Tag Archives: Wichita city government

Wichita City Council and Cessna Aircraft Company Industrial Revenue Bonds

I received this letter written to Wichita Mayor Carlos Mayans and members of the Wichita City Council. The author makes excellent points about the harmful effects of special tax treatment for special interests. A better goal would be to work to reduce taxes for all companies and all people. This way, each company and individual can decide how to make best use of their own funds, instead of the Wichita City Council deciding for us. That is, in effect, what tax breaks like this do. It is the government deciding that resources should be allocated in a way different than how the market has decided. Our experience tells us that governments aren’t as smart as markets, and that governments almost always allocate resources inefficiently.

Mayor Carlos Mayans
Wichita City Hall
455 N. Main St.
Wichita, KS 67202

Dear Mayor Mayans:

Item 27 on the Wichita City Council’s December 12, 2006 agenda would have the city council approve a $99 million bond issuance for Cessna Aircraft Co. This is based upon the total $800 million Industrial Revenue Bonds (IRB) for Cessna Aircraft Company authorization approved earlier this year by this council.

If that is the case, the $99 million issuance (100% abatement) being sought will reduce city property tax revenues by my calculations almost $800,000 a year, or roughly $4 million to the city over five years. The total value of the tax break when all units of government are included is much larger.

That is a large tax break for Cessna Aircraft Company. This is a sizable reduction when city property tax revenues were projected at $89.5 million for 2006. According to the largest taxpayer list from the Wichita Business Journal, Cessna Aircraft Company paid $2,484,343 in property taxes in 2005. The abatement being sought is the equivalent of almost 32% of the property taxes paid by this company in 2005.

Earlier this year Mr. Jack Pelton, the President and CEO of Cessna Aircraft Company, provided public testimony in support of raising property taxes in Sedgwick County almost 10 percent. That is certainly a position that both Mr. Pelton and his company may take. According to Textron’s 2005 annual report (www.textron.com/resources/textron_annual_report_2005.pdg), the Cessna Aircraft earnings for this publicly traded company were $457 million so they could certainly afford to pay their share of this increase. In fact, they can afford to pay this tax with greater ease than almost every other Wichitan or Wichita based company.

This week Mr. Pelton and Cessna Aircraft’s ordinance for this large property tax reduction/IRB for this firm will be in you and your city council colleagues’ hands. You and your council colleagues need to know that this tax break demonstrates rank hypocrisy from both Cessna Aircraft and Mr. Pelton. This council item conflicts with Cessna’s support for higher property taxes countywide this summer. Mr. Pelton and Cessna Aircraft Company want special property tax breaks that the rest of the citizens in Wichita do not receive.

Two recent national surveys indicate that Kansas has high property taxes. The Tax Foundation (see Special Report 146, Nov. 2006) and the Small Business & Entrepreneurship Council (Small Business Survival Index 2006) have both issued reports showing that Kansas has the overall highest property taxes on a statewide basis of the five states (KS and surrounding states) in our region. Nationally, Kansas was among the top 25 percent of property taxes measured both as a percentage of income or on a per capita basis. Neighboring Oklahoma, in contrast, scored as the 4th lowest among all 50 states.

Kansas has high taxes in general and high property taxes in particular. However, the tax abatement for Cessna Aircraft does not eliminate the tax burden. This tax is shifted onto the backs of homeowners, farmers, and small and medium sized businesses in this community who lack the political clout to receive a property tax abatement. The total tax break for Cessna from all levels of Kansas government is almost $3 million a year or just under $15 million over the next five years (assuming current mill levies). Ironically, all national surveys indicate that small business is more successful in creating jobs than large firms.

So Cessna Aircraft will soon receive another special tax break. This is on top of earlier IRBs issued on their behalf by the city. Other employers will have to pay their property tax plus the share shunned by Cessna Aircraft. Cessna Aircraft’s overhead costs are reduced with the property tax abatement. As a result Cessna Aircraft is able to pay employees more and be more selective in hiring. After all, these overhead costs have been shifted onto the rest of the taxpaying community. Businesses without the property tax abatements have to pay higher overhead costs (in the form of higher property taxes) and are at a competitive disadvantage for hiring workers from within this community if they compete with Cessna (or other firms with these tax breaks) in hiring workers.

Special tax breaks for special firms hurt the smaller businesses that compete for labor against these firms. This provides a major warning sign to outside firms that might consider relocating into Wichita. These special tax breaks raise the risk and uncertainty for firms without these breaks in this community. This is a major reason why it is hard to attract firms into the Wichita market.

It is clear that Cessna Aircraft Company’s concern about high property taxes does not extend beyond the company’s property line. In addition, the cyclical nature of Cessna Aircraft’s business has meant sizable and substantial changes in the company’s employment. Despite these sizable tax breaks, Cessna’s Wichita employment is much lower in 2005 with 8,500 employees than it was five years earlier when Cessna had 12,509 employees. Cessna Aircraft’s employment figures have changed dramatically according to the Wichita Business Journal’s employment figures. The numbers change substantially annually.

That is another reason why Cessna Aircraft Company needs to shift their overhead costs onto the rest of the community. Companies that engage in widespread “hiring/firing” binges have a harder time attracting and keeping workers. This is especially true for skilled and highly educated workers. If they pay the same overhead costs as the other firms seeking Wichita area workers, they have a problem finding workers. Cessna needs to be able to offer extra wages and/or benefits to attract workers into this type of cyclical company.

There is no reason that Cessna Aircraft Company’s self imposed problems should be shifted onto Wichita area taxpayers at large. Cessna Aircraft Company has testified in support of raising property taxes in this community. The Wichita city council should reject their request for an additional property tax abatement, and welcome them into the high property tax environment that they supported in front of the Sedgwick County commission this summer. Help Cessna Aircraft Company end their policy of tax hypocrisy and their plan to shift higher taxes onto the non-abated firms and the rest of the citizens in this community.

Proposed Wichita housing code change

Thank you to John Todd for this material. John has much experience in real estate, and cares deeply about the rights of property owners.

To: Mayor Mayans and Wichita City Council members:

Subject: Comments and concerns regarding the proposed changes for the Housing Code of the city of Wichita.

The city’s housing code has problems. Here is an overview of the problems. Some suggested improvements follow.

General concerns covering the Housing Code ordinances and enforcement.

  1. Has a “crime” actually been committed if a property owner owns a property in which a board and paint separate (peel) in violation of the Housing Code? Are folks who are found in violation in front of the city’s municipal court becoming part of the growth in the population in the county jail sometimes?
  2. Is there “selective enforcement” of the existing ordinance? Does peeling paint receive the same attention in Reflection Ridge as it does in Midtown?
  3. Are city, county, and school district owned properties subject to the same code? Are code violations on government owned properties subject to no penalties?
  4. Is “blight” the cause of neighborhood crime or is the lack of enforcement of criminal activity in certain neighborhoods creating the neighborhood flight and subsequent need by property owners to secure their properties by boarding up windows and doors?
  5. Is the Municipal Environmental Court free and independent from the legislative (City Council) and executive functions (City Manager) of the City? Does the setup of the Municipal Court meet the “separation of powers” doctrine we expect from government?

Recommendations to improve Wichita housing and the city’s housing code:

  1. Reports of prospective housing code violation complaints need to be in writing with copies of the signed complaint given to the property owner and to the person reporting the alleged violation. Nothing undermines a sense of community more than government allowing one group of people to anonymously “snitch” on another group.
  2. Mediation between the aggrieved parties should be required before the complaint goes to court. The Wichita Bar Association has a system of mediation already in place.
  3. City Code Enforcement Officials should be licensed, and be required to have at least five years of prior “hands-on” building experience.
  4. Municipal Court Judges need to be elected by the people rather than appointed by the City Council. The City Council could handle this through the passage of a Charter Ordinance.
  5. Blight needs to be defined in the ordinance.
  6. City owned properties should comply with the ordinance just like privately owned property.

