Tag Archives: Wichita Eagle opinion watch

Wichita Eagle argues for higher taxes

The Wichita Eagle editorial board wants higher taxes. Relying on its data and arguments will lead citizens to misinformed and uninformed opinions.

In a recent op-ed, the Wichita Eagle editorial board writes: “From the moment the budget was first proposed in July, city leaders made a point of emphasizing the city’s mill levy — the rate by which property is taxed — hasn’t been increased in 25 years. The 25-year figure wasn’t followed by exclamation points of pride or emojis of sadness. It’s just a fact: For one reason or another, the city’s mill levy hasn’t been increased.” 1

I guess we shouldn’t be too harsh on the Eagle editorial board. They believed city leaders. And, I suppose the language is correct in one sense: “the city’s mill levy hasn’t been increased.”

But a quick look at readily available data shows that the City of Wichita mill levy has increased, and by quite a bit.

I don’t have data going back 25 years, but I have gathered and prepared data from 1993 to 2017. And during that time, the City of Wichita mill levy rose from 31.290 to 32.667. That is an increase of 4.40 percent.

It is true that the Wichita City Council did not pass an ordinance to cause this mill levy rate to rise. This is where “hasn’t been increased” holds a grain of truth.

Instead, the mill levy rate is set by the county based on the city’s budgeted spending and the assessed value of taxable property subject to City of Wichita taxation. Someone estimates the assessed value of property the city can tax, and that is subject to error.

The city acknowledges this when pressed. It’s on video. 2

But city leaders and elected officials act as though the mill levy is subject to the whims of forces beyond their control.

While the city doesn’t have control over the assessed value of property, it does have control over the amount it decides to spend. As can be seen in the chart of changes in the mill levy, the council’s decisions result in a generally rising mill levy. From 1993 to 2017, there were seventeen years in which the mill levy rose from the previous year, and six years in which it declined.

We have an estimating process that ought to be random — too high in half the years, too low in the other half — overwhelmingly producing higher tax rates. This nearly three-to-one ratio is beyond mere chance or coincidence.

Also, while some may argue that an increase of 4.40 percent over two decades is not very much, this is an increase in a rate of taxation, not tax revenue collected. As property values rise, and as the mill levy rises, property tax bills can rise rapidly.

But it doesn’t seem that the Eagle editorial board understands this, as it wrote: “A 2019 budget can’t be expected to function properly under 1994 tax rates. Nearly everything a city does costs more a quarter-century later.”

True, I suppose. But the data tells us that property tax revenue rises, and rises faster than the rate of inflation, if inflation is what the editorial board means when it writes that things cost more.

In the nearby table, I use a hypothetical $100,000 home and track the taxes paid to the City of Wichita. I use a home price index to track increases in residential home values. I use the Consumer Price Index to adjust dollars for inflation.

In the table, a $100,000 house paid $360 in taxes to the City of Wichita in 1994. In 2017, the same house paid $665. The increase is due to rising property values and the rising mill levy.

Adjusting for inflation to 2017 dollars, the tax paid in 1994 was worth $595. In 2017, the tax was $665, in 2017 dollars, of course.

So from 1994 to 2017, the property tax paid to the City of Wichita by this hypothetical house rose by 11.7 percent, in inflation-adjusted dollars.

When the Eagle editorial board writes “Nearly everything a city does costs more a quarter-century later,” the response ought to be “Yes, but property taxes paid by citizens on their homes are rising faster than inflation.”

This needs to be considered in the light of cuts the city has made and threatens in the future.

Click for larger.


Notes

  1. Wichita Eagle editorial board. Wichita, it’s time to consider a tax increase. It’s past time, actually. August 17, 2018. Available at https://www.kansas.com/opinion/editorials/article216790960.html.
  2. Weeks, Bob. Wichita property taxes rise again. Available at https://wichitaliberty.org/wichita-government/wichita-property-taxes-rise/.

Wichita school spending, according to the Wichita Eagle

A recent editorial by the largest newspaper in Kansas misinforms its readers.

“For too many years, the [Wichita public school] district was constrained by reduced state spending on public-school children. School systems across Kansas tightened belts to the point of being unable to breathe.” 1

So says a recent editorial in the Wichita Eagle, the largest newspaper in Kansas. What does the data tell us?

Click for larger.
Data from the Kansas State Department of Education for the school year ending in 2017 (the most recent data available) show that state and local total spending, per pupil, adjusted for inflation, has been remarkably level since 2011. 2

Wichita school revenue. Click for larger.
The situation in each school district may vary, so the nearby chart shows data from the Wichita public school district comprehensive annual financial report along with my calculations. I took two data series (total revenue and the sum of state and local revenue) divided by FTE enrollment, and adjusted for inflation. I plot the sum of state and local revenue because in 2015 there was a change in the way some taxes were allocated, and using the sum of the two removes the effect of the change. 3

As can be seen in the chart, the trend for both series is generally rising, with a few dips along the way.

Is the Wichita Eagle editorial board aware of this data? We have to hope so. But that leaves the question as to why it claims the district is “constrained by reduced state spending.” Another excerpt from the editorial provides a clue: “State funding, amazingly, still isn’t to the levels of 10 years ago and reinforces the damage that the late 2000s recession and Brownback-era tax cuts of 2013 and 2014 had on public education. In 2008, base state funding for Wichita was $4,492 per student, or $327 more than this year. Multiplied by 50,000 students, that’s still a $16.4 million shortfall.”

The numbers that the Eagle cites are base state aid per pupil. This number does not accurately characterize school spending in Kansas. Base state aid is an inaccurate indicator of total spending on schools by the state. It’s deceptive, in that after adjusting for inflation, base state aid has declined. But at the same time, total state aid to school districts has increased.

For a newspaper to uncritically present base state aid as the only indicator of school spending is a big problem.

Kansas school spending, showing base state aid and total state aid. See article for notes about 2015. Click for larger.
Base state aid per pupil is an important number. 4 It’s the starting point for the Kansas school finance formula used before the 2015-2016 (fiscal 2016) school year. 5

Base state aid, however, is not the only important number. To calculate the funding a school district receives, weightings are added. If students fall into certain categories, weightings for that category are added to determine a weighted enrollment. That is multiplied by base state aid to determine total state aid to the district. 6

While this may seem like a technical discussion that doesn’t make a difference, it’s very important, because some of the weightings are large. The at-risk weighting, intended to cover the additional costs of teaching students from low-income families, started at five percent in 1993. In other words, for every student in this category, a school district received an extra five percent of base state aid. The value of this weighting has risen by a factor of nine, reaching 45.6 percent starting with the 2008-2009 school year.

There’s also the high-density at-risk weighting. Starting with the 2006-2007 school year districts with a high concentration of at-risk students could receive an extra weighting of four percent or eight percent. Two years later the weightings were raised to six percent and ten percent. (This formula was revised again in 2012 in a way that may have slightly increased the weightings.)

Kansas school spending, showing ratio of total state aid to base state aid. See article for notes about 2015. Click for larger.
Kansas school spending. See article for notes about 2015. Click for larger.
The weightings have a large effect on school funding. For example: During the 2004-2005 school year, base state aid was $3,863 and the at-risk weighting was ten percent. An at-risk student, therefore, generated $4,249 in state funding. (Other weightings might also apply.)

Ten years later base state aid was $3,852 — almost exactly the same — and the at-risk weighting was up to 45.6 percent. This generates funding of $5,609. For a district that qualified for the maximum high-density at-risk weighting, an additional $404 in funding was generated. (These numbers are not adjusted for inflation.)

So even though base state aid remained (almost) unchanged, funding targeted at certain students rose, and by a large amount.

Over time, values for the various weightings grew until by 2014 they added 85 percent to base state aid. A nearby chart shows the growth of total state aid as compared to base state aid. (Starting in fiscal 2015 the state changed the way local tax dollars are counted. That accounts for the large rise for the last year of data in the chart. For school years 2016 and 2017, block grants replaced the funding formula, so base aid and weightings do not apply in the same way.)

So yes, the Eagle editorial board is correct that base state aid per pupil is down. But total spending by the state is up.

Opinions may vary on spending more or less on schools. But our state’s largest newspaper isn’t giving its readers the information they need to form an informed opinion.


Notes

  1. Wichita Eagle Editorial Board. *A well-funded Wichita school district. A sight this city’s children deserve.” August 10, 2018. Available at https://www.kansas.com/opinion/editorials/article216418710.html.
  2. Weeks, Bob. Kansas school spending. Available at https://wichitaliberty.org/wichita-kansas-schools/kansas-school-spending-2017/.
  3. Weeks, Bob. Wichita school revenue. Available at https://wichitaliberty.org/wichita-kansas-schools/wichita-school-revenue-2017/.
  4. Weeks, Bob. Kansas school weightings and effects on state aid. In making the case for more Kansas school spending, the focus on base state aid per pupil leaves out important considerations. https://wichitaliberty.org/wichita-kansas-schools/kansas-school-weightings-and-effects-on-state-aid/.
  5. For the fiscal 2016 and 2017 school years, the formula was replaced by block grants.
  6. Amendments to the 1992 School District Finance and Quality Performance Act and the 1992 School District Capital Improvements State Aid Program (Finance Formula Components), Kansas Legislative Research Department, May 20, 2014
    http://ksde.org/Portals/0/School%20Finance/amends_to_sdfandqpa_2015.pdf

What is the real problem at Wichita Southeast?

