ASR days of flow and work through June 2016.
ASR days of flow and work through June 2016.

ASR operating efficiency through June 2016.
ASR operating efficiency through June 2016.
Two nearby charts give an idea of the efficiency of operation of the ASR project. (Click charts for larger versions.) For each month, I counted how many days had a river flow above 30 cfs at every measurement for the day. (The flow is measured many times each day.) If a day had all measurements above 30 cfs, I counted that as a day of adequate river flow. I then calculated the number of days of work actually accomplished using the water produced each month, the number of days of adequate river flow for the month, and the ASR design capacity.

As can be seen in the charts, the ASR project is operating far below its design goal.

At one time the city was proud enough of the ASR project that it maintained an informative website at wichitawaterproject.org. That site no longer exists.
At one time the city was proud enough of the ASR project that it maintained an informative website at wichitawaterproject.org. That site no longer exists.


Notes

  1. City of Wichita. Wichita Area Future Water Supply: A Model Program for Other Municipalities. Available at www.wichita.gov/Government/Departments/PWU/UtilitiesDocuments/WICHITA%20AREA%20FUTURE%20WATER%20SUPPLY.pdf.
  2. City of Wichita. Equus Beds Aquifer Storage and Recovery Project. Available at www.wichita.gov/Government/Departments/PWU/Pages/PublicWaterSupply.aspx.
  3. City of Wichita. Plans and Background on Proposed 1 cent Sales Tax. Available at wichitaliberty.org/wp-content/uploads/2016/05/City-Sales-Tax-Information.pdf.
  4. United States Geological Survey. Equus Beds Water Recharge. Available at ks.water.usgs.gov/water-recharge.
  5. Wichita, City of. Comprehensive Annual Financial Report for Fiscal Year Ended December 31, 2015. Page J-14.
  6. United States Geological Survey. USGS 07144200 L ARKANSAS R AT VALLEY CENTER, KS. Available at waterdata.usgs.gov/usa/nwis/uv?site_no=07144200.
  7. Wichita City Council Workshop, April 8, 2014. Video available at wichitaks.granicus.com/MediaPlayer.php?view_id=2&clip_id=2548.

WichitaLiberty.TV: News media, hollow Kansas government, ideology vs. pragmatism

In this episode of WichitaLiberty.TV: New outlets for news, and criticism of the existing. Is Kansas government “hollowed out?” Ideology and pragmatism. View below, or click here to view at YouTube. Episode 124, broadcast July 17, 2016.

Shownotes

In Wichita, Meitzner, Clendenin sow seeds of distrust

Comments by two Wichita city council members give citizens more reasons to be cynical and distrusting of politicians.

In a recent Facebook post that someone sent to me, Wichita City Council Member Pete Meitzner (district 2, east Wichita) wrote: “Hmmmm…..of note; Wichita is the only sizable city in Kansas that does not ADD any sales tax on top of the State and Sedgwick County sales tax rate.”

Pete Meitzner sales tax Facebook 2016-07-06

It is astonishing that council member Meitzner would brag of this — that Wichita has no city sales tax. That’s because Meitzner, along with all council members but one, voted to place the sales tax measure on the November 2014 ballot. Wichita voters rejected that sales tax, with 62 percent of voters voting “No.”1

Meitzner is not the only council member to brag of no city sales tax in Wichita. Just a month after the November 2014 election in which Wichita voters rejected the sales tax, Wichita City Council Member James Clendenin (district 3, southeast and south Wichita) said, in a council meeting, “thanks to a vote we just had, [Wichita] has zero municipal sales tax.”2

I wonder: If the Wichita city sales tax had passed, would Meitzner and Clendenin feel the same way?

The answer is “No.” If the sales tax had passed, I believe Wichita city council members Pete Meitzner and James Clendenin would be congratulating themselves on the wisdom and foresight that led them to allow Wichitans to vote on the tax. They would be boasting of their ability to gauge the sentiment of public opinion. They would be proud of the investment they are making in Wichita’s future.

That’s important to remember. The city council, at its initiative, decided to place the sales tax on the ballot. Why would the council do this if it did not believe the tax was a good thing for the city?