Here are the detailed comments on the proposed changes in the city’s housing code.

  1. Comments concerning the new term “Resident Agent” are discussed below.
  2. Section 20.04.055 The Minimum requirements for maintaining vacant dwellings.

Proposed Section 11 Vacant Structures. The phrase used to describe the material used to board windows and doors shall now in addition to having a protective coating now must be “matching the predominant color of the structure”. The question of what is a matching color leaves wide latitude on the part of the city code enforcement official deciding what is matching. Perhaps a contrasting color might be appropriate? And, perhaps after a damaging weather event, unpainted plywood or OSB board should meet the requirement?

3. Section 20.04.200 the penalty section.

Existing Section. Since the notice of violation that the city issues to a property owner refers to a “uniform criminal complaint”, perhaps the word “crime” should be added after the word “misdemeanor” or suggested “misdemeanor crime”?

Existing Section. The penalties discussed in the existing section seem adequate and allow the Municipal Court Judge what might be considered extreme additional latitude if he or she invokes the provision in the existing ordinance, “Each day that any violation of this ordinance continues shall constitute a separate offense and be punishable hereunder as a separate violation.” Also, jail time for a Municipal Court is limited to “a period of not exceeding one year”. Invoking this provision of the existing ordinance would potentially allow multiple years jail time to be assessed in excess of this maximum “not exceeding one year”.

Proposed Section. The new proposed ordinance essentially doubles existing fines. Before increasing the fines, several questions need to be answered. How is the current fine schedule working? Are convicted property owners paying the fines? What is happening to property owners who do not have the money to pay the fines? Are there property owners who are being assessed fines people who could pay for the repair of their property if they had money they are being fined to do the repair(s)? Is jail time being assessed against property owners? Who bears the costs associated with incarceration? Are the additional fines actually a new “revenue source” for the city? The new proposed ordinance also requires the “mandatory” imposition of fines by Municipal Court Judges with a provision requiring alternative community service in lieu of the fines for defendants who are financially unable to pay the fines imposed. Several questions, relating to “mandatory” and alternative “community service” for the poor need to be answered before this ordinance is passed. Don’t “mandatory” fines take away the need for judgment on the part of the Municipal Court Judge when dealing with property owner defendants in his or her court in seeking compliance with the housing code ordinance? Are there not circumstances where defendant property owners that are physically, mentally, as well as financially unable to care for their properties due to age, loss of employment, disability, or other extenuating circumstance who needs “judgment” on the part of a judge rather than mandatory fines or community service? Could not a defendant property owner be earning money to repair his or her property or actually doing the repair during the time imposed for “community service”? Does the registering of a defendant property owner’s property with the Superintendent of Central Inspection comply with “equal protection under of the law” that has been a requirement under our legal system?

Chapter 20.04.010 the Definitions are amended. The definition of “Resident Agent” is created.

Proposed Ordinance No._______Section 30.01.020 of the Code of the City of Wichita, Kansas. The responsibilities and potential liabilities of the “resident agent” might be troublesome. Would a licensed real estate broker or salesperson be exempt from this ordinance due to provisions enumerated in the Real Estate License Act? Is it legal for an agent to be held responsible for the action or inaction of his client property owner? Why would an agent be willing to take on responsibilities for the actions or inactions of his client property owner? Is this a “can of worms” for a “resident agent”?

To George Kolb, regarding urban renewal in Wichita

To Wichita City Manager George Kolb, Regarding Urban Renewal in Wichita
By Karl Peterjohn, Executive Director Kansas Taxpayers Network

Today, city government plays a large role in this city’s life. The most recent municipal budget is in the neighborhood of $1/2 billion. That massive sum does not seem to be large enough for many of the city leaders since there is now an effort underway to recreate one of the major mistakes of the 20th century: Urban Renewal.

Urban renewal was a major issue in the middle of the 20th century. Cities across the country attempted to improve and revitalize themselves using urban renewal. They wanted to improve their community and remove dilapidated and blighted properties. Despite the best of intentions, urban renewal failed. The failure took a number of forms and was very costly. Minority and low income citizens were hurt badly. Housing costs rose massively while the choices available for low income citizens were reduced. At that time, this was a national program and a significant part of the urban renewal costs were paid for by the federal government. Today, that is not the case. In addition, beneficiaries of urban renewal were often more affluent citizens who positioned themselves to take advantage of this program.

Ironically, much of the city’s land that has been provided for the east bank/Waterwalk redevelopment project in downtown Wichita was originally acquired by the city back in the urban renewal era. Cost figures on what the city paid for this land were not available when I sought that information during the public hearings over the Waterwalk project. It is a sad fact that much of this city owned land simply stagnated economically during the close to half a century that the city has exercised control over this property. In addition, the city’s need to be able to condemn private property by using eminent domain has raised the risk of property owners, diminished property rights, and made this community less competitive by expanding the public sector over the private.

Recently, the city manager and some other local leaders have been looking at establishing another layer of local government by setting up a new redevelopment authority. I heard that you were outspoken in support of this concept at the August meeting at the Hughes Center. This is the first step in recreating urban renewal in Wichita.

The presentation that the city council had June 27, 2006 indicates the close ties between the proposed redevelopment authority in the 21st century that relies upon the 1950’s era K.S.A. 17-4712 et seq. as well as 17-4757 and 12-2904 urban renewal statutes as the legal authority for creating this authority. These statutes indicate that Sedgwick County will also be involved in this new layer of local government too.

What is the city going to do to avoid repeating the numerous and myriad mistakes made roughly a half century ago?

The academic literature (a partial reading list is provided below) is clear in pointing out the mistakes and failures made with the urban renewal efforts half a century ago. A major, but unspecified, increase in taxing authority will be needed to finance this new layer of local government.

As an organization representing taxpayers, we see that the growth of local government is a major burden stifling development locally and statewide. Recent Bureau of Labor Statistics data shows that Kansas is near the bottom of the 50 states in private sector job growth. Adding a new layer of bureaucracy is likely to hurt this community’s economy, not help it.

City Manager Kolb and other proponents for a new “Redevelopment Authority” need to provide a clear road map on how this new governmental body will avoid repeating the very expensive and harmful mistakes made during the urban renewal era from the 1950’s. Citizens of Wichita need to know how this expensive new entity will be paid for. Will the city council want to pay for it with higher property taxes? Or sales taxes? Or some new tax?

Our organization’s position on raising taxes is clear: voters must be able to decide this issue at the ballot box. Let’s not make Wichita worse with more expensive red tape, bureaucracy, and resurrecting urban renewal. There are many ways to improve Wichita, but recreating urban renewal is not one of them.

Urban Renewal Reading List:
1) The Unheavenly City, Edward Banfield.
2) The Federal Bulldozer, A Critical Analysis of Urban Renewal 1949-1962, Martin Anderson.
3) The Death and Life of Great American Cities, Jane Jacobs.
4) Race and Economics, Thomas Sowell.
5) The Art of Community, Spencer MacCallum.
6) Beyond the Melting Pot, Nathan Glazer & Daniel Moynihan.
7) The Tyranny of Good Intentions, Paul C. Roberts & Lawrence M. Stratton.

Resurrecting urban renewal in Wichita?

Thank you to John Todd for this excellent article.

Resurrecting Urban Renewal in Wichita?
By John Todd

On August 22, 2006, the City of Wichita hosted a Visioneering Committee “Public Forum on Community Revitalization” featuring Mr. Richard Baron, Chairman and CEO of McCormack Baron Salazar (MBS) of St. Louis, Missouri in the Sudermann Commons Room at the Wichita State University Hughes Metropolitan Complex. An August 14, 2006 letter from City Manager George Kolb explains, “This forum is part of the City’s commitment to and participation in a prisoner reentry initiative to help transform not only the lives of returning ex-offenders, but also to transform the communities/neighborhoods into which they will return.”