There is likely a different explanation for problems at a Wichita high schools from what we’ve been told by the school district and our newspaper.

Recently the Wichita Eagle editorial board opined about problems with Wichita Southeast High School. That editorial was based on Eagle reporting in the article The new Southeast High is bigger and better. So why is its graduation rate dropping?

Sociologist Chase Billingham offers commentary and insight in his piece Southeast’s grad rate more about discipline:

The Wichita school district officials and The Eagle Editorial Board said the slipping graduation rate was partially attributable to the relocation of Southeast from its previous location to a new building at the far eastern edge of Wichita. According to these claims, students needing bus service when they could once walk to school have resulted in declining attendance, which in turn has led to the low graduation rate.

The falling graduation rate is real, and it is troubling. However, it was not caused by the school’s relocation.

Billingham proceeds to cite statistics from the Kansas State Department of Education and concludes, “Rather, it is more likely that the school has become more strict in applying formal disciplinary sanctions to student behavioral problems that may previously have resulted in informal reprimands.”

I wonder if school district officials knew of these statistics. They should have, as those officials compile and report them to KSDE. I also winder if Eagle reporters and editorial writers looked into this.

(By the way, the Eagle doesn’t disclose the membership of its editorial board.)

This episode is another troubling revelation about Wichita schools since the departure of the oft-praised and rewarded superintendent John Allison. Today the Eagle editorial board wrote, “Hiring Thompson as superintendent proved to be a good move at a time when Wichita schools were languishing — poor teacher morale, stagnant student achievement results and a district in need of a spark.”

Intrust Bank Arena loss for 2017 is $4,222,182

As in years past, a truthful accounting of the finances of Intrust Bank Arena in downtown Wichita shows a large loss.

The true state of the finances of the Intrust Bank Arena in downtown Wichita are not often a subject of public discussion. Arena boosters cite a revenue-sharing arrangement between the county and the arena operator, referring to this as profit or loss. But this arrangement is not an accurate and complete accounting, and it hides the true economics of the arena. What’s missing is depreciation expense.

There are at least two ways of looking at the finance of the arena. Nearly all attention is given to the “profit” (or loss) earned by the arena for the county according to an operating agreement between the county and SMG, a company that operates the arena. 1

This agreement specifies a revenue sharing mechanism between the county and SMG. For 2107, the accounting method used in this agreement produced a profit, or “net building income,” of $1,000,829 to be split (not equally) between SMG and the county. The county’s share was $300,414. 2

While described as “profit” by many, this payment does not represent any sort of “profit” or “earnings” in the usual sense. In fact, the introductory letter that accompanies these calculations warns readers that these are “not intended to be a complete presentation of INTRUST Bank Arena’s financial position and results of operations in conformity with accounting principles generally accepted in the United States of America.” 3

Intrust Bank Arena Payments to Sedgwick County. Click for larger.
That bears repeating: This is not a reckoning of profit and loss in any recognized sense. It is simply an agreement between Sedgwick County and SMG as to how SMG is to be paid, and how the county participates.

A much better reckoning of the economics of the Intrust Bank Arena can be found in the 2017 Comprehensive Annual Financial Report for Sedgwick County. 4 This document holds additional information about the finances of the Intrust Bank Arena. The CAFR, as described by the county, “… is a review of what occurred financially last year. In that respect, it is a report card of our ability to manage our financial resources.”

Regarding the arena, the CAFR states:

The Arena Fund represents the activity of the INTRUST Bank Arena. The facility is operated by a private company; the County incurs expenses only for certain capital improvements or major repairs and depreciation, and receives as revenue only a share of profits earned by the operator, if any, and naming rights fees. The Arena Fund had an operating loss of $4.3 million. The loss can be attributed to $4.5 million in depreciation expense.

Financial statements in the same document show that $4,522,596 was charged for depreciation in 2017.

Trends of events and attendance at Intrust Bank Arena. Click for larger.
If we subtract SMG payment of $300,414 from depreciation expense, we learn that the Intrust Bank Arena lost $4,222,182 in 2016.

Depreciation expense is not something that is paid out in cash. That is, Sedgwick County did not write a check for $4,522,596 to pay depreciation expense. Instead, depreciation accounting provides a way to recognize and account for the cost of long-lived assets over their lifespan. It provides a way to recognize opportunity costs, that is, what could be done with our resources if not spent on the arena.

But not many of our civic leaders recognize this, at least publicly. We — frequently — observe our governmental and civic leaders telling us that we must “run government like a business.” The county’s financial report makes mention of this: “Sedgwick County has one business-type activity, the Arena fund. Net position for fiscal year 2017 decreased by $4.3 million to $156.3 million. Of that $156.3 million, $146.0 million is invested in capital assets. The decrease can be attributed to depreciation, which was $4.5 million.5 (emphasis added)

At the same time, these leaders avoid frank and realistic discussion of economic facts. As an example, in years past Commissioner Dave Unruh made remarks that illustrate the severe misunderstanding under which he and almost everyone labor regarding the nature of spending on the arena: “I want to underscore the fact that the citizens of Sedgwick County voted to pay for this facility in advance. And so not having debt service on it is just a huge benefit to our government and to the citizens, so we can go forward without having to having to worry about making those payments and still show positive cash flow. So it’s still a great benefit to our community and I’m still pleased with this report.”

The contention — witting or not — is that the capital investment of $183,625,241 (not including an operating and maintenance reserve) in the arena is merely a historical artifact, something that happened in the past, something that has no bearing today. There is no opportunity cost, according to this view. This attitude, however, disrespects the sacrifices of the people of Sedgwick County and its visitors to raise those funds. Since Kansas is one of the few states that adds sales tax to food, low-income households paid extra sales tax on their groceries to pay for the arena — an arena where they may not be able to afford tickets.

Any honest accounting or reckoning of the performance of Intrust Bank Arena must take depreciation into account. While Unruh is correct that depreciation expense is not a cash expense that affects cash flow, it is an economic reality that can’t be ignored — except by politicians, apparently. The Wichita Eagle and Wichita Business Journal aid in promoting this deception.

The upshot: We’re evaluating government and making decisions based on incomplete and false information, just to gratify the egos of self-serving politicians and bureaucrats.

Reporting on Intrust Bank Arena financial data

In February 2015 the Wichita Eagle reported: “The arena’s net income for 2014 came in at $122,853, all of which will go to SMG, the company that operates the facility under contract with the county, Assistant County Manager Ron Holt said Wednesday.” A reading of the minutes for the February 11 meeting of the Sedgwick County Commission finds Holt mentioning depreciation expense not a single time. Neither did the Eagle article.

In December 2014, in a look at the first five years of the arena, its manager told the Wichita Eagle this: “‘We know from a financial standpoint, the building has been successful. Every year, it’s always been in the black, and there are a lot of buildings that don’t have that, so it’s a great achievement,’ said A.J. Boleski, the arena’s general manager.”

The Wichita Eagle opinion page hasn’t been helpful, with Rhonda Holman opining with thoughts like this: “Though great news for taxpayers, that oversize check for $255,678 presented to Sedgwick County last week reflected Intrust Bank Arena’s past, specifically the county’s share of 2013 profits.” (For some years, the county paid to create a large “check” for publicity purposes.)

That followed her op-ed from a year before, when she wrote: “And, of course, Intrust Bank Arena has the uncommon advantage among public facilities of having already been paid for, via a 30-month, 1 percent sales tax approved by voters in 2004 that actually went away as scheduled.” That thinking, of course, ignores the economic reality of depreciation.

Even our city’s business press — which ought to know better — writes headlines like Intrust Bank Arena tops $1.1M in net income for 2015 without mentioning depreciation expense or explaining the non-conforming accounting methods used to derive this number.

All of these examples are deficient in an important way: They contribute confusion to the search for truthful accounting of the arena’s finances. Recognizing depreciation expense is vital to understanding profit or loss, we’re not doing that.


Notes

  1. Management Agreement between Sedgwick County and SMG. August 1, 2007. Available here.
  2. Minutes of the Sedgwick County Commission, February 14, 2018.
  3. Management Agreement between Sedgwick County and SMG.
  4. Sedgwick County. Comprehensive Annual Financial Report of the County of Sedgwick, Kansas for the Year ended December 31, 2017. Available at https://www.sedgwickcounty.org/media/39501/2017-cafr.pdf.
  5. Ibid.

Project Wichita right to look ahead at city’s future

We can understand self-serving politicians and bureaucrats. It’s what they do. But a city’s newspaper editorial board ought to be concerned with the truth.

In February the Wichita Eagle editorialized about Project Wichita, a ramping-up effort to do something about the future of Wichita. 1 It’s worthwhile to take a look at the op-ed, if only to learn something about the quality of Wichita Eagle editorial writing.