Because if the tax would not be good for Wichita, then we have to wonder: Why did the Wichita City Council — including Pete Meitzner and James Clendenin — decide that the people of Wichita should vote on a sales tax? Was it a whim? A flight of fancy? Just a poll to gauge public opinion, without binding meaning?

Anyone can conduct a poll of public opinion. But when the Wichita city council places a measure on the ballot asking whether there should be a sales tax, the results have meaning. The results are binding. There will be a new tax, if a majority of voters agree.

Say, what should we ask the city council to let us vote on this November?

We have to ask: Why would Wichita city council members allow Wichitans to vote on a tax they didn’t — personally — believe in? There is no good answer to this question. So when we see city council members boasting of no city sales tax in Wichita, remember this was not their preference. This is especially important because the city told us we needed to spend $250 million of the tax on a new water supply. Now we know that we can satisfy our future needs by spending much less, at least $100 million less.3

Lily Tomlin once said “No matter how cynical you become, it’s never enough to keep up.” Here we have two Wichita city council members illustrating and reinforcing the truth of Tomlin’s observation.


Notes

  1. Sedgwick County Election Office. November 4th, 2014 General Election Official Results – Sedgwick County. Available at www.sedgwickcounty.org/elections/election_results/Gen14/index.html.
  2. City of Wichita. Minutes of city council meeting, December 2, 2014. Page 9.
  3. Weeks, Bob. In Wichita, the phased approach to water supply can save a bundle. wichitaliberty.org/wichita-government/wichita-phased-approach-water-supply-can-save-bundle/.

Wichita water statistics update

With adequate river flow every day, the Wichita ASR water project produced water equivalent to six days design capacity during May 2016.

An important part of Wichita’s water supply infrastructure is the Aquifer Storage and Recovery program, or ASR. This is a program whereby water is taken from the Little Arkansas River, treated, and injected in the Equus Beds aquifer.1 2 That water is then available in the future as is other Equus Beds water.

With a cost so far of $247 million, the city believes that ASR is a proven technology that will provide water and drought protection for many years. In 2014 the city recommended that voters approve $250 million for its expansion, to be paid for by a sales tax.3 Voters rejected the tax in the November 2014 election.

May 2016 production

Flow of the Little Arkansas River at Valley Center. The ASR project is able to draw from the river when the flow is above 30 cfs at this measurement station. (Click charts for larger versions.)
Flow of the Little Arkansas River at Valley Center. The ASR project is able to draw from the river when the flow is above 30 cfs at this measurement station. (Click charts for larger versions.)
In May 2016, the ASR project recharged 177,922,475 gallons of water.4 The design capacity for ASR is 30,000,000 gallons per day, so production for the entire month of May is about six days design capacity. For other context, in 2015 the Wichita Water Utility produced 18,942 million gallons of water.5 The water recharged in May 2016 is 0.94 percent of this.

The ASR project is able to draw from the Little Arkansas River when the flow is above 30 cfs. As shown in the chart of the flow of the river, for the month of May 2016, there was adequate river flow for ASR to operate every day of the month. This is counting only those days when the flow was above 30 cfs for the entire day.6

ASR project background and production

According to city documents, the original capacity of the ASR phase II project to process water and pump it into the ground (the “recharge” process) was given as “Expected volume: 30 MGD for 120 days.” That translates to 3,600,000,000 (3.6 billion or 3,600 million) gallons per year. ASR phase II was completed in 2011.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative since July 2013.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative since July 2013.
At a city council workshop in April 2014, Director of Public Works and Utilities Alan King briefed the council on the history of ASR, mentioning the original belief that ASR would recharge 11,000 acre feet of water per year. But he gave a new estimate for production, telling the council that “What we’re finding is, we’re thinking we’re going to actually get 5,800 acre feet. Somewhere close to half of the original estimates.” The new estimate translates to 1,889,935,800 (1.9 billion) gallons per year.7

Based on experience, the city has produced a revised estimate of ASR production capability. What has been the actual experience of ASR? The U.S. Geological Survey has ASR figures available here. I’ve gathered the data and performed an analysis. (Click charts for larger versions.)

