Tomorrow the Wichita City Council handles two items regarding the Ken-Mar shopping center being redeveloped in northeast Wichita. These items illustrate how inappropriate it is for the city to serve as either entrepreneur or partner with entrepreneurs, and is another lesson in how Wichita needs pay-to-play laws.
In August 2008 the city formed a tax increment financing (TIF) district to benefit the center. This allows $2.5 million of the center’s future property taxes to be earmarked for the district’s exclusive benefit. In January 2009 the city approved a development plan that specified how the public money would be spent, and how the development would proceed.
The developer of the project is Reverend Kevass Harding, a former Wichita school board member who has announced future political ambitions.
The first and most serious issue regarding this TIF district is that changes to the development plan mean that the district will not be able to meet its debt obligations. In the sobering words of the agenda report: “The TIF financial