I understand civic boosterism; the desire to paint a positive image of the future. But this rosy outlook has to be based, at least loosely, on facts. Following, a look at a few claims made in the editorial.

“Our downtown is becoming more of a destination and place to live.”
The problem is this: Wichita economic development officials use a circuitous method of estimating the population of downtown Wichita, producing a number much higher than Census Bureau estimates. Downtown Wichita, the city’s economic development agency responsible for downtown, says the population of downtown is 2,138, which is far — really far — outside the range the Census Bureau gives. For more about this, see Living in downtown Wichita.

As far as a destination for business, the U.S. Census Bureau tracks business trends by zip code. For zip code 67202, which is downtown Wichita, results since 2007 show fewer business establishments, fewer people working downtown, and lower earnings generated in downtown Wichita. In all cases, the trend is lower. For more about this, see Downtown Wichita business trends.

Further, Wichita leaders have exaggerated the number of people working in downtown. For years our leaders told us there were 26,000 daytime workers in downtown Wichita. But this claim is based on misuse of data so blatant it can be described only as malpractice. In fact, this figure is now omitted from the state of downtown reports. No one will accept responsibility for this mistake. See Downtown Wichita jobs, sort of and Downtown Wichita report omits formerly prominent data.

“But Wichita feels pretty good about itself, which suggests the community is at the perfect time to think about its future.”
I have to say, we’ve been hoodwinked, and by our top leaders. Recently both the mayor of Wichita and chair of the county commission penned upbeat editorials praising our economy. See Mayor Longwell’s pep talk and Sedgwick County’s David Dennis on economic development.

But the reality is quite different. See:

Given this, why do the mayor, county commission chair, and our newspaper’s editorial board say what they do? The first two are politicians, but we ought to ask that our newspaper seek the truth, not personal political gain.

“It will get more serious in March, when students and volunteers from Wichita State University’s Public Policy and Management Center …”
This is the same organization on which the city relies for many services, including the gathering of public input in past campaigns like the 2014 sales tax election. The city seemed sure that tax would pass, but voters rejected it by a wide margin. 2

“Public Policy director Misty Bruckner and her group will deliver feedback and conclusions to Project Wichita’s four co-chairs.”
A few years ago Bruckner co-authored a paper titled “Citizen Attachment: Building Sustainable Communities.” 3 My reporting on it was titled Wichita needs more, and willing, taxpayers. An excerpt: “Increasingly, citizens are retreating from their responsibilities to community and demanding more from government than they are willing to pay for. But changes in local government behavior can be instrumental in reversing this trend, by strengthening citizens’ commitment to the well-being of their communities. Citizens who are committed to community are more willing to accept responsibility for the well-being of their fellow citizens and are also more likely to join with government and other parties to improve their communities. Citizens who are committed to community are also more willing taxpayers — that is, when government demonstrates that it can be trusted to invest public resources in ways that strengthen the community. The central thrust of this model is getting citizens and governments to work together, but realistically, many communities will require new revenue — including additional tax dollars — if they are to assemble the critical mass of resources necessary for meaningful change. Accordingly, citizens who are willing to pay increased taxes are an important component of building sustainable communities.” (emphasis added)

Please don’t fault me for being cynical when I suspect that this entire operation is designed to prepare Wichitans (or the region) for a tax increase.

“Community input will be as wide as the city limits.”
Wait a moment. I thought we were supposed to think regionally.

“Project Wichita seems similar to Visioneering Wichita …”
I wonder if anyone remembers anything positive that resulted from Visioneering Wichita. After a few years, the organization’s website went stale, and staff discontinued making presentation to the city council and county commission See Visioneering asks for money. Let’s ask these questions.

“Unlike Visioneering, Project Wichita isn’t headed by city or county government.”
Visioneering Wichita was led by the Chamber of Commerce, not government. Local governments made financial contributions to Visioneering, just as they are also contributing to Project Wichita. 4


Notes

  1. Wichita Eagle Editorial Board. Project Wichita right to look ahead at city’s future. Available at http://www.kansas.com/opinion/editorials/article198178899.html.
  2. Ryan, Kelsey. Voters soundly defeat Wichita sales tax proposal. Available at http://www.kansas.com/news/politics-government/election/article3567045.html.
  3. See http://www.gfoa.org/sites/default/files/GFR_OCT_10_24.pdf.
  4. Wichita Business Journal. Sedgwick County Commission approves Visioneering Wichita funding. Available at https://www.bizjournals.com/wichita/blog/2012/12/sedgwick-county-commission-approves.html.

Mayor Longwell’s pep talk

A column written by Wichita Mayor Jeff Longwell ignores the reality of Wichita’s economy.

This week Wichita Mayor Jeff Longwell contributed a column to the Wichita Eagle that seems to defy economic reality. 1

For example, he wrote how Wichita is a “thriving city in a brand new age of possibility.” Construction and change is everywhere, he said.

The problem is this: Even though there seems to be a lot of construction and change, Wichita isn’t thriving.

There are several ways to gauge the economic health of a city. Jobs are probably most important, especially to politicians, and jobs data is available on a frequent and timely basis. And when we look at Wichita’s growth in nonfarm jobs, we see Wichita lagging far behind the nation.

Wichita and national nonfarm employment. Click for larger.
Wichita and national nonfarm employment, ratio. Click for larger.
It wasn’t always that way. Nearby charts show the ratio of Wichita job growth to the nation. When the line is above the value one, it means Wichita was outpacing the nation.

Wichita has done that many times — growing faster than the nation. But that hasn’t been the case recently. In fact, as the charts show, the ratio of Wichita to the nation is sinking. Wichita is falling farther behind.

But despite this evidence, the mayor wrote, “In the coming years, we’re going to continue our growth pattern, and we need passionate individuals supporting and expanding upon our efforts.”

I sincerely hope the mayor is not aware of the poor performance of the Wichita-area economy. Because if he is aware, and he promises to “continue our growth pattern,” we’re in for continued trouble. Did you know that the Wichita-area economy shrank from 2015 to 2016? That is, we produced fewer goods and services in 2016 than in 2015, after accounting for inflation. 2 Is this the growth pattern the mayor promises to continue?

Finally, the mayor issued this plea: “We can’t be complacent in our comfort. We must reconcile our vibrant history with a limitless future. Let’s shed the stigma of what we have been and embrace the vibrant mantle of what we’re becoming.”

First, anyone who’s complacently comfortable is uninformed or unbelieving of the statistics regarding the Wichita economy.

Second, “what we’re becoming” is a low-growth area, falling behind the rest of the country, with the gap growing. The opposite of “vibrant.”

Then, the “stigma of what we have been” describes Mayor Longwell and other long-time officeholders and bureaucrats. It is they who have taken responsibility for the development of the Wichita-area economy. It is their decisions and policies that have led to our slow growth. They are eager to take credit for the successes we do have. But as the mayor’s ill-informed article shows, they are not willing to accept responsibility for failure, much less to even acknowledge the truth.

For other measures of the Wichita economy, see:


Notes

  1. Longwell, Jeff. All Wichitans have a part in pushing forward. Wichita Eagle, March 4, 2018. Available at http://www.kansas.com/opinion/opn-columns-blogs/article203559924.html.
  2. Weeks, Bob. Wichita economy shrinks. Available at https://wichitaliberty.org/economics/wichita-economy-shrinks/.

Wichita, youthful and growing from the core

A letter writer tells Wichitans that “We have an opportunity to show the country the future of Wichita is youthful and bright, and its growing from the core out.”

In support of replacing Century II with something “no less than absolutely spectacular in ambition,” a letter in the Wichita Eagle states, “We have an opportunity to show the country the future of Wichita is youthful and bright, and its growing from the core out.” 1

Sadly, these observations are not true. Data from the U.S. Census Bureau shows that the median age of Wichitans is rising, the proportion of the population in the millennial category is static or shrinking slightly, and the proportion that are senior citizens is rising. Wichita is growing older, not younger.

As far as “growing from the core out,” the downtown population is up. Although: The increase from 2010 to 2015, proportional to the entire city, was only slightly greater. In 2010, 0.36 percent of Wichitans lived in downtown, rising only slightly to 0.37 percent in 2015. (These are Census figures for zip code 67202, which is downtown Wichita.)

Trends of business activity in downtown Wichita. Click for larger.
Click for larger.
If we gauge growth by the number of jobs, business establishments, and payroll in downtown, we find that downtown Wichita is shrinking. There is some controversy regarding how to measure the number of jobs in downtown Wichita, but by any measure, the number of jobs is declining. 2 3


Notes

  1. Think big on Century II. Wichita Eagle. Letters, September 14, 2017. Available at http://www.kansas.com/opinion/letters-to-the-editor/article174129391.html.
  2. Weeks, Bob. Growth in Downtown Wichita Jobs. Available at https://wichitaliberty.org/wichita-government/growth-downtown-wichita-jobs/.
  3. Weeks, Bob. The claim of 26,000 workers in downtown Wichita is based on misuse of data so blatant it can be described only as malpractice. Downtown Wichita jobs, sort of. Available at https://wichitaliberty.org/wichita-government/downtown-wichita-jobs/.