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase II, monthly.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase II, monthly.
I’ve produced a chart of the cumulative production of the Wichita ASR project compared with the original projections and the lower revised projections. The lines for projections rise smoothly, although it is expected that actual production is not smooth. The second phase of ASR was completed sometime in 2011, but no water was produced and recharged that year. Further, 2013 was a drought year, so to present ASR in the best possible light, I’ve prepared a chart starting in July 2013. That was when it started raining heavily, and data from USGS shows that the flow in the Little Arkansas River was much greater. Still, the ASR project is not keeping up with projections, even after goals were lowered.

On the chart of monthly production, the horizontal line represents the revised annual production projection expressed as a constant amount each month. This even rate of production is not likely, as river flow varies. In the three years that ASR phase II has been in production, that monthly target been exceeded in four months.

ASR days of flow and work through May 2016.
ASR days of flow and work through May 2016.

ASR operating efficiency through May 2016.
ASR operating efficiency through May 2016.
Two nearby charts give an idea of the efficiency of operation of the ASR project. (Click charts for larger versions.) For each month, I counted how many days had a river flow above 30 cfs at every measurement for the day. (The flow is measured several dozen times a day.) If a day had all measurements above 30 cfs, I counted that as a day of adequate river flow. I then calculated the number of days of work actually accomplished using the water produced each month, the number of days of adequate river flow for the month, and the ASR design capacity.

As can be seen in the charts, the ASR project is operating far below its design goal.

At one time the city was proud enough of the ASR project that it maintained an informative website at wichitawaterproject.org. That site no longer exists.
At one time the city was proud enough of the ASR project that it maintained an informative website at wichitawaterproject.org. That site no longer exists.


Notes

  1. City of Wichita. Wichita Area Future Water Supply: A Model Program for Other Municipalities. Available at www.wichita.gov/Government/Departments/PWU/UtilitiesDocuments/WICHITA%20AREA%20FUTURE%20WATER%20SUPPLY.pdf.
  2. City of Wichita. Equus Beds Aquifer Storage and Recovery Project. Available at www.wichita.gov/Government/Departments/PWU/Pages/PublicWaterSupply.aspx.
  3. City of Wichita. Plans and Background on Proposed 1 cent Sales Tax. Available at wichitaliberty.org/wp-content/uploads/2016/05/City-Sales-Tax-Information.pdf.
  4. United States Geological Survey. Equus Beds Water Recharge. Available at ks.water.usgs.gov/water-recharge.
  5. Wichita, City of. Comprehensive Annual Financial Report for Fiscal Year Ended December 31, 2015. Page J-14.
  6. United States Geological Survey. USGS 07144200 L ARKANSAS R AT VALLEY CENTER, KS. Available at waterdata.usgs.gov/usa/nwis/uv?site_no=07144200.
  7. Wichita City Council Workshop, April 8, 2014. Video available at wichitaks.granicus.com/MediaPlayer.php?view_id=2&clip_id=2548.

WichitaLiberty.TV: Confusion about corruption in Wichita, regulation in Wichita, and the lowly pencil

In this episode of WichitaLiberty.TV: Citizen activists were concerned about unleashing a corrupting influence in Wichita City Hall, but they didn’t know it’s already there. Then, the regulatory landscape in Wichita. Finally, what can a pencil teach us about how the world works? View below, or click here to view at YouTube. Episode 121, broadcast June 12, 2016.

Shownotes

Regulation in Wichita, a ‘labyrinth of city processes’

Wichita offers special regulatory treatment for special circumstances, widening the gulf between the haves and have-nots.

The Wichita Eagle reports that part of what the City of Wichita is offering to Cargill as an inducement to stay in Wichita is regulatory relief.1 In particular:

The city has offered smaller incentives to Cargill as well, including an ombudsman.

[Wichita assistant city manager and director of development Scot] Rigby called the ombudsman something of a project manager.

“They’ll just call one person,” Rigby said of Cargill’s dealings with the city. “It’s a way to eliminate … a business trying to figure out, how do I get through the labyrinth of city processes?”

Rigby said the city has done this with other companies, such as Spirit AeroSystems and JR Custom Metal Products, and would do it for any company with an expansion or project that needs streamlining.

He said the city also is committed to work with the state and the Greater Wichita Partnership to create a talent recruitment position that could help Cargill and other companies recruit employees at all levels.

The city has said it would offer a 15-day turnaround instead of the customary 30 days for plan review and permits, along with a 50 percent reduction in plan review, utility and building permit fees.

