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. 23
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 Eaglereported: “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.”
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 monumentThe 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
Management Agreement between Sedgwick County and SMG. August 1, 2007. Available here. ↩
The Operations of INTRUST Bank Arena, as Managed by SMG. December 31, 2016. Available here. ↩
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 the fiscal 2016 and 2017 school years, the formula was replaced by block grants. ↩
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↩
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.34 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.56 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.
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 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.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.
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
Article: Wichita, give back the Hyatt proceeds. Instead of spending the proceeds of the Hyatt hotel sale, the city should honor those who paid for the hotel — the city’s taxpayers.
Article: Topeka Capital-Journal falls for a story. The editorial boards of two large Kansas newspapers have shown how little effort goes into forming the opinions they foist upon our state.
Article: Kansas and Arizona schools. Arizona shows that Kansas is missing out on an opportunity to provide better education at lower cost.
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.
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.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.
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 Eaglereported: “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.
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.”
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 monumentThe 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.
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Notes
Management Agreement between Sedgwick County and SMG. August 1, 2007. Available here. ↩
The Operations of INTRUST Bank Arena, as Managed by SMG. December 31, 2015. Available here. ↩
Sedgwick County. Comprehensive Annual Financial Report of the County of Sedgwick, Kansas for the Year ended December 31, 2015. Available here. ↩
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
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.)
In December 2014, in a look at the first five years of the arena, its manager 
In December 2014, in a look at the first five years of the arena, its manager