Intrust Bank Arena loss for 2016 is $4,293,901

As in years past, a truthful accounting of the finances of Intrust Bank Arena in downtown Wichita shows a large loss.

The true state of the finances of the Intrust Bank Arena in downtown Wichita are not often a subject of public discussion. Arena boosters cite a revenue-sharing arrangement between the county and the arena operator, referring to this as profit or loss. But this arrangement is not an accurate and complete accounting, and hides the true economics of the arena. What’s missing is depreciation expense.

An example: In February 2015 the Wichita Eagle reported: “The arena’s net income for 2014 came in at $122,853, all of which will go to SMG, the company that operates the facility under contract with the county, Assistant County Manager Ron Holt said Wednesday.” A reading of the minutes for the February 11 meeting of the Sedgwick County Commission finds Holt mentioning depreciation expense not a single time. Neither did the Eagle article.

In December 2014, in a look at the first five years of the arena, its manager told the Wichita Eagle this: “‘We know from a financial standpoint, the building has been successful. Every year, it’s always been in the black, and there are a lot of buildings that don’t have that, so it’s a great achievement,’ said A.J. Boleski, the arena’s general manager.”

The Wichita Eagle opinion page hasn’t been helpful, with Rhonda Holman opining with thoughts like this: “Though great news for taxpayers, that oversize check for $255,678 presented to Sedgwick County last week reflected Intrust Bank Arena’s past, specifically the county’s share of 2013 profits.”

Even our city’s business press — which ought to know better — writes headlines like Intrust Bank Arena tops $1.1M in net income for 2015 without mentioning depreciation expense.

All of these examples are deficient in an important way, and contribute confusion to the search for truthful accounting of the arena’s finances. As shown below, recognizing depreciation expense is vital to understanding profit or loss, and the “net income” referred to above doesn’t include this. In fact, the “net income” cited above isn’t anything that is recognized by standard accounting principles.

The problem with the reporting of Intrust Bank Arena profits

There are at least two ways of looking at the finance of the arena. Nearly all attention is given to the “profit” (or loss) earned by the arena for the county according to an operating agreement between the county and SMG, a company that operates the arena. 1

This agreement specifies a revenue sharing mechanism between the county and SMG. For 2106, the accounting method used in this agreement produced a profit of $680,268 to be split (not equally) between SMG and the county. The county’s share was $140,134. 2

While described as “profit” by many, this payment does not represent any sort of “profit” or “earnings” in the usual sense. In fact, the introductory letter that accompanies these calculations warns readers that these are “not intended to be a complete presentation of INTRUST Bank Arena’s financial position and results of operations in conformity with accounting principles generally accepted in the United States of America.” 3

That bears repeating: This is not a reckoning of profit and loss in any recognized sense. It is simply an agreement between Sedgwick County and SMG as to how SMG is to be paid, and how the county participates.

A much better reckoning of the economics of the Intrust Bank Arena can be found in the 2016 Comprehensive Annual Financial Report for Sedgwick County.4 This document holds additional information about the finances of the Intrust Bank Arena. The CAFR, as described by the county, “… is a review of what occurred financially last year. In that respect, it is a report card of our ability to manage our financial resources.”

Regarding the arena, the CAFR states:

The Arena Fund represents the activity of the INTRUST Bank Arena. The facility is operated by a private company; the County incurs expenses only for certain capital improvements or major repairs and depreciation, and receives as revenue only a share of profits earned by the operator, if any, and naming rights fees. The Arena Fund had an operating loss of $4.6 million. The loss can be attributed to $4.4 million in depreciation expense.

Financial statements in the same document show that $4,434,035 was charged for depreciation in 2016, bringing accumulated depreciation to a total of $35,126,958.

If we subtract SMG payment of $140,134 from depreciation expense, we learn that the Intrust Bank Arena lost $4,293,901 in 2016.

Depreciation expense is not something that is paid out in cash. That is, Sedgwick County did not write a check for $4,434,035 to pay depreciation expense. Instead, depreciation accounting provides a way to recognize and account for the cost of long-lived assets over their lifespan. It provides a way to recognize opportunity costs, that is, what could be done with our resources if not spent on the arena.

But not many of our public leaders recognize this. In years past, Commissioner Dave Unruh made remarks that illustrate the severe misunderstanding under which he and almost everyone labor regarding the nature of spending on the arena: “I want to underscore the fact that the citizens of Sedgwick County voted to pay for this facility in advance. And so not having debt service on it is just a huge benefit to our government and to the citizens, so we can go forward without having to having to worry about making those payments and still show positive cash flow. So it’s still a great benefit to our community and I’m still pleased with this report.”

Earlier in this article we saw examples of the (then) Sedgwick County Assistant Manager, the Intrust Bank Arena manager, and several Wichita Eagle writers making the same mistake.

Intrust Bank Arena commemorative monument
Intrust Bank Arena commemorative monument
The contention — witting or not — of all these people is that the capital investment of $183,625,241 (not including an operating and maintenance reserve) in the arena is merely a historical artifact, something that happened in the past, something that has no bearing today. There is no opportunity cost, according to this view. This attitude, however, disrespects the sacrifices of the people of Sedgwick County and its visitors to raise those funds. Since Kansas is one of the few states that adds sales tax to food, low-income households paid extra sales tax on their groceries to pay for the arena — an arena where they may not be able to afford tickets.

Any honest accounting or reckoning of the performance of Intrust Bank Arena must take depreciation into account. While Unruh is correct that depreciation expense is not a cash expense that affects cash flow, it is an economic reality that can’t be ignored — except by politicians, apparently. The Wichita Eagle and Wichita Business Journal aid in promoting this deception.

We see our governmental and civic leaders telling us that we must “run government like a business.” Without frank and realistic discussion of numbers like these and the economic facts they represent, we make decisions based on incomplete and false information.


Notes

  1. Management Agreement between Sedgwick County and SMG. August 1, 2007. Available here.
  2. The Operations of INTRUST Bank Arena, as Managed by SMG. December 31, 2016. Available here.
  3. Ibid.
  4. Sedgwick County. Comprehensive Annual Financial Report of the County of Sedgwick, Kansas for the Year ended December 31, 2016. Available here.

Fake government spawns fake news

Discussions of public policy need to start from a common base of facts and information. An episode shows that both our state government and news media are not helping.

A recent Hutchinson News article1 started with this:

Once you wake up to where Kansas was in 1992 at funding schools and what it needs to do to get caught up, said the Kansas Department of Education’s Deputy Commissioner Dale Dennis, it’s a shocker.

In 1992, base state aid per pupil was $3,600. That amount, taking into account the Consumer Price Index, would be the equivalent of $6,001.12 in 2013. Base state aid, however, has been frozen at $3,852 since 2014-15.

“The numbers are shocking, shocking,” Dennis told the Hutchinson Rotary Club at its Monday luncheon meeting at the Hutchinson Town Club.

Why is a speech by a government bureaucrat, as covered in a major newspaper, important? It illustrates two problems we face in understanding, discussing, and debating important matters of public policy.

First, can government be truthful and accurate? Dale Dennis — the state’s top official on school finance — certainly knows that the numbers he presented do not accurately characterize the totality of school spending in Kansas. But the problem is even worse than that. To use base state aid as the indicator of state spending on schools is deceptive. It’s deceptive in that, after adjusting for inflation, base state aid has declined. But total state aid to school districts has increased.

Base state aid is a false indicator of total spending on schools by the state. It’s fake — fake government. And for a newspaper to uncritically present this as news illustrates the second problem we face.

Background on base state aid and school spending

Kansas school spending, showing base state aid and total state aid. See article for notes about 2015. Click for larger.
Base state aid per pupil — the statistic Dennis presented — is an important number.2 It’s the starting point for the Kansas school finance formula used before the 2015-2016 (fiscal 2016) school year, and something like it may be used in a new formula.3

Base state aid, however, is not the only important number. To calculate the funding a school district receives, weightings are added. If students fall into certain categories, weightings for that category are added to determine a weighted enrollment. That is multiplied by base state aid to determine total state aid to the district. 4

While this may seem like a technical discussion that doesn’t make a difference, it’s very important, because some of the weightings are large. The at-risk weighting, intended to cover the additional costs of teaching students from low-income families, started at five percent in 1993. In other words, for every student in this category, a school district received an extra five percent of base state aid. The value of this weighting has risen by a factor of nine, reaching 45.6 percent starting with the 2008-2009 school year.

There’s also the high-density at-risk weighting. Starting with the 2006-2007 school year districts with a high concentration of at-risk students could receive an extra weighting of four percent or eight percent. Two years later the weightings were raised to six percent and ten percent. (This formula was revised again in 2012 in a way that may have slightly increased the weightings.)