Let me repeat the highlights:

labyrinth of city processes

streamlining

15-day turnaround instead of the customary 30 days

50 percent reduction in … fees

All of this is an explicit admission that City of Wichita regulations are burdensome. If not, why would the city devote time and expense to helping Cargill obtain relief from these regulations?

Further: Why do we have these regulations? If the purpose of the regulations is to protect people from harm, how can we relax or streamline them for the benefit of a few companies? Wouldn’t that expose people to the harm the regulations purportedly prevent?

What’s even worse is this: Cargill is a large company with — presumably — fleets of bureaucrats and lawyers trained to deal with burdensome government regulation. These costs can be spread across a large company. Meaning that Cargill can afford to overcome burdensome regulations.

What about the small companies that don’t have fleets of bureaucrats and lawyers? That can’t spread the costs of burdensome regulation across a large volume of business? What will the city do for these companies? This is especially important because the spirit of entrepreneurship the city wants to cultivate is most commonly found in small, young, companies. The type without fleets of bureaucrats and lawyers.

Well, the city says it would do for any company what it is doing for Cargill.

Except: How are companies supposed to know to ask for regulatory relief, streamlining, and a discount on fees?

And is it equitable to offer special companies special regulatory relief when it is not readily available for all?

Business Perceptions of the Economic Impact of State and Local Government Regulation coverLast year Kansas Policy Institute, in collaboration with the Hugo Wall School of Public Affairs at Wichita State University produced a report titled “Business Perceptions of the Economic Impact of State and Local Government Regulations.”2 On the city’s offer of special treatment to one company, KPI Vice President and Policy Director James Franko commented:

This bears out one of the key findings from a paper we did with WSU’s Hugo Wall School: Companies want transparency and simplicity in the local regulatory environment. Businesses are not as concerned about the regulation themselves as they are in navigating what the city admits is a “labyrinth” of regulations and processes.

The regulatory process should be simplified for all businesses, not just a few. Hopefully there is a realization that an “ombudsman,” or better yet a transparent, straightforward regulatory regime, should be available to anyone wanting to start or grow a business in Wichita.

Instead of the city offering regulatory relief on an as-needed, as-requested basis, why not simplify and streamline regulation for everyone? That seems to make a lot of sense. But if you were a city politician or bureaucrat, this isn’t in your best interest. If regulations are burdensome, and you — as a bureaucrat or officeholder — can offer relief, then you have power. You become important. You have the ability to grant favors and make people feel special.

But if regulations were streamlined and reformed for everyone as the city will do for Cargill, then bureaucrats and politicians would not be so powerful and important. But the people would be more free and prosperous. Think about that trade off.

An interview with James Franko of Kansas Policy Institute on the topic of regulation is on WichitaLiberty.TV here.


Notes

  1. Rengers, Carrie. City offers Cargill tax abatement, parking garage financing. Wichita Eagle, June 6, 2016. Available at www.kansas.com/news/business/article82076122.html.
  2. Kansas Policy Institute. Business Perceptions of the Economic Impact of State and Local Government Regulations. Available at kansaspolicy.org/businesses-welcome-transparent-accessible-accountable-state-local-regulations/.

Towards government transparency in Wichita: Legal notices

Kansas law requires publication of certain notices in newspapers, but cities like Wichita could also make them available in other ways that are easier to use.

Legal publications in the Wichita Eagle, occupying nearly the entire page.
Legal publications in the Wichita Eagle, occupying nearly the entire page.
Do you read the legal publications in your local newspaper? Often they are lengthy. Many pertain to just one person or company. All are supplied using ink expressed as fine print on the chemically processed flesh of dead trees.

But some legal publications are important and of interest to the general public.

Kansas law requires that many legal notices must be printed on a newspaper. That law needs to be changed. As you might imagine, newspapers resist this reform, as it might mean a loss of revenue for them. (That’s right. Newspapers don’t print these notices as a public service.)

Although the law requires publishing notices in a newspaper, it doesn’t prohibit publishing them in electronic form. If governmental agencies would make their legal publications available in ways other than the newspaper, citizens would be better served.

The City of Wichita does some posting of legal notices on its website. Under the City Clerk section, there is a page titled “Legal Notices” that holds notices of bidding opportunities. (Curiously, that page isn’t found when you search for “legal notices” on the city’s site.) So this is good, but the notices that are important to most people are not on the city’s website.