Mr. Baron’s PowerPoint presentation had little to do with “prisoner reentry” into communities/neighborhoods, but rather the “evolution” of public housing from the failed government housing projects of the past in larger cities like St. Louis, Pittsburgh, and Los Angeles into the new “public-private” partnership housing projects that rely almost exclusively on loans/grants from local, state, and the federal government as well as national and local foundation support.

Council Members Carl Brewer and Sharon Fearey toured several of Mr. Baron’s MBS developments in St. Louis, were sold on what he was doing, so they invited him to Wichita for the tonight’s presentation.

Mr. Baron’s presentation explained how his company, working with government, and government money, was able to raze and rehabilitate failed government housing projects of the past that usually included city owned land and additional assembled “tax foreclosure” properties into a “mixed-income” MBS rental housing apartment units project that always included a public neighborhood K through 8 elementary school, a common swimming pool, park area, and a sprinkling of privately owned housing units. Mr. Baron indicated that his company transformed failed gang, drug, and crime infested public housing projects occupied by people with average annual income of $6,000 to “mixed-income” housing units with incomes ranging from around 35% under $10,000, with another estimated 35% from $10,000 to $30,000 and the balance above those numbers with around 1% over $100,000 per year. His company collected market rents through HUD’s Section 8 rental subsidy program. In response to a question, he said that about 40% of the total rents collected from the project came from the Section 8 subsidy. Mr. Baron indicated that most of his projects were on tracts of around 40 acres.

The public forum was held from 6-8 p.m. in Sudermann Commons Room was attended by I would estimate over 100 people including, Mayor Carlos Mayans, City Council Members, Carl Brewer, Sharon Fearey, and Bob Martz, County Commissioners Tim Norton and David Unruh, City Manager George Kolb, County Manager Bill Buchannan, a couple of state legislators along with heavy attendance from government housing staff members along with staff members from several governmental agencies and members of several Wichita Neighborhood organizations. There appeared to be widespread crowd enthusiasm and support for Mr. Baron’s presentation. However, I regrettably have to say that I think those people more closely associated with government and local neighborhood associations failed to see through Mr. Baron’s super smooth “sales” presentation. He was given over an hour of time to tout his company’s success in assembling this “new” type of “public-private” housing project that involved massive amounts of taxpayer subsidy with the implication that the key to the success of these projects was his company’s ownership and management of the projects. During questioning he did finally admit that government played a key role in the condemnation and taking of private property for his projects through their eminent domain powers.

Following Mr. Baron’s presentation, City Manager George Kolb spoke glowingly and enthusiastically to the group about the City’s plans to revitalize the Beat 44 neighborhood in northeast Wichita. At this point, Mr. Kolb failed to mention a private partner in his vision for Beat 44 revitalization, but rather a city-run project. No mention as to whether the project needed at least 40 acres to succeed, and how many houses would be razed for the cities project. Mr. Kolb indicated that the Beat 44 project would be a “model” for other city housing revitalization projects. Mr. Kolb did hint of “public takings” if needed to clean up the area, and he admitted to me after the meeting that he was a strong supporter of the City’s ability to use of its eminent domain power in those takings.

I find it interesting to note that The Wichita Eagle has already started their support for the City’s neighborhood revitalization program with their recent front-page “blight” story. Earlier this year they printed an opinion letter from City Manager Kolb imploring the legislature to “either defeat the proposed (eminent domain) legislation or find a compromise that honors the tradition of eminent domain.” In that same April 9, 2006 newspaper, the editorial board agreed with the City Manager, “…it is important for the city to preserve its condemnation authority, which could be threatened by legislative efforts to curtail the use of eminent domain.” Since Mr. Kolb and the editorial staff have so little regard for private property protection, I wonder if the newspaper would have any problem with a city ordinance that would from time to time limit the Eagle’s freedom of the press in cases where a reporter was writing unfavorable articles about the City of Wichita that were having a “detrimental” impact on the collective “economic well being” of this community. Surely, the collective health of this community outweighs one individual reporter’s freedom to write anything in the newspaper that is not in the community’s best interest. This argument sounds like the same rational the newspaper uses to justify the taking of private property from an individual for the collective good of the community. Perhaps Mr. Kolb can convince the City Council to pass such an ordinance with the understanding that we can “trust” the city to use its power to curb the free press sparingly and city officials will always exercise “good judgment” in their use of this power. The Kansas League of Municipalities used this same “trust” argument before a legislative committee last spring in their efforts to stop the legislature from passing needed private property protection through meaningful eminent domain reform.

In deference to Mr. Baron’s approach to the new public housing projects his company is involved in, the key to his company’s financial success appears to me to be their ability to gather “public” money and then apply “private” ownership and management skills with an interest in their companies bottom line “profit.” Judging from the PowerPoint presentation, his company appears to be applying sound business skills that are necessary for a project to be financially successful. I hear that our City Manager Mr. Kolb is working to form a “Housing Authority” with limited supervision by the City Council. Kolb will be the leader of the group that owns and manages the new housing development that is being proposed in the Beat 44 neighborhood. The lack of the “profit” motive with the inherent lack personal financial “risks” makes me suspect of the ability of the new “Housing Authority” to be successful in their so-called housing revitalization. This proposal resurrects the failed urban renewal policies of the 1950’s and 1960’s.

There are several questions that I have been unable to obtain answers for after several attempts in calling Mr. Baron’s office. How are the housing projects titled? Private company? Public entity? Public-private partnership ownership entity? Non-profit entity? And, does the project pay property taxes? Have TIF’s (Tax increment financing) been used?

A public or private downtown Wichita arena, which is desirable?

(From October, 2004)

Image what our town could be like if the Wichita downtown arena vote fails and Sedgwick County Commissioners put aside for a moment their plans for the renovation of the Kansas Coliseum.

Suppose, instead, that arena supporters, along with those who would vote yes for the sales tax and anyone else who wants to, formed a corporation to build and own an arena.

Instead of having paid taxes to government, arena supporters would be investors. They would own something: their shares in the arena. They would have the pride and responsibility that comes with ownership. They would have a financial stake in its success. Even taxpayer-funded arena opponents might see merit in investing in a local business rather than paying taxes.

Instead of politicians and bureaucrats deciding what the people of our town want and need, a privately owned arena would be subject to the guidance and discipline of markets. It would either provide a valuable service to its customers and stay in business, or it would fail to do that and it would go out of business. Governments do not have such a powerful incentive to meet the needs of their constituents.

Instead of the bitter feelings dividing this town over the issue of a taxpayer-funded arena and other perceived governmental missteps, the arena corporation would act in the best interests of its shareholders and customers. Even if it didn’t, it wouldn’t be the public’s business, because after all, the corporation is formed of private individuals investing their own money.

When individuals invest in an arena they are nurturing the virtues of investment, thrift, industry, risk-taking, and entrepreneurship, Wichita having an especially proud tradition of the last. There is nothing noble about politicians spending someone else’s money on projects like a downtown arena, or a renovated Kansas Coliseum for that matter.

At this time in our town we have a chance to let private initiative and free markets work, or we can allow government to continue to provide for us in ways that few seem truly satisfied with. Writing about a public utility in England that was transferred to private enterprise, economist John Blundell observed:

When it was “public” it was very private. Indeed, it was totally captured by a small band of bureaucrats. Even members of Parliament struggled to find out what was going on. No proper accounts were produced, and with a complete lack of market signals, managers were clueless as to the correct course to take. The greatest casualty was a lack of long-term capital investment.

Now it is “private” and very public. Not just public in the sense of open, but also in the sense of accountable directly to its shareholders and customers. Copious reports and accounts are available and questioning citizens will find their concerns taken very seriously indeed.

If we allow the government instead of private enterprise to build a new arena or to renovate the Kansas Coliseum, this is the opportunity we lose.