Kansas school spending, showing ratio of total state aid to base state aid. See article for notes about 2015. Click for larger.
Kansas school spending. See article for notes about 2015. Click for larger.
The weightings have a large effect on school funding. For example: During the 2004-2005 school year, base state aid was $3,863 and the at-risk weighting was ten percent. An at-risk student, therefore, generated $4,249 in state funding. (Other weightings might also apply.)

Ten years later base state aid was $3,852 — almost exactly the same — and the at-risk weighting was up to 45.6 percent. This generates funding of $5,609. For a district that qualified for the maximum high-density at-risk weighting, an additional $404 in funding was generated. (These numbers are not adjusted for inflation.)

So even though base state aid remained (almost) unchanged, funding targeted at certain students rose, and by a large amount.

Over time, values for the various weightings grew until by 2014 they added 85 percent to base state aid. A nearby chart shows the growth of total state aid as compared to base state aid. (Starting in fiscal 2015 the state changed the way local tax dollars are counted. That accounts for the large rise for the last year of data in the chart. For school years 2016 and 2017, block grants have replaced the funding formula, so base aid and weightings do not apply in the same way.)

What have we learned?

We’re left wondering a few things:

  • Did Deputy Superintendent Dale Dennis tell the audience that base state aid is just part of the school funding landscape, and not reflective of the big picture? Did he tell the audience that total state aid to schools has increased, and increased substantially? If so, why wasn’t it mentioned in the article?
  • If Dale Dennis did not tell the audience these things, what conclusions should we draw about his truthfulness?
  • Why didn’t the Hutchinson News article explain to readers that base state aid is not an accurate or total indicator of total state spending on schools?
  • What is the duty of reporters and editors? We’re told that experienced journalists add background and context to the news — things that the average reader may not know. (This article is designated as “Editor’s Pick” by the Hutchinson News.)

By the way, the Wichita Eagle, on its opinion page, cited in a positive and uncritical manner the Hutchinson News article.5 This is notable as the writer of the Eagle piece, opinion editor Phillip Brownlee, was a certified public accountant in a previous career. This is someone we should be able to trust to delve into numbers and tell us what they mean. But that isn’t the case.

Whatever your opinion on the level and trend of school spending, we need to start the discussion from a common base of facts and information. From this episode, we see that both our state government and news media are not helping.

For another take on the problems with this episode, see Paul Waggoner’s column in the Hutchinson News.6 (If not able to access that link, try Shocking News about Kansas Education!)


Notes

  1. Clarkin, Mary. Department of Education’s Dennis: Shocking number when looking at funding gap. Hutchinson News. April 17, 2017. http://www.hutchnews.com/news/local_state_news/department-of-education-s-dennis-shocking-number-when-looking-at/article_4abe359e-8421-53f9-a8d7-1eaa56e95423.html.
  2. Weeks, Bob. Kansas school weightings and effects on state aid. In making the case for more Kansas school spending, the focus on base state aid per pupil leaves out important considerations. https://wichitaliberty.org/wichita-kansas-schools/kansas-school-weightings-and-effects-on-state-aid/.
  3. For the fiscal 2016 and 2017 school years, the formula was replaced by block grants.
  4. AMENDMENTS TO THE 1992 SCHOOL DISTRICT FINANCE AND QUALITY PERFORMANCE ACT AND THE 1992 SCHOOL DISTRICT CAPITAL IMPROVEMENTS STATE AID PROGRAM (FINANCE FORMULA COMPONENTS), Kansas Legislative Research Department, May 20, 2014
    http://ksde.org/Portals/0/School%20Finance/amends_to_sdfandqpa_2015.pdf
  5. Brownlee, Philip. School funding numbers are ‘shocking.’ Wichita Eagle. April 22, 2017. http://www.kansas.com/opinion/opn-columns-blogs/now-consider-this/article146084839.html.
  6. Waggoner, Paul. Shocking news about Kansas education. Hutchinson News. April 21, 2017. http://www.hutchnews.com/opinion/columnists/shocking-news-about-kansas-education/article_2ebea7d3-6659-51fc-b3b5-409d5b0aa243.html. Or, see https://wichitaliberty.org/kansas-government/shocking-news-kansas-education/.

For Wichita Eagle, no concern about relationships

Should the Wichita Eagle, a city’s only daily newspaper and the state’s largest, be concerned about the parties to its business relationships?

It’s a question that the Wichita Eagle should be considering. But the newspaper’s top executives seem to have no concern.

On February 14 I sent a message to the publisher and executive editor of the Wichita Eagle expressing my concerns about the newspaper’s future landlords. That letter appears below. After several follow-up attempts by email and telephone, neither would respond.

Sent I sent this message, I’ve found I was mistaken about the ownership of the building to where the Eagle will move and become a tenant. Brandon Steven is not an owner. I had relied on Eagle reporting1 from January, naming Steven as an owner. The reporter confirmed to me that was an error.

An error in the digital archives of the Wichita Eagle which could easily be corrected.

Of note, the Eagle portrays itself as a digital entity. One of the things about material published digitally is it can be easily corrected. As of today, the erroneous story from January 3 has not been corrected, even though the reporter knows she made an error.

Is it important that a newspaper avoid business relationships or entanglements with parties that are frequently in the news? I’ve been told that the Eagle has to rent from someone, and Wichita is a small town. Well, not really. The Eagle owns its current building, which eliminated the relationship with a landlord. And if the newspaper wants to be a rental tenant, it could rent from the many landlords who are not frequent newsmakers, especially those that the Eagle needs to hold accountable.

This is a sad episode for the Eagle. When Eagle reporters ask someone about uncomfortable topics and the subject does not respond to messages, the newspaper reports that, and in a negative light. Here, the top two executives at the Eagle would not comment on something they may be uncomfortable discussing. I think we deserve a newspaper with greater capacity for self-examination, and one whose executives are responsive to legitimate concerns.

Following, the message I sent. Note the corrections indicated in footnotes.

February 14, 2017

Mr. Roy Heatherly
Mr. Steve Coffman
The Wichita Eagle

I’m writing because I’m concerned about some issues regarding the Wichita Eagle and its news coverage.

Specifically, I’m concerned about the Eagle entering into business arrangements with the parties who purchased the Eagle building, and then becoming a tenant of the same parties.2

The three parties are Brandon Steven, Dave Wells, and David Burk. While the Eagle is certainly free to do business with anyone it wants to, these three men are newsmakers that the Eagle has covered in the past, and will likely need to cover in the future.

Mr. Heatherly, you may remember that last year at a Wichita Pachyderm Club meeting I asked you about the arrest of Brandon Steven (although I did not use his name), and why the Eagle did not cover this news. Other newspapers did, including the Topeka Capital-Journal and The Morning Sun in Pittsburg.3 4 Those newspapers thought the item newsworthy as Steven had recently been an applicant for a Kansas casino license, and factors such as a person’s reputation are relevant to these applications. Many thought it curious that the Eagle did not report this news.

Regarding David Burk, he is a continual newsmaker in Wichita, and not always in a positive way. A notable incident was his appeal of property taxes on property located within a tax increment financing district, which defeats the purpose of TIF.5 6 Worse, he misrepresented himself as an agent of the city in order to obtain this benefit. When the Eagle reported on this, it rated designation of “special report.” Other than this, Burk is a newsmaker in that he has, for many years, made large and regular campaign contributions to many city council members, and has received much subsidy from the city through many different programs.

For Dave Wells, a principal of Key Construction, he is often in the news for the same reasons as Burk: Large and continual campaign contributions, and a frequent recipient of subsidy. A particularly troubling matter involving Key Construction and public policy occurred in 2012, regarding the awarding of the contract for the new Wichita air terminal, a contract worth around $100 million. Key was one of the parties pursuing the contract. We learned that Key and its partners were making campaign contributions to one Wichita city council member, Jeff Longwell, immediately before and after he participated in a council vote on awarding the contract to Key.7 Several months later after additional campaign finance reports were filed, we saw that Key made contributions to other council members during the run-up to the contract dispute.8

When it was announced that the Eagle was selling its building to these parties, I was not comfortable with this transaction. But it was a one-time deal. Later we learned that the Eagle is to become a tenant of the same parties,9 a business relationship that is likely to last for a long time.

When the Eagle gives these parties free publicity in future news stories, will readers need to be concerned about the motivation for the Eagle printing the stories?

But more important: When these parties do something wrong, will the Eagle vigorously pursue an investigation? An investigation against its landlord?

I hope you can understand my concern.

I would appreciate receiving comments on this matter for a story I am writing for the Voice for Liberty. In addition, if either of you would like to appear on WichitaLiberty.TV to discuss that matter, we can do that too.