Posting all city legal notices on the city’s website would be easy to do. It would be quite inexpensive. The material is already in electronic form. The notices would become searchable through Google and other methods. Government transparency would increase. Interested parties could capture and store notices this material for their own use. Once people get used to this method of publication, it will make it easier to get state law changed.

So why doesn’t the City of Wichita post its legal notices on its website?

In Wichita, more sales tax hypocrisy

Another Wichita company that paid to persuade you to vote for higher taxes now seeks to avoid paying those taxes.

Next week the Wichita City Council will consider issuing industrial revenue bonds to benefit a local company. In Kansas, IRBs are not a loan of money from government. Instead, the bonds are a vehicle for conveying property tax abatements, and often sales tax exemptions. 1 The applicant company is Hijos, LLC/JR Custom Metal Products, Inc.

City documents give the value of abated taxes at $44,900 for the first year. Following years will probably be similar.

Besides property tax breaks, industrial revenue bonds can convey an exemption from paying sales taxes on purchases. City documents don’t state the amount of sales tax the company might avoid paying. But documents state the bonds will be used to fund capital equipment in the amount of $2,686,000. Sales tax on that is $201,450.

City documents also state this expansion will add 13 new jobs over the next five years at an average wage of $41,995.

Like several other companies that have received an exemption on paying sales tax on their purchases, 2 3 4 5 JR Custom Metals advocated for you to pay more sales tax. During the campaign for the one cent per dollar Wichita sales tax in 2014, this company contributed $1,000 to persuade voters to approve the tax.

JR Custom Metals contribution to Yes Wichita, the group that campaigned for the Wichita sales tax.
JR Custom Metals contribution to Yes Wichita, the group that campaigned for the Wichita sales tax.

But now it seeks to avoid paying all sales tax on these purchases. It has done this several times in the recent past.

The jobs are welcome. But this incident and many others like it reveal a capacity problem, which is this: We need to be creating nine jobs every day in order to make any significant progress in economic growth. 6 If it takes this much effort and the forgiveness of hundreds of thousands of dollars in taxes to create 13 jobs over five years, how much effort and subsidy will it take to create the many thousands of jobs we need to create every year?

  1. Weeks, Bob. Industrial revenue bonds in Kansas. Available at wichitaliberty.org/kansas-government/industrial-revenue-bonds-kansas/.
  2. Weeks, Bob. Spirit Aerosystems tax relief. Available at wichitaliberty.org/wichita-government/spirit-aerosystems-tax-relief/.
  3. Weeks, Bob. In Wichita, campaigning for a tax, then asking for exemption from paying. Available at wichitaliberty.org/wichita-government/campaigning-for-tax-then-asking-for-exemption-from-paying/.
  4. Weeks, Bob. In Wichita, pro-sales tax campaign group uses sales tax-exempt building as headquarters. Available at wichitaliberty.org/wichita-government/wichita-pro-sales-tax-campaign-group-uses-sales-tax-exempt-building-headquarters/.
  5. Weeks, Bob. Union Station TIF provides lessons for Wichita voters. Available at wichitaliberty.org/wichita-government/union-station-tif-provides-lessons-wichita-voters.
  6. Weeks, Bob. Wichita economic development and capacity. Available at wichitaliberty.org/wichita-government/wichita-economic-development-capacity/.

Best cities for job growth 2016

A computation of job growth in cities produces familiar results for Wichita.

NewGeography.com has released its Best Cities for Job Growth rankings for 2016. It is described as a “performance measure of job growth over the recent, medium, and longer term.” MSAs are assigned an index value calculated from job growth rates measured several ways.

Of 98 midsized MSAs, Wichita ranked 78 out of 98. That’s five spots higher in ranking from the year before. Considering all 421 MSAs, Wichita ranked 298.

Wichita’s economic development efforts need reform. The city has taken several initiatives such as forgoing cash incentives, taking a regional approach, and reorganizing its economic development agencies. In some cases, these reforms are merely window dressing. For others, the same groups of politicians, bureaucrats, and civic leaders are still in charge. We hope, somehow, that the same policies and people will produce something other than what has earned Wichita’s low ranking.