Tax increment financing in Wichita benefits few

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Consider carefully costs of a new Wichita airport terminal

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Remarks to Wichita City Council Regarding the AirTran Subsidy on July 11, 2006

Mr. Mayor, Members of the City Council:

You may recall that I have spoken to this body in years past expressing my opposition to the AirTran subsidy. At that time we were told that the subsidy was intended to be a short-tem measure. Today, four years after the start of the subsidy, with state funding planned for the next five years, it looks as though it is a permanent fixture.

Supporters of the subsidy have made a variety of claims in its support: that the subsidy and the accompanying Fair Fares program are responsible for $4.8 billion in economic impact, that being a pioneer in subsidizing airlines is equivalent to the role that Kansas played in the years immediately prior to the Civil War, and that we would have a mass exodus of companies leaving Wichita if the subsidy were to end.

I believe there is no doubt that fares are lower than what they would be if not for the subsidy. That points to the subsidy’s true achievement: government-imposed price controls. Its effect is to force many airlines to price their Wichita fares lower than they would otherwise. If it didn’t do that, there would be no reason to continue the subsidy.

Economists tell us — and human behavior confirms — that when the price of any good is held lower than it would be in a free market, the result is a reduction in the quantity supplied.

We see this happening. Earlier this year the Wichita Eagle reported that there are fewer daily flights supplied to and from Wichita, from 56 last year to 42 at the time of the article. It has been explained that the financial woes of Delta and NWA are to blame for this reduction. This is demonstrably false, as NWA recently added a daily flight to Wichita, and both airlines have added (and dropped) flights on many routes while in bankruptcy. Furthermore, even though in bankruptcy, theses airlines still desire to operate as profitably as possible.

Now we learn that the legacy airlines — those established, older airlines that take pride in their comprehensive nationwide networks of routes — are revising their strategies. A Wall Street Journal article from earlier this year (“Major Airlines Fuel a Recovery By Grounding Unprofitable Flights” published on June 5, 2006) tells us that the legacy airlines are beginning to look at the profitability of each route and flight. They are not as interested as they have been in providing flights just for the sake of having a complete nationwide network.

When we couple this change in airline strategy with our local price controls, I believe that we in Wichita are in danger of losing more service from the legacy airlines. If AirTran — a new-generation airline with low labor costs — can’t earn a profit on its Wichita route at the fares it charges, how can the legacy airlines be expected to do so? And if they can’t earn a profit on a flight to or from Wichita, and if they are beginning to scrutinize the profitability of each flight, can we expect them to continue providing service in Wichita?

No government has ever been able to successfully impose price controls without the people suffering harmful consequences. As economist Thomas Sowell wrote in a 2005 column:

Prices are perhaps the most misunderstood thing in economics. Whenever prices are “too high” — whether these are prices of medicines or of gasoline or all sorts of other things — many people think the answer is for the government to force those prices down.

It so happens there is a history of price controls and their consequences in countries around the world, going back literally thousands of years. But most people who advocate price controls are as unaware of, and uninterested in, that history as I was in the law of gravity.

Prices are not just arbitrary numbers plucked out of the air or numbers dependent on whether sellers are “greedy” or not. In the competition of the marketplace, prices are signals that convey underlying realities about relative scarcities and relative costs of production.

Those underlying realities are not changed in the slightest by price controls. You might as well try to deal with someone’s fever by putting the thermometer in cold water to lower the reading.

This is my fear, that someday I will open the newspaper and learn that American, United, Delta, Northwest, or Continental has reduced or even ceased service to and from Wichita. That day, when it becomes difficult to travel to or from Wichita at any price, that is the day we will feel the harm the subsidy causes.

On a personal level, my job as software engineer requires me to make from ten to twenty airline trips each year. Some of the places I travel to — Jackson, Mississippi and Lexington, Kentucky, for example — are not served by AirTran. If I am not able to travel there, no matter what the price, I will either have to find a different job or move from Wichita.

Mr. Mayor and Council Members, I urge you to reconsider your support of the AirTran subsidy. Even though the legislature and governor have agreed to pay for most of the subsidy, I believe the subsidy is not in our long-term interest. We need to let the price system, operating in a free market, do its job in guiding the allocation of scarce resources for both producers and consumers. The result may be more expensive fares. The alternative, which is the very real possibility of greatly reduced service to and from Wichita, is much more harmful.

Other Voice For Liberty in Wichita articles on this topic:

The AirTran Subsidy and its Unseen Effects
As Expected, Price Controls Harm Wichita Travelers
AirTran Subsidy Is Harmful
Wichita City Council Meeting, April 19, 2005
Wichita Eagle Says “AirTran Subsidies Foster Competition”
AirTran Subsidy Remarks
The Downside of Being the Air Cap by Harry R. Clements. This article makes a striking conclusion as to why airfares in Wichita were so high.
Letter to County Commissioners Regarding AirTran Subsidy
Open Letter to Wichita City Council Regarding AirTran Subsidy
Stretching Figures Strains Credibility

Reporting on Wichita’s new terminal

A Wichita Eagle article published on June 29, 2006 explores the need for a new terminal at the Wichita Airport. I have some issues with the reporting in this article, as it is quite biased in favor of those advocating the new terminal. When you combine people eager to spend others’ money with sloppy newspaper reporting we have a situation where reason — not to mention sanity — is not likely to prevail.

An example of the sloppy reporting is when it is noted that the existing terminal was dedicated in 1954, and the director of airports is quoted as saying the terminal “is functionally obsolete.” Never mind that the terminal has been expanded greatly and reworked and remodeled several times since then. Now I can understand the director of airports wanting a shiny new terminal to work in, perhaps even to be named for him after he retires. Neither is a good reason for building it, however.

Advocates for a new terminal say we need one because the present terminal “Doesn’t have space for adequate security.” If this defect is actually present, I recommend we close the airport immediately! We can’t have an airport without adequate security. I hope no one from out of town — certainly no terrorists, at least — is reading this article.

In the article, a photograph was captioned “Fliers must wait in line at the ticketing counter, then in another line at the checkpoint. A larger terminal, officials say, would lessen crowding.” I might ask, is there any airport where there are not separate lines for ticketing and security? Or are there plans for airports to be built that integrate check in and security? I realize that newspaper reporters are merely quoting someone, but to print a statement like this implies that a new terminal will somehow fix this problem.

Also, many people today check in at home or office through the airlines’ websites, and therefore are able to bypass the ticket counter entirely if they don’t have checked baggage.

Another photograph was captioned “The baggage claim area can get crowded very quickly, airport officials say, and there is no space available in the existing terminal to expand it.” I might remark that the baggage claim area is crowded not with travelers, but with the people who came to greet them. This is also a problem at the Wichita airport as arriving passengers depart the secure area. The throng of greeters makes it difficult to get by, sometimes. But a little remodeling might fix this.

Also, advocates say the present airport “Doesn’t give visitors a good first impression of the city.” I guess whether this is true or not depends on one’s viewpoint. When I travel, I appreciate facilities that look like they were built economically and are operated efficiently, as I know it is I, the traveler and taxpayer, who pays for these things.

Advocates claim that no local tax money will be spent to build a new terminal. They may be correct. But someone has to pay for it, be it the federal taxpayer or Wichita Airport user, and there is bound to be much local tax money spent on infrastructure improvements surrounding a new terminal. If airline tickets were itemized like hotel bills and rental car bills, showing the various taxes and charges that fliers pay, we would be more aware of who will pay, and how they will pay, for a new terminal.

We should also remember that travelers to our city pay a lot of tax. As I travel, I am very aware of the huge taxes I pay when I use hotels and rental cars. As an example, a recent hotel bill in Pennsylvania with a room rate of $109 swelled to $124 with taxes. A car rental bill there for $409 really cost $532 after taxes, fees, and other charges imposed by local governments, taxing authorities, and airports. Many local governments, ours included, use these taxes to painlessly raise revenue, they say, as locals rarely pay them. But visitors do pay them, and they leave a bitter impression about the local governments that levy them.