Thank you,
Bob Weeks


Notes

  1. Rengers, Carrie. Wichita Eagle signs deal for new downtown headquarters. January 3, 2017. http://www.kansas.com/news/business/article124312049.html
  2. An error. See introduction.
  3. Kansas casino bidder Brandon Steven busted for public nudity. Topeka Capital-Journal, October 1, 2015. http://cjonline.com/blog/tim-carpenter/2015-10-01/kansas-casino-bidder-brandon-steven-busted-public-nudity.
  4. Castle Rock developer arrested. The Morning Sun, October 8, 2015, http://www.morningsun.net/article/20151008/NEWS/151009892.
  5. Developer appealed taxes on city-owned property. Wichita Eagle, February 14, 2010. http://www.kansas.com/news/special-reports/article1024583.html.
  6. Report: Errors made in Old Town Cinema district tax appeal. Wichita Eagle, March 10, 2010. http://www.kansas.com/news/local/article1027324.html.
  7. Sedgwick County Commissioner Karl Peterjohn questions out-of-state contributions to challenger Jeff Longwell. Wichita Eagle, August 1, 2012. http://www.kansas.com/news/politics-government/article1096574.html.
  8. Campaign contributions show need for reform in Wichita. Voice for Liberty, January 11, 2013. https://wichitaliberty.org/wichita-government/campaign-contributions-show-need-for-reform-in-wichita/.
  9. An error. See introduction.

Wrong direction for Wichita public schools

A letter in the Wichita Eagle illustrates harmful attitudes and beliefs of the public school establishment.

The letter is titled “Wrong direction.” It was submitted by John H. Wilson, was published on February 26, 2017, and may be read here.

What’s wrong in this letter? Here’s one thing: “First, the ill-founded assertion is that parents are well equipped to identify the best school for their children. Wrong.”

This is an incredibly bigoted assertion. This is one of the standard arguments against school choice, that parents — particularly minority and low-income families — don’t have the ability to make wise choices in schools for their children. Instead, an educated elite, of Wilson is a member, must make these decisions, they say.

There is a whif of plausibility in Wilson’s claim. In Wichita, where there is no school choice except for a small tax credit scholarship program, parents don’t have much experience making decisions regarding schools for their children. Across the country, however, where parents are given choices, we see parents becoming involved. With school choice programs, parents have a chance to make a difference.

Here’s something else that is rich in irony. With school choice, Wilson says, “Public schools organization and management would become a nightmare.” The private sector, however, manages situations like this every day. The irony is that the fleet of public school administrators hold many advanced degrees in public school administration. But school choice, evidently, is too complicated to manage.

Finally, Wilson references “a highly successful and proud institution, our public schools.” I’d like to call his attention to the nearby chart of results from the Kansas school assessments for the Wichita school district. According to the Kansas State Department of education, “Level 2 indicates that the student is doing grade-level work as defined by the standards but not at the depth or level of rigor to be considered on-track for college success. Level 3 indicates that the student is performing at academic expectations for that grade and is on track to being college ready.”

Looking at fourth grade reading — a very important benchmark — we see that considering college-level readiness, 35.5 percent of students are at that standard. But only 17.6 of African-American students are at that level, and 29.7 percent of Hispanic students. The performance is worse for math, and worse again at eighth grade for both subjects.

I don’t think this is “highly successful,” and I don’t see how Wilson is proud of this legacy. Except: He’s part of the public school establishment, which vigorously protects itself from any meaningful competition.

Kansas school assessments for Wichita. Click for larger.

The Wichita Eagle on Kansas sales tax exemptions

The Wichita Eagle editorial board writes an editorial that gives false hope to advocates of more taxation and more spending.

Advocates of eliminating sales tax exemptions in Kansas point to the great amount of revenue that could be raised if Kansas eliminated these exemptions, given at about $6 billion per year, according to a recent Wichita Eagle editorial.1

Analysis of the nature of the exemptions and the amounts of money involved, however, leads us to realize that the additional tax revenue that could be raised is much less than spending advocates claim, unless Kansas was to adopt a severely uncompetitive, and in some cases, unproductive and harshly regressive tax policy.

The unsigned editorial notes this: “And sales tax exemptions are costing the state a fortune — about $6 billion a year.” For context, general fund spending in Kansas is about the same amount. That’s a lot of money. Further, the tone of the sentence calls for more taxation so that government can spend more. In a previous op-ed on this topic Phillip Brownlee, opinion page editor for the Eagle, wrote ” And with each added exemption, the state is losing out on more revenue — $5.9 billion this fiscal year, according to the Kansas Department of Revenue. That’s money the state could be using to cover its budget shortfalls, increase funding to public schools or further reduce its income-tax rates.” At least he mentioned reducing other tax rates. Usually advocates of closing sales tax exemptions simply want more tax money to spend.

In 2015 I looked at the nature of Kansas sales tax exemptions, using data from 2014. The numbers would be a different if I repeated the analysis today. But not different by much, and the same conclusions apply.

Kansas sales tax exemptions, simplified. Click for larger version.
Kansas sales tax exemptions, simplified. Click for larger version.
We need to look at the nature of these exemptions. I’ve prepared a simplified table based on data from the Kansas Department of Revenue.2 I simplified because there are many deductions that probably should be eliminated, but they represent relatively small amounts of money.

Some sales tax exemptions are for categories of business activity that shouldn’t be taxed, at least if we want to constrain the state to a retail sales tax only. An example is exemption 79-3606 (m), described as “Property which becomes an ingredient or component part of property or services produced or manufactured for ultimate sale at retail.” The tax that could be collected, should the state eliminate this exemption, is given as $3,083.24 million ($3,083,240,000).

But this exemption isn’t really an “exemption,” at least if the sales tax is a retail sales tax designed to be levied as the final tax on consumption. That’s because these goods aren’t being sold at retail. They’re sold to manufacturers who use them as inputs to products that, when finished, will be sold at retail. Most states don’t tax this type of sales. If Kansas decided to tax these transactions, it would place our state’s manufacturers at a severe disadvantage compared to almost all other states.

There are two other exemptions that fall in this category of inputs to production processes, totaling an estimated $632 million in lost revenue. Another similar exemption is “Machinery and equipment used directly and primarily in the manufacture, assemblage, processing, finishing, storing, warehousing or distributing of property for resale by the plant or facility.” Its value is nearly $159 million.

Together, these exemptions account for $3,874 million of the $5,900 million in total exemptions.

It’s curious that the Eagle editorial did not mention these sales tax exemptions and the disadvantage that taxing these transactions would create. The authors — Brownlee, likely — did mention how other sales taxes would affect Kansas: “For example, eliminating the exemption on legal and accounting services could put Kansas at a competitive disadvantage, as other states don’t tax those services.”

Another big-dollar exemption is “items already taxed” such as motor fuel. This is an estimated $318.90 million loss in revenue. Other exemptions are purchases made by government, or purchase made by contractors on behalf of government. These exemptions account for an estimated $624.90 million in lost revenue. If these two exemptions were eliminated, the government would be taxing itself, with no net gain.

Not taxing prescription drugs means lost revenue estimated at $96.49 million. If the state started taxing residential and agricultural use utilities, it could gain an estimated $169.98 million. These taxes, like the sales tax on food and the motor fuel tax, fall hardest on low-income families. As Kansas is one of the few states to tax food, do we want to make life even more difficult for low-income households?

Adding these exemptions comes to about $5,084 million. There are other exemptions for which we could make similar arguments for their retention. What’s left over — the exemptions that really should not exist — isn’t much at all. The entire category of “Exemptions to Charitable Organizations by Name.” amounts to $3.05 million in exempted sales tax. These represent the organizations where a lawmaker has crafted an exemption like “Property and services purchased by Jazz in the Woods and sales made by or on behalf of such organization.”

So when the Eagle editorial board writes “As is, favored groups are saving billions of dollars a year, worsening the tax burden for everybody else,” It must be including broad categories of business like “all Kansas manufacturing companies” as a “favored group.” Or maybe he means prescription drug users are a “favored group.” Or families struggling to pay utility bills.

But there are more problems. The Eagle editorial board writes these sales tax exemptions are “costing the state a fortune.” The only way this makes sense is if one thinks that our property (our money) first belongs to the state, and that in order to spend it, we have to give the state its cut. That’s an opinion that you may agree with, or you may oppose. What’s remarkable — shocking, really — is that in his previous career Brownlee — the opinion page editor — was a Certified Public Accountant. He ought to understand the nature of sales taxes meant to be applied to retail sales, not components of manufactured goods.


Notes

  1. Eagle Editorial Board. Reduce sales-tax exemptions. Wichita Eagle, February 3, 2017. http://www.kansas.com/opinion/editorials/article130438759.html.
  2. Kansas Department of Revenue. Annual Reports. http://www.ksrevenue.org/annualreport.html.

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

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

Shownotes

Kansas construction employment

Tip to the Wichita Eagle editorial board: When a lobbying group feeds you statistics, try to learn what they really mean.

When investigating the claims of a lobbying group, Kansas Policy Institute found that the statistics — when examined closely — do not support the narrative the group promotes. Unfortunately, the Wichita Eagle editorial board did not examine the group’s claims closely enough to determine their validity.

Kansas Construction Employment, 12-Month Moving Average. Click for larger.
Kansas Construction Employment, 12-Month Moving Average. Click for larger.

