This week the Wichita City Council will consider a request for a forgivable loan that will put the campaign rhetoric of three newly-elected council members to test.
At issue is The Golf Warehouse in northeast Wichita. The company proposes to expand its existing facility in Wichita rather than in Indiana, where the company has existing facilities with excess capacity. To lure the company to expand in Wichita, the state of Kansas is offering grants totaling $275,000. The company also seeks a forgivable loan from the City of Wichita for $48,000, and another forgivable loan of the same amount from Sedgwick County for a total package worth $371,000. If the company meets employment and wage goals, the forgivable loans do not need to be repaid. Details of the proposal may be seen at Wichita City Council agenda packet, May 10, 2011, starting on page 40.
While campaigning for their offices, each of the three candidates — now council members — spoke negatively of forgivable loans. At a campaign event in February (transcripts below), James Clendenin (district 3, south and southeast Wichita) spoke of how the need for a loan to be forgiven reflects poorly on a company’s financial performance. His remarks look more to the past history of a company rather than to the future, and that’s not the focus of the city’s forgivable loan program. It does not forgive loans that were made in the past. Instead, it makes new loans that will not need to be repaid if performance goals are met — in effect, grants of money.
District 4’s (south and southwest Wichita) new council member Michael O’Donnell spoke plainly against this form of incentive, saying “I do not believe in forgivable loans.” He exhibited insight regarding the spiraling nature of economic development incentives, saying that because the city gives out subsidies and incentives, everyone wants them. It sets a “terrible precedent,” he said, adding that it is “completely irrational.”
Pete Meitzner, who represents district 2 (east Wichita), said “I am not for forgivable loans.” He noted the contradiction inherent in the terms “forgivable” and “loan,” calling them “conflicting terms.”
If Meitzner sticks by his campaign rhetoric against forgivable loans, it may make for an awkward moment at Tuesday’s council meeting. That’s because the applicant company is located in Meitzner’s district, and custom dictates that he, as representative for the district the company is located in, make the motion in favor of granting the loan — a forgivable loan that he has said he is “not for.” If Meitzner acts in office as he campaigned, he will make a motion denying the applicant’s request.
The other four members of the council usually have a favorable attitude toward these forgivable loans and other economic development subsidies and incentives. My suspicion is that at least two of the new members will be persuaded that this loan is necessary, and they will abandon their campaign musings. O’Donnell’s insight will be shown to be true, and more companies will ask for subsidy and incentive from the city, county, and state. Rent seeking — again — will be the economic development policy of the City of Wichita.
From a meeting of Republican Women United on February 12, 2011, in response to a question about the City of Wichita and forgivable loans:
James Clendenin: “If a company is not doing well, and they need a loan forgiven, we need to find out why they want this loan forgiven. If we’re gonna forgive a loan, are they going to continue their bad habits, the things that got them in this situation? So we need to examine those things when we’re considering that.”
Michael O’Donnell: “I do not believe in forgivable loans. I feel that if it wouldn’t pass muster with a financial institution, then the City of Wichita should not take the taxpayers money to give to these companies. That sets a terrible precedent. And once you start, it’s a slippery slope, because everybody’s going to be attracted to it. Because they should. Any businessman should be going to the City of Wichita and asking for loans, because they continue to give it out. It’s completely irrational.”
Pete Meitzner: “Forgivable loans is kind of a … I’m surprised that’s even a word, it’s kind of a conflicting term anyway. I am not for forgivable loans. I think the city and businesses have a number of tools when they’re challenged. Our city was founded — it’s a great city — based on aircraft manufacturing, oil and energy industries, entrepreneurial spirit that went nationwide and worldwide, and small businesses. If we as a city need to use our tools, but we need to embrace those people to feel accepted, and a freedom to grow their businesses. And if they’re struggling, and struggling with their bank, I don’t mind helping being an advocate to help these businesses do whatever they can to continue to flourish. Some of that might be us getting out of the way. Rewriting regulations, less stringent. It’s okay for us to get out of the way and allow them to flourish. I think we need to use any of the tools that we possibly can have beside a term forgivable loan.”