What’s Good for Gander Not Good For Goose

The July, 2006 issue of Budget & Tax News reports that Gander Mountain is opposing the giving of tax breaks to its competitors. A quote from the article:

Fairness Is Questioned

However, Gander Mountain and its developer, Oppidan Investment Co., argue granting special favors to any one retailer leads down a slippery slope. “If you give [a tax break] to a Wal-Mart, should you give it to Target? If you give it to Home Depot, then should you give it to Lowe’s? And if you give it to Bass Pro, shouldn’t you give it to Cabela’s and Gander Mountain? How about we just don’t give it to anybody?” Oppidan CEO Mike Ayers said to the Toledo Blade for a March 22 article.

When the CEO of Gander Mountain was asked why the company doesn’t take subsidies he replied:

We believe in the American system of free enterprise and consider these demands to be anti-competitive and fundamentally inappropriate. We cannot in good conscience go down that road and maintain our integrity as a good corporate citizen. We think it’s wrong. So we are unwilling to accept the “everyone is doing it” argument and become part of the problem./blockquote>

More from the Gander Mountain CEO:

Resources that could be used for education or true economic development are being wasted on private retail developments. Communities have been paying big money to bring in low-paying retail jobs. Buda, Texas, for instance, gave Cabela’s subsidies worth $61 million, or about $271,000 for every full-time job, according to our estimates. Reno, Nevada spent $54 million, or $208,000 for every job. It also should be noted that incentives to lure retail into a community often do harm to businesses already located in the area. Local stores and other national firms like Gander Mountain, who don’t seek subsidies, are placed at a competitive disadvantage by this practice. Studies have also demonstrated that the promises of increased revenue, jobs, and economic growth are seldom fulfilled.

I was quite astonished to read these articles, as Gander Mountain certainly received a lot of aid from Wichita. To be precise, I believe the aid that Wichita gave to Gander Mountain was not in the form of a tax break. Nor was it a subsidy, if by subsidy we mean an ongoing series of payments.

Instead, Gander Mountain received an outright gift from our city and a sweetheart lease. Now that this company has apparently changed its mind about receiving government handouts, should Wichita ask for its money back?

Update, July 8, 2006

I received a communication from a representative of Gander Mountain seeking to correct a mistake I made in this article. It was the developers of WaterWalk, not Gander Mountain directly, that received the subsidy from the City of Wichita. That subsidy undoubtedly let the developers offer Gander Mountain an “attractive lease rate,” as the Gander Mountain representative wrote.

I apologize for this mistake. It is, in my opinion, a distinction without a difference. Giving money to one party so that they can give it to another is still a subsidy, and the introduction of a middleman probably added to what the city had to pay.

Also, the City of Wichita built a parking garage for the use of Gander Mountain customers, as well as customers of other businesses, should any appear. This was reported to cost $2.1 million.

What to do with others’ money

Writing from Pittsburgh, Pennsylvania

In a June 20, 2006 Wichita Eagle editorial, Rhonda Holman writes about the WaterWalk project in Wichita.

Evidently there is controversy over the public not knowing the name of the “destination restaurant” that is being courted and favored with a gift of $1 million. To me, the controversy is not the identify of the restaurant or when and how the city should conduct its negotiations, but that we are paying for a restaurant to be built.

We are not lacking for fine restaurants in Wichita. On both the east and west sides of town (and other parts, too), many excellent restaurants have been opened recently, and more are being built as I write. The Eagle has even reported on their astonishment at how many there are.

The problem is, I believe, that these restaurants were not built where Ms. Holman and our local government leaders feel they should have been built. But that’s not a problem, except to her and them.

The people who built these restaurants did so by investing their own money, or the money that others entrusted to them. These people did so voluntarily. They presumably built their restaurants where they thought they could earn the best return on their investment. And having invested several million dollars of their own money in the restaurant, they have a strong incentive to make the restaurant a success.

But that’s not good enough for Ms. Holman. Evidently she does not appreciate the sacrifice that people have made in order to accumulate the funds needed to make these spectacular investments. She may not be aware of — or maybe she does not respect or value — the tremendous effort and work it takes to run a successful restaurant.

Just because these people did not build their restaurants where she (and our local government leaders) thought they should have been built, she wants to tax them — and the rest of us, too — and give the proceeds of that tax to a new competitor.

Is this the type of behavior by our local government and our town’s leading newspaper that is likely to lead to other new private investment?

Ms. Holman’s editorial stance, along with the actions of our local government leaders, constitute a slap in the fact for those who have been foolish enough (we can now conclude this) to invest money in any industry in which the government is likely to set up their competitor.

This harmful attitude is summarized in this plea to get the WaterWalk project moving faster, “… so that citizens not only can see where their money is going but also soon start enjoying more of their investment.”

Making an investment, I might remind Ms. Holman, is something that people do voluntarily because they believe it is in their interest.

The WaterWalk project and the new downtown restaurant are being paid for by taxes. The expenditure is being made to serve the interests of politicians, subsidized developers, and people like Ms. Holman who believe they know best what to do with others’ money. There is a tremendous difference between the two.

The AirTran subsidy and its unseen effects

Writing from Natchez, Mississippi

In a June 16, 2006 column, Wichita Eagle editorial writer Rhonda Holman again congratulates local and state government for its success in renewing the AirTran subsidy, and for getting the entire state of Kansas to help for it.

We should take a moment to understand, however, that while the allure of the subsidy is undeniable, it may eventually extract a high price on Wichita. Currently, the legacy airlines provide service to Wichita and other small markets partly because they feel a duty to provide comprehensive, nationwide service. But that may be changing. In an article titled “Major Airlines Fuel a Recovery By Grounding Unprofitable Flights” from the June 5, 2006 Wall Street Journal, we learn that this may change:

The big carriers, which for decades have doggedly pursued market share at any cost, now are focusing just as aggressively on the profitability of each route and flight.

The so-called legacy carriers — those like American Airlines and Delta Air Lines, with big pension and other obligations that predate the industry’s deregulation in 1978 — have abandoned many of the tactics that have led to their cyclical weakness. They are increasingly unwilling to fly half-empty aircraft to stay competitive on a given route just for the sake of feeding their nationwide networks.

As I have written before, if AirTran — one of the newer airlines without the baggage of high costs that plague the legacy airlines — can’t earn a profit on its service to Wichita, it may be that other airlines are not, either. This article tells us that we may be in danger of losing the service of the legacy airlines. And, as I have written earlier, there are a great many destinations you can’t get to on AirTran.

(The same article also tells us that during much of the time of the subsidy, airfares were falling nationwide anyway: “… the Air Travel Price Index, a quarterly measure of changes in airfares, rose 9.1% in the fourth quarter of last year from a five-year low a year earlier.” So we might have had lower fares even without the subsidy. Of course, we can’t know that, just as subsidy advocates can’t know how much we’ve saved from the subsidy, no matter what they may say.)

Our local government leaders simply do not have the knowledge needed to successfully run a planned economy, which, in essence, is what they are doing when they apply price controls to the airfare market in Wichita. That’s right. The subsidy is a form of price controls. After all, if the subsidy didn’t serve to reduce the price of airfare, what would be its reason for existence?

No government has ever been able successfully impose price controls without the people suffering harmful consequences. As economist Thomas Sowell wrote in a 2005 column:

Prices are perhaps the most misunderstood thing in economics. Whenever prices are “too high” — whether these are prices of medicines or of gasoline or all sorts of other things — many people think the answer is for the government to force those prices down.

It so happens there is a history of price controls and their consequences in countries around the world, going back literally thousands of years. But most people who advocate price controls are as unaware of, and uninterested in, that history as I was in the law of gravity.

Prices are not just arbitrary numbers plucked out of the air or numbers dependent on whether sellers are “greedy” or not. In the competition of the marketplace, prices are signals that convey underlying realities about relative scarcities and relative costs of production.

Those underlying realities are not changed in the slightest by price controls. You might as well try to deal with someone’s fever by putting the thermometer in cold water to lower the reading.