At issue is the claim that transfers from the Kansas highway fund have lead to the loss of highway construction jobs. It’s repeated not only by the state’s highway construction lobbyists, but also by others. The statistics that are cited deserve further investigation, which is what KPI did on its article Media and highway contractors mislead again. KPI’s Dave Trabert found:

Had the Eagle bothered to examine Mr. Totten’s claim, they would have learned that only 2 percent of the construction job decline was attributable to highway construction and that the loss of 100 jobs is less than 1 percent of total highway jobs.

In addition to learning that Mr. Totten was grossly exaggerating, they would have learned that employment for construction of new homes and non-residential buildings showed very nice growth and the real problem is in specialty trade contractors for non-highway projects.

Trabert is referring to the Wichita Eagle editorial board citing figures from a self-interested lobbying group — in this case, Bob Totten, executive vice president of the Kansas Contractors Association — without investigating the true nature of the figures.

KDOT spending on major road programs. Click for larger version.
KDOT spending on major road programs. Click for larger version.
I’ve taken the same numbers from the Bureau of Labor Statistics. Because these values are available only in not seasonally adjusted form, I’ve created a chart using the moving average of the past 12 months. A second chart shows the change from the same month of the previous year. The charts confirm what KPI found, which is employment in the “Heavy and Civil” category is not responsible for the decline in Kansas construction jobs. In fact, employment in this category is on an upward trend over the past 18 months. It is employment in the category “Specialty Trade” that has fallen. This isn’t related to highway construction.

This data is available in an interactive visualization which you may access here. For more information on highway spending in Kansas, see Kansas highway spending.

Kansas Construction Employment, Change From Year Before. Click for larger.
Kansas Construction Employment, Change From Year Before. Click for larger.

Intrust Bank Arena loss for 2015 is $4.1 million

The depreciation expense of Intrust Bank Arena in downtown Wichita recognizes and accounts for the sacrifices of the people of Sedgwick County and its visitors to pay for the arena.

The true state of the finances of the Intrust Bank Arena in downtown Wichita are not often a subject of public discussion. Arena boosters cite a revenue-sharing arrangement between the county and the arena operator, referring to this as profit or loss. But this arrangement is not an accurate and complete accounting, and hides the true economics of the arena. What’s missing is depreciation expense.

There hasn’t been much talk of the arena’s finances this year. But in February 2015 the Wichita Eagle reported: “The arena’s net income for 2014 came in at $122,853, all of which will go to SMG, the company that operates the facility under contract with the county, Assistant County Manager Ron Holt said Wednesday.” A reading of the minutes for the February 11 meeting of the Sedgwick County Commission finds Holt mentioning depreciation expense not a single time.

Payments by Intrust Bank Arena to Sedgwick County, tableIn December 2014, in a look at the first five years of the arena, its manager told the Wichita Eagle this: “‘We know from a financial standpoint, the building has been successful. Every year, it’s always been in the black, and there are a lot of buildings that don’t have that, so it’s a great achievement,’ said A.J. Boleski, the arena’s general manager.”

I didn’t notice the Eagle opinion page editorializing this year on the release of the arena’s profitability figures. So here’s an example of incomplete editorializing from Rhonda Holman, who opined “Though great news for taxpayers, that oversize check for $255,678 presented to Sedgwick County last week reflected Intrust Bank Arena’s past, specifically the county’s share of 2013 profits.” (Earlier reporting on this topic in the Eagle in 2013 did not mention depreciation expense, either.)

All of these examples are deficient in some way, and contribute only confusion to the search for truthful accounting of the arena’s finances. As shown below, recognizing depreciation expense is vital to understanding profit or loss, and the “net income” referred to above doesn’t include this. In fact, the “net income” cited above isn’t anything that is recognized by standard accounting principles.

The problem with the reporting of Intrust Bank Arena profits

There are at least two ways of looking at the finance of the arena. Most attention is given to the “profit” (or loss) earned by the arena for the county according to an operating agreement between the county and SMG, a company that operates the arena.1

This agreement specifies a revenue sharing mechanism between the county and SMG. For 2105, the accounting method used in this agreement produced a profit of $1,150,206, to be split (not equally) between SMG and the county. The county’s share was $375,103.

While described as “profit” by many, this payment does not represent any sort of “profit” or “earnings” in the usual sense. In fact, the introductory letter that accompanies these calculations warns readers that these are “not intended to be a complete presentation of INTRUST Bank Arena’s financial position and results of operations and are not intended to be a presentation in conformity with accounting principles generally accepted in the United States of America.”2

That bears repeating: This is not a reckoning of profit and loss in any recognized sense. It is simply an agreement between Sedgwick County and SMG as to how SMG is to be paid, and how the county participates.

A much better reckoning of the economics of the Intrust Bank Arena can be found in the 2015 Comprehensive Annual Financial Report for Sedgwick County.3 This document holds additional information about the finances of the Intrust Bank Arena. The CAFR, as described by the county, “… is a review of what occurred financially last year. In that respect, it is a report card of our ability to manage our financial resources.”

Regarding the arena, the CAFR states:

The Arena Fund represents the activity of the INTRUST Bank Arena. The facility is operated by a private company; the county incurs expenses only for certain capital improvements or major repairs and depreciation, and receives as revenue only a share of profits earned by the operator, if any, and naming rights fees. The Arena Fund had an operating loss of $4.1 million. The loss can be attributed to $4.4 million in depreciation expense.

Financial statements in the same document show that $4,443,603 was charged for depreciation in 2015, bringing accumulated depreciation to a total of $30,791,307.

Depreciation expense is not something that is paid out in cash. Sedgwick County didn’t write a check for $4,443,603 to pay depreciation expense. Instead, depreciation accounting provides a way to recognize and account for the cost of long-lived assets over their lifespan. It provides a way to recognize opportunity costs, that is, what could be done with our resources if not spent on the arena.

But not many of our public leaders recognize this. In years past, Commissioner Dave Unruh made remarks that show the severe misunderstanding that he and almost everyone labor under regarding the nature of the spending on the arena: “I want to underscore the fact that the citizens of Sedgwick County voted to pay for this facility in advance. And so not having debt service on it is just a huge benefit to our government and to the citizens, so we can go forward without having to having to worry about making those payments and still show positive cash flow. So it’s still a great benefit to our community and I’m still pleased with this report.”

Earlier in this article we saw examples of the Sedgwick County Assistant Manager, the Intrust Bank Arena manager, and several Wichita Eagle writers making the same mistake.

Intrust Bank Arena commemorative monument
Intrust Bank Arena commemorative monument
The contention — witting or not — of all these people is that the capital investment of $183,625,241 (not including an operating and maintenance reserve) in the arena is merely a historical artifact, something that happened in the past, something that has no bearing today. There is no opportunity cost, according to this view. This attitude, however, disrespects the sacrifices of the people of Sedgwick County and its visitors to raise those funds. Since Kansas is one of the few states that adds sales tax to food, low-income households paid extra sales tax on their groceries to pay for the arena — an arena where they may not be able to afford tickets.

Any honest accounting or reckoning of the performance of Intrust Bank Arena must take depreciation into account. While Unruh is correct that depreciation expense is not a cash expense that affects cash flow, it is an economic fact that can’t be ignored — except by politicians, apparently. The Wichita Eagle aids in promoting this deception.

We see our governmental and civic leaders telling us that we must “run government like a business.” Without frank and realistic discussion of numbers like these and the economic facts they represent, we make decisions based on incomplete and false information.


Notes

  1. Management Agreement between Sedgwick County and SMG. August 1, 2007. Available here.
  2. The Operations of INTRUST Bank Arena, as Managed by SMG. December 31, 2015. Available here.
  3. Sedgwick County. Comprehensive Annual Financial Report of the County of Sedgwick, Kansas for the Year ended December 31, 2015. Available here.

Wichita Eagle opinion watch

Another nonsensical editorial from the Wichita Eagle.

Stop messing with Sedgwick County ZooThis is contained in an editorial urging Sedgwick County government to “stop messing” with the zoo.1

Nor is there any justification for a “non-disparagement clause” in the proposed operating agreement about the zoo director’s public statements, including a prohibition against doing anything to bring the county or society “unwanted or unfavorable publicity.” Even if the county is right — and the society wrong — about the constitutionality of such a gag rule on a public employee, it’s an insult to longtime director Mark Reed’s professionalism and another case of the county trying to pre-empt criticism and punish critics.

It’s common for employees, especially those in managerial and executive positions, to have such agreements. Companies don’t want their employees bad-mouthing the company. I would not be surprised if Holman herself has such an agreement with her employer, the Wichita Eagle. Even if there is no such agreement, can you imagine how long she would last in her job if she started complaining in public about her low pay, her drab office, how her editor censors her best editorials, the crappy publisher, etc.

Employees have protection through whistleblower laws, so if there is corruption or criminality, employees can report it. And the fact that the zoo director is a government employee: I don’t know if that makes a difference, constitutionally speaking.

  1. Holman, Rhonda. Stop messing with Sedgwick County Zoo. Wichita Eagle, July 20, 2016. Available at www.kansas.com/opinion/editorials/article90624332.html.