Municipal transit used to be privately owned in many cities, until local politicians’ control of fares kept those fares too low to buy and maintain buses and trolleys, and replace them as they wore out. The costs of doing these things were not reduced in the slightest by refusing to let the fares cover those costs.

All that happened was that municipal transit services deteriorated and taxpayers ended up paying through the nose as city governments took over from transit companies that they had driven out of business — and government usually did a worse job.

The immediate effect of the subsidy is a drop in airfares. The long-term effects, the effects that we can’t really see right now (even though the number of daily flights to and from Wichita has decreased in the last year) are unknown, but are likely to be quite bad for our town. These unseen effects of a policy are important, and, being unseen, are hard to spot, even if you’re looking. Frederic Bastiat, in his pamphlet titled “That Which is Seen, and That Which is Not Seen” http://bastiat.org/en/twisatwins.html said this:

Between a good and a bad economist this cons
titutes the whole difference — the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, — at the risk of a small present evil.

Henry Hazlitt writes of the fallacy of unseen effects, but realizes they are often obfuscated by “the special pleading of selfish interests.”

Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine — the special pleading of selfish interests. While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for then plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.

We must hope that the legacy airlines choose to continue their service to and from Wichita, in spite of our government’s action.

Arts funding in Wichita produces controversy

As local government tries to decide which arts and cultural institutions are to receive government funds, controversy arises. A June 8, 2006 Wichita Eagle article titled “Arts panel biases alleged” tells how some funding applicants are upset that some of the members of the funding committee have ties to organizations that also applied for funds. In an editorial titled “Let Arts Funding Work” published in the June 10, 2006 Wichita Eagle, Rhonda Holman writes “The process may not be perfect, but it’s a precious opportunity for public dollars to be invested in the arts and attractions in a merit-based way that’s fair, open and accountable.”

Later Ms. Holman makes the case that it is desirable to have experts decide how to allocate taxpayer funds amongst the various organizations that have applied. The old method, she writes, had no “scrutiny or oversight.” She pleads for the public not to lose faith in this new system of deciding who gets what.

As I wrote in the past (Let Markets Fund Arts and Culture, How to Decide Arts Funding) there is a very simple way to decide which arts and cultural organizations are worthy of receiving funds: simply stop government funding. Let the people freely decide, though the mechanism of markets rather than government decree, which organizations they prefer.

When people spend their own money on arts and culture there is no controversy. There can be no allegations of bias. But government spending always creates controversy. Someone is upset that they didn’t get as much as someone else. People who don’t or can’t use what the government-supported organizations provide are upset they have to pay for it. Much misguided effort goes into making the funding decisions. Instead of working to create and refine their product, arts organizations have to lobby politicians and commissions for funds.

In the end, the public gets what the commission decrees, instead of what they really want.

If arts and cultural organizations forgo government funding, they will learn very quickly if they are producing a product the public really wants. If they aren’t, they will have a powerful motivating factor to change.

It may turn out that what people really want for arts and culture, as expressed by their selections made in a free market, might be different from what a commission decides we should have. That freedom to choose, it seems to me, is something that our Wichita City Council, Arts Council, and Wichita Eagle editorial writers believe the public isn’t informed or responsible enough to enjoy.

Let markets fund arts and culture

Writing from Miami, Florida

Former Wichita City Council member and present Arts Council chairwoman Joan Cole wrote an article titled “City needs dedicated arts funding” that appeared in the March 16, 2006 Wichita Eagle. This article advocates continued and increased government funding for arts in Wichita.

In her article Mrs. Cole mentions a policy that she seems to approve of: “Moreover, for the first time, performance measures and desired outcomes will be used to assess the progress that these organizations demonstrate.” The organizations are the various groups that will receive funding from the City of Wichita.

I do not know how these performance measures are counted, and I don’t know what outcomes are desired. But I do know this: if the government would stop funding arts, there would be no need for government-mandated performance measures, and the outcomes that occur would be precisely what people really want.

Without government funding, organizations that provide culture and art will have to satisfy their customers by providing products that people really want. That is, products that people are willing to pay for themselves, not what people say they want when someone else is paying the bill. With government funding, these organizations don’t have to face the discipline of the market. They can largely ignore what their customers really want. They can provide what they think their customers want, or, as I suspect is the case, what they believe the people of Wichita should want, if only we were as enlightened as we should be.

Without the discipline of the market, these organizations will never know how their customers truly value their product. The safety net of government funding allows them to escape this reality. We have seen this many times in Wichita and Sedgwick County recently, as organizations fail to generate enough revenue to cover their costs, only to be bailed out by the government. Other businesses learn very quickly what their customers really want — that is, what their customers are willing to pay for — or they go out of business. That’s the profit and loss system. It provides all the feedback we need to determine whether an organization is meeting its customers’ desires.

Some say that without government support there wouldn’t be any arts or museums, and that art shouldn’t be subject to the harsh discipline of markets. Personally, I believe there is little doubt that art improves our lives. If we had more art and music, I feel we would have a better city. But asking government commissions to judge what art we should have is not the way to provide it. Instead, let the people tell us, through the mechanism of markets, what art and culture they really want.

It might turn out that what people want is different than from what Arts Council members believe the people should want. Would that be a surprise? Not to me. Then we could disband the Arts Council and let people decide on their own, without government intervention, how to spend their personal arts budgets on what they really value.

AirTran subsidy is harmful

(This is a longer version of my opinion piece that appeared in The Wichita Eagle last week.)

From the beginning, we in the Wichita area have been told each year that the AirTran subsidy was intended as a temporary measure, that soon AirTran would be able to stand on its own, and there will be no need to continue the subsidy. Mayor Mayans said as much last year, and so did City Manager Kolb this year.

But State Senator Carolyn McGinn, R-Sedgwick, on a recent television program, may have made a revealing slip when she referred to the AirTran subsidy as a “pilot program.” Now that the subsidy appears to be a permanent requirement, funded locally and perhaps statewide, we should ask ourselves if this subsidy is in our best interests.

The benefits of the subsidy are regularly overstated — and sometimes by huge amounts. In 2004, the Chairman of Fair Fares claimed that the Fair Fares program was worth $4.8 billion in economic benefit to the state. No reasonable analysis could make a conclusion that the benefit is as large as this.

Last year, the present Chairman of Fair Fares spoke before the Wichita City Council and equated what Wichita is doing to pricing in the airline industry with the role that Kansas played in the years before the Civil War. It hardly seems worth noting that one struggle was against the immoral institution of slavery; the other is a taxpayer-funded effort to override the natural workings of free markets.

Yes, it is undeniable. Low airfares are preferred over high airfares, and it is probably true that airfares are lower than what they would be without the subsidy. But the airline industry is changing. As an example, carriers tell us they have eliminated or reduced the very high fares for walkup ticket purchases. We simply do not know what airfares would be in Wichita if there had not been the subsidy, so any estimate of how much has been saved is merely a guess.

The harm the subsidy causes reveals itself in several ways. We may have less air service in Wichita due to the subsidy. Last year Delta canceled seven important daily flights. Was this in retaliation for Wichita’s decision to not subsidize Delta, as some claim? Or was it the law of supply and demand expressing itself: that when the price of something is lowered (lowering prices is the desired effect of the subsidy), less is supplied. There are fewer daily flights supplied to and from Wichita, from 56 last year to 42 today. As the subsidy lowers the price that airlines may charge for tickets but doesn’t do anything to reduce the costs of providing service, we should not be surprised to see more reductions in service.

Backers of the subsidy claim it is necessary to keep businesses from leaving and to attract new businesses to our area. We should consider the converse: have businesses considered Wichita, and seeing a meddlesome local government, one that picks and chooses winners and losers, decided not to locate here?