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

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

Shownotes

Wichita mayor’s counterfactual op-ed

Wichita’s mayor pens an op-ed that is counter to facts that he knows, or should know.

In the pages of the Wichita Eagle Wichita Mayor Jeff Longwell wrote: “The city of Wichita has held its mill levy steady for the past 22 years.”1

That’s the mayor’s opinion. The facts, as can be easily found in government documents, are that the Wichita mill levy rises nearly every year.2 Since 2005 it has risen every year.

Change in Wichita mill levy rates, year-to-year and cumulative. Click for larger version.
Change in Wichita mill levy rates, year-to-year and cumulative. Click for larger version.
The mayor, city council, and bureaucrats say they have not taken action to raise the mill levy. They also say the mill levy is set by the county. All this is true.

But the county sets the mill levy based on two factors, one the city controls: The amount it decides to spend. The other factor, the assessed valuation of property, is not controlled by the city. So it is understandable that the mill levy may vary by small amounts from year to year when the two numbers are melded to form the actual mill levy. Some years the levy might rise, and in some years, it may fall. If it is a truly random matter, we should expect that over time the number of rising years and falling years should be equal, and that the overall change should be near zero.

But in Wichita, the mill levy rises nearly every year. And over time, since 1995, it has risen by 4.46 percent.

Wichita mill levy, percent dedicated to debt service. Click for larger version.
Wichita mill levy, percent dedicated to debt service. Click for larger version.
(Besides that, there has been a shift in the application of property tax revenue, with revenue was diverted from debt service to current spending. As recently as 2007 the city devoted 31 percent of property tax revenue to debt service. In 2015 it was 26 percent.)

What should concern Wichitans about their mayor’s op-ed is that he knows these facts. Or, at least he should. Despite the data that is readily available in the city’s comprehensive annual financial reports, Mayor Longwell has chosen to remain misinformed and/or uninformed, and to spread that to citizens.

Following are excerpts from the minutes of the August 7, 2012 council meeting, which Jeff Longwell attended as council member, and following that, video.

Wichita City Council, August 7, 2012

Bob Weeks 2451 Regency Lakes Court stated we say the City has not raised its mill levy in a long time and thinks it is true that this Council has not taken action to raise the mill levy, but it has increased. Stated in 2002 the City’s mill levy was 31.845 and last year 32.359, which is an increase of about half a mill or 1.6 percent. Stated we should also recognize that property tax revenue increased from about $83 million to $118 million dollars or 42 percent. Stated we did not experience anything near that in the rate of growth of population or inflation? even the two put together. Stated in the City sales tax collection for the same years, $41 million to about $55 million or 34 percent increase. Stated City revenues have increased quite a bit even though the Council has not taken explicit action to increase either the sales tax rate or the property tax rate. Stated another thing he is concerned about is shifting one mill of property tax revenue from the debt service fund to the general fund. Stated over the past years since 2007 there has been a shift of about 2.5 mills, which is more than the explicit policy of one mill, which will be ending over the next two years. Stated we have not delayed paying off debt in the sense that we have not made our scheduled bond payments but that 2.5 mills could have been used to retire debt instead of supporting current spending. Stated we could have repurchased some of our outstanding bonds or we could have used that money to pay for things that we borrowed for. Stated we need to realize that we have been not taking advantage of opportunities to retire longterm debt and had been redirecting that spending to current fund spending, which is where Cowtown and the Nature Center come from. Stated we need to be aware of these types of things as we make the policies going forward.

Mayor Brewer asked staff to explain the figures that Mr. Weeks was talking about.

Kelly Carpenter Finance Director stated regarding the mill levy, they started out at 10 mills in the capital improvement plan. Stated they reduced that down to 7.5 mills and now we are gradually increasing that mill levy back up in the debt service fund to 8.5 mills over the next two years.

Council Member O’Donnell stated he was referring that the mill levy has actually increased.

Kelly Carpenter Finance Director stated the overall mill levy has not increased within the last 19 years. Stated there has been a shift between the general fund and the debt service fund but the overall mill levy of the 32 mills has not increased.

Council Member O’Donnell asked Mr. Weeks to return to the podium and asked where his figures are from.

Bob Weeks stated from the 2011 Comprehensive Annual Financial Report, page H17. Stated they are the numbers that he extracted from that report. Stated it may not be that this Council took an action to raise the mill levy but somehow it did increase.

Council Member O’Donnell asked staff to answer that.

Mark Manning Finance Department the mill levy is set by the county and what they tell the Council each year is that the mill levy in the proposed budget is not changed from the mill levy certified by the county, the prior year. Stated they do not know what the mill levy will be for 2013 right now and will not know until November when the county finalizes its evaluation. Stated it may be slightly higher or lower and that is why you see those annual fluctuations. Stated Mr. Weeks is correct? some years it goes up and some years it goes down a little bit. Stated it does fluctuate and there is nothing we can do to control that but the general policy has been to keep it level for the last 19 years.

  1. Mayor Jeff Longwell: Property tax lid needs exemption for public safety. Wichita Eagle. Available at www.kansas.com/opinion/opn-columns-blogs/article74286642.html.
  2. Weeks, Bob. Wichita property tax rate: Up again. Voice For Liberty in Wichita. Available at.wichitaliberty.org/wichita-government/wichita-property-tax-rate-up-again/.

WichitaLiberty.TV: Trump and the Wichita Eagle, property rights and blight, teachers union, and capitalism

In this episode of WichitaLiberty.TV: Was it “Trump” or “Bernie” that incited a fight, and how does the Wichita Eagle opine? Economic development in Wichita. Blight and property rights. Teachers unions. Explaining capitalism. View below, or click here to view at YouTube. Episode 117, broadcast April 24, 2016.

‘Trump, Trump, Trump’ … oops!

An event in Wichita that made national headlines has so far turned out to be not the story news media enthusiastically promoted.

When two Wichita State University students — one a Muslim and also a student leader — reported they were victims of a hate crime, national news media took up the story. A Washington Post headline read “‘Trump! Trump! Trump!’ attacker allegedly yelled as he beat Hispanic man, Muslim student.” USA Today headlined with “Muslim student claims attacker yelled ‘Trump, Trump!”

From the Wichita Eagle: “A Muslim student at Wichita State University says he and a Hispanic friend, who also is a student, were attacked over the weekend by a man who shouted racial epithets and ‘Trump, Trump, Trump’ before riding away on his motorcycle.” 1

The Kansas chapter of the Council on American-Islamic Relations (CAIR-Kansas) demanded that the incident be investigated as a hate crime.

On this matter, Wichita Eagle editorialist Rhonda Holman opined “Yet, regrettably, Wichita is making national headlines this week for an incident early Saturday at the KwikShop at 21st and Oliver that’s being investigated by the Wichita Police Department as a hate crime. … As described, the deplorable incident further confirms that GOP front-runner Donald Trump’s divisive, nativist talk is finding an audience willing to not only vote for him but also target Muslims and ethnic minorities for verbal abuse and even violence.” 2

But now it is reported that one of the two student “victims” has been charged with a crime. 3 The police report charges that one of the students — not the Muslim student — “provoked another to commit battery or breach of peace by shouting ‘Bernie Sanders’ at Joseph Bryan, rolling up his sleeves and stepping toward him.” 4 Bryan, who is the motorcycle rider alleged to have used the word “trump” in a hateful manner — has been charged, also. But apparently not for using the word “trump,” as that word does not appear in the police report. No one has been charged with a hate crime.

Complaint against Christian Saldana-Banuelos

So shouting “Bernie Sanders” doesn’t seem to rise to the level of a hate crime, while yelling “Trump” does. Go figure.

But there’s something else. The Wichita Eagle jumped all over this story, both the newsroom and opinion page. But so far I haven’t seen an Eagle story on the actual charges that have been filed. (Oh. As I write this, the Eagle has belatedly filed a small story.)

Now we have to wait and wonder whether the Eagle editorial staff will walk back its — shall we say, “regrettable” — conclusions drawn before facts were known.

Who knows what really happened? Does it really matter? Does a scuffle involving three young people in Wichita rise to the level of national news, and does it really say much about the state of race relations in America?

But if the police report accurately describes the event, I have to wonder what charges will be filed against the two WSU student “victims” for lying to the police and the public. Will the Eagle editorial board pursue this deception with the same enthusiasm it showed for covering the original purportedly “deplorable” act?

  1. Morrison, Oliver. Muslim student at Wichita State reports attack by man shouting ‘Trump, Trump, Trump”. Wichita Eagle, March 14, 2016. Available at www.kansas.com/news/local/crime/article65903602.html.
  2. Holman Rhonda. Stand up to intolerance and hate. Wichita Eagle, March 15, 2016. Available at www.kansas.com/opinion/editorials/article66248057.html.
  3. Farris, Deb. WSU students accused of provoking fight KAKE Television. Available at www.kake.com/home/headlines/Students-accused-of-provoking-fight-they-called-hate-crime-376138421.html.
  4. Wichita Municipal Court. Available at lintvksnw.files.wordpress.com/2016/04/charging-documents.pdf.