Local lawmakers abandon their principles to back the subsidy. Last year a Sedgwick County Commissioner assured me that he was a “free market” thinker, but was backing the subsidy nonetheless. Local business leaders, some who consider themselves believers in free markets, back the subsidy and have even formed private fundraising efforts to augment the subsidy.

Consider this: if a subsidy is good for economic development, why shouldn’t we try the subsidy approach with other businesses? If we feel that, say, advertising rates in Wichita are too high, why doesn’t the city select one local television station and subsidize its operations, thereby compelling other stations to match the subsidized price? Or to help people with something that really hits home, why not grant a subsidy to one chain of grocery stores so that other stores have to lower their prices? Or in the case of a monopoly such as a local daily newspaper, why doesn’t the city or county fund a startup to supply competition? I think most Wichitans would consider these measures extreme and contrary to fairness. I find it difficult, though, to differentiate these actions from the AirTran subsidy.

Whether to continue funding the AirTran subsidy is a bright line that we can choose to cross or not. On one side we see low airfares, and those airfares are highly visible. What we may not see as easily is the cost of a permanent expansion of government, government that intrudes increasingly on our lives and liberties. We also may not notice the loss of valuable information that prices in a free market supply, and without those price cues, we will not recognize the misallocation of capital and resources that follows.

On the other side of the line is the harsh realization that Wichita has factors such as low population that work against low airfares. On this side, however, we will find liberty and free markets. You will find me on this side, lonely though it is.

Public Access, or lack there of

Dear Bob’s Blog, I recently moved to wichita from chicago… a while b4 i decided to move I had completed my Comcast public access certification. Comcast is basicaly the equivalence to Cox here. Un / Fortunately I was unable to put it to any good use while in Chicago due to some circumstances…. however I was searchin around the web and came across your blog entry on the lack of public acess for the public here in wichita. I wondered if you had any luck with your letter and/or knew any sources of information on the subject. I would be willing to put forth some effort in helping our voice be heard…

Local economic development in Wichita

Writing from Memphis, Tennessee

Today’s Wichita Eagle (November 5, 2005) tells us of a new economic development package that our local governments have given to induce a call center to locate in Wichita. The deal is described as “one of the biggest the two-year-old economic development coalition [Greater Wichita Economic Development Coalition] has landed.”

There is an interesting academic paper titled “The Failures of Economic Development Incentives,” published in Journal of the American Planning Association, and which can be read here: www.planning.org/japa/pdf/04winterecondev.pdf. A few quotes from the study:

Given the weak effects of incentives on the location choices of businesses at the interstate level, state governments and their local governments in the aggregate probably lose far more revenue, by cutting taxes to firms that would have located in that state anyway than they gain from the few firms induced to change location.

On the three major questions — Do economic development incentives create new jobs? Are those jobs taken by targeted populations in targeted places? Are incentives, at worst, only moderately revenue negative? — traditional economic development incentives do not fare well. It is possible that incentives do induce significant new growth, that the beneficiaries of that growth are mainly those who have greatest difficulty in the labor market, and that both states and local governments benefit fiscally from that growth. But after decades of policy experimentation and literally hundreds of scholarly studies, none of these claims is clearly substantiated. Indeed, as we have argued in this article, there is a good chance that all of these claims are false.

The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering their expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government — providing the foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.

On the surface of things, to the average person, it would seem that spending to attract new businesses makes a lot of sense. It’s a win-win deal, backers say. Everyone benefits. This is why it appeals so to politicians. It lets them trumpet their achievements doing something that no one should reasonably disagree with. After all, who could be against jobs and prosperity? But the evidence that these schemes work is lacking, as this article shows.

Close to Wichita we have the town of Lawrence, which has recently realized that it as been, well, bamboozled? A September 29, 2005 Lawrence Journal-World article (“Firms must earn tax incentives”) tell us: “Even with these generous standards for compliance, to have 13 out of 17 partnerships fail [to live up to promised economic activity levels] indicates that the city has received poor guidance in its economic development activities.” Further: “The most disconcerting fact is that Lawrence would probably have gained nearly all of the jobs generated by these firms without giving away wasteful tax breaks.”

On November 6, 2005, an article in the Lexington (Kentucky) Herald-Leader said this:

The Herald-Leader’s investigation, based on a review of more than 15,000 pages of documents and interviews with more than 100 people, reveals a pattern of government giveaways that, all too often, ends in lost jobs, abandoned factories and broken promises.

The investigation shows:

Companies that received incentives often did not live up to their promises. In a 10-year period the paper analyzed, at least one in four companies that received assistance from the state’s main cash-grant program did not create the number of jobs projected.

A tax-incentive program specifically for counties with high unemployment has had little effect in many of those areas. One in five manufacturing companies that received the tax break has since closed.

There is spotty oversight of state tax incentives. The state sometimes does not attempt to recover incentives, even when companies don’t create jobs as required.

Unlike some other states, Kentucky makes little information about incentives public. The Cabinet for Economic Development refuses to release much of the information about its dealings with businesses, citing proprietary concerns. The cabinet has never studied its programs’ effectiveness, and it blocked a legislative committee’s effort to do so.

The Herald-Leader’s examination of Kentucky’s business-incentive programs comes when, nationally, questions are mounting about the effectiveness and legality of expensive government job-creation efforts. The U.S. Supreme Court is expected to decide by spring whether trading tax breaks for jobs is legal or whether they amount to discrimination against other companies.

Meanwhile, states continue engaging in costly economic battles for new jobs, even though research strongly suggests that few business subsidies actually influence where a company sets up shop.

We might want to be optimistic and hope that our local Wichita and Sedgwick County leaders are smarter than those in Lawrence and Lexington. Evidence shows us, however, that this probably isn’t the case. Our own local Wichita City Council members have shown that they aren’t familiar with even the most basic facts about our economic development programs. How do we know this? Consider the article titled “Tax break triggers call for reform” published in the Wichita Eagle on August 1, 2004:

Public controversy over the Genesis bond has exposed some glaring flaws in the process used to review industrial revenue bonds and accompanying tax breaks.

For example, on July 13, Mayans and council members Sharon Fearey, Carl Brewer, Bob Martz and Paul Gray voted in favor of granting Genesis $11.8 million in industrial revenue bond financing for its expansion, along with a 50 percent break on property taxes worth $1.7 million.

They all said they didn’t know that, with that vote, they were also approving a sales tax exemption, estimated by Genesis to be worth about $375,000.

It is not like the sales tax exemption that accompanies industrial revenue bonds is a secret. An easily accessible web page on the City of Wichita’s web site explains it.

But perhaps there is hope. The Wichita Business Journal has recently reported this: “The city and county are getting $2 back for every dollar they spent over the past 18 months on economic development incentives, according to an analysis of GWEDC-supplied data. The report was presented at Thursday’s GWEDC investor luncheon at the Hyatt Regency by Janet Harrah, director of the Center for Economic Development and Business Research at Wichita State University.” Personally, I am skeptical. I have asked to see these figures and how they are calculated, but I have not been able to obtain them.

Consider carefully all costs of gambling in Wichita

In a free society dedicated to personal liberty, people should be able to gamble. But that’s not what we have, as in a free society dedicated to personal liberty, people wouldn’t be taxed to pay for the problems that others cause in the pursuit of their happiness.

How does this relate to the issue of casino gambling in or near Wichita?

There is a document titled “Economic & Social Impact Anlaysis [sic] For A Proposed Casino & Hotel” created by GVA Marquette Advisors for the Wichita Downtown Development Corporation and the Greater Wichita Convention and Visitors Bureau, dated April 2004. This document presents a lot of information about the benefits and the costs of gambling in the Wichita area. One of their presentations of data concludes that the average cost per pathological gambler is $13,586 per year. Quoting from the study in the section titled Social Impact VII-9: “Most studies conclude that nationally between 1.0 and 1.5 percent of adults are susceptible to becoming a pathological gambler. Applying this statistic to the 521,000 adults projected to live within 50 miles of Wichita in 2008, the community could eventually have between 5,200 and 7,800 pathological gamblers. At a cost of $13,586 in social costs for each, the annual burden on the community could range between $71 and $106 million.”

If all we had to do was to pay that amount each year in money that would be one thing. But the components of the cost of pathological gamblers include, according to the same study, increased crime and family costs. In other words, people are hurt, physically and emotionally, by pathological gamblers. Often the people who are harmed are those who have no option to leave the gambler, such as children.

Quoting again from the study: “While this community social burden could be significant, its quantified estimate is still surpassed by the positive economic impacts measured in this study.” The largest components of the positive economic impacts are employee wages, additional earnings in the county, and state casino revenue share, along with some minor elements. Together these total $142 million, which is, as the authors point out, larger than the projected costs shown above. But this analysis is flawed. Employee wages don’t go towards paying the costs of pathological gamblers, as employees probably want to spend their wages on other things. And the state casino revenue share is supposed to go towards schools.

The absurdity mounts as we realize that gambling is promoted, by none other than Governor Kathleen Sebelius, as a way to raise money for schools. Often the figure quoted for the amount of money gambling would generate for the state is $150 million per year. But here is a study concluding that the monetary costs to just the Wichita area would be a large fraction of that, and when you add the human misery, it just doesn’t make sense to fund schools with revenue from gambling.

How to decide arts funding

Writing from Miami, Fla.

In an editorial in The Wichita Eagle on August 9, 2005, Randy Schofield wrote, explaining why government should support culture: “Because cultural amenities make Wichita a more desirable place to live, work and visit, and thus help realize Wichita’s quality of life and economic development goals.” We might examine some of the ideas and reasoning behind this statement.

Do cultural amenities make Wichita more desirable? That’s quite a judgment to make. Personally, I enjoy many of the music events held at Wichita State University. I look forward to attending the recitals in the Rie Bloomfield Organ Series, and the piano recitals by Professors Paul Reed, Julie Bees, and Andrew Trechak are the highlights of my cultural season, and, sadly, largely unappreciated by the rest of Wichita. But that’s my taste and preference.

There is a common tendency to judge “highbrow” culture — art museums, the symphony, opera, etc. — as somehow being more valued than other culture. But what people actually do indicates something different. When people spend their own money we find that not many go to the piano recital, the symphony, or the art museum. Instead, they attend pop, rock, or country music concerts, attend sporting events, go to movies, eat at restaurants, rent DVDs, and watch cable or satellite television. I’m not prepared to make a value judgment as to which activities are more desirable. In a free society dedicated to personal liberty, that’s a decision for each person to make individually.

Because there is the tendency to judge highbrow culture as highly valued, governments, as is the case in Wichita, often subsidize it or pay for it outright. Generally, governments don’t subsidize the “lowbrow” culture events that I listed above. So why does highbrow culture require a subsidy? There can be only one reason why: the public, as a whole, does not place as much value on this culture as it costs to produce it. There is simply no way to conclude otherwise.

Consider the movie industry. It, to my knowledge, does not receive government subsidies. Yet, it is able to make a profit most of the time, even though it faces fierce competition from many other ways people can spend their leisure dollars. The movie industry has also faced many challenges arising from new technologies: television, videocassette recorders, and cable television come to mind. How has this industry survived? By focusing on the customer, by determining what people are willing to spend their money on, and by producing products that people value enough to buy. Since the movie industry does not receive government subsidies, it has to do this. It has to meet customer needs and desires and do so efficiently. Otherwise, it starts to lose money. These losses are a signal to management that they aren’t satisfying customers, or not running their business efficiently. They have to change something, or they cease to exist.

When an organization receives government funding, however, it is isolated from the marketplace and its customers. If the organization doesn’t generate enough revenue to cover its costs, it simply asks the taxpayer to pay the difference and it goes on to the next year. The vital imperative to change, to improve, to serve the customer, it doesn’t exist. That’s exactly what is happening with Exploration Place. It has operated at a loss for four years. By accounts, the museum’s exhibits are tired. In the face of mounting losses, they weren’t able to change in ways that the public valued. Yet, the Sedgwick County Commission has given it funding to stay open for a little while longer, and the museum is asking for $2.8 million per year.

Some might say that it doesn’t really matter much if a government gives a little money to a highbrow cultural program. But consider from where the government gets the money. It has to tax people, and that leaves people — not by their own choice — with less money to do the things they really want to do. That makes our city, as a whole, poorer than it would be otherwise, as people aren’t able to spend their money on the things they value most. The government, instead, tells us that we have made the wrong choices, and they are going to correct our poor judgment.

The way to determine what the people of Wichita truly value is to price things at their true cost. People, by freely choosing how they spend their money, will tell us what they value.

In his editorial, Mr. Schofield also said: “The city needs a fair, objective way to evaluate cultural programs and award funding.” I submit that it is not fair to ask one group of people to pay for the leisure activities of another group, no matter how much we value those activities. This is what happens when the city spends tax money on culture. For the evaluation as to which programs are worthy, a free market will tell us that. People will vote, using the votes they really value — their own personal dollars — and decide which programs are valued. When governments or commissions spend taxpayer money, they don’t have to consider value.

“It’s a good first step to bringing some discipline to the arts funding process.” The free marketplace of ideas where true costs are charged provides all the discipline required. How can we expect politicians and arts commission members to exhibit discipline when they aren’t spending their own money?

“No, government can’t support every cultural arts organization.” Finally, a statement from Mr. Schofield that I can agree with!

“But it can help protect Wichita’s cultural investment by providing a dependable source of funds for proven programs and clear oversight and accountability for taxpayers.” There are no “proven” programs as long as they accept government funds, especially when they know the source of funds is dependable. That dependable source of funds allows them to ignore the market and their customers. The way to prove a program’s worth is to price it so that it pays for its entire cost of production. Then, see if people are willing to buy.

Would there be any arts and culture in Wichita if government stopped funding cultural programs? I don’t know, but I imagine there will be. It might turn out that the culture we would have would be better than what we have now, because the operators of cultural programs would have to produce what people want badly enough to pay full freight for. We don’t really know. But we do know that the alternative is worse. It’s more government and more commissions making decisions for us, deciding what we should do with our own money and time.

The misplaced morality of public officials

In Wichita some public officials, particularly mayor Carlos Mayans, are seeking to eliminate adult businesses and stores selling pornography. This focus on private morality lies in sharp contrast with government’s large-scale acts of public immorality.

If government allows people to gamble, look at nude dancers, or buy pornography and sex toys, it is not government that is “sinning” or acting immorally. Government is not requiring that we do these things. Government is merely allowing those who wish to do so to engage in these activities.

But when government — say the Wichita City Council — takes the property of one person and gives it to another person to whom it does not belong, government is actively and purposefully committing an immoral act.

How do we know that it is immoral when government takes money from one person and gives it to someone else? We can learn from the insight of Frederic Bastiat (1801 – 1850), writing in his short book The Law:

But how is this legal plunder [theft] to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.

It doesn’t matter to whom the money is given: poor people, homeless people, airlines, farmers, banks, artists, downtown developers, problem gamblers, nonprofit organizations, students, schools, civic groups, museums, sick people, children, public amenities, or businesses under the guise of economic development. It doesn’t matter how much they need it, or how deserving they may be. It’s simply wrong for a private person or government to take money from one person and give it to another. The economist Walter E. Williams also makes this case succinctly:

Can a moral case be made for taking the rightful property of one American and giving it to another to whom it does not belong? I think not. That’s why socialism is evil. It uses evil means (coercion) to achieve what are seen as good ends (helping people). We might also note that an act that is inherently evil does not become moral simply because there’s a majority consensus.

This is not to say that we should not support some of the people or groups mentioned earlier. We should do so voluntarily, however. To help someone through an act of charity is noble. There is nothing good or moral happening when governments tax one person and give the proceeds to someone else.

So when government officials want to control private morality, remember government’s large-scale acts of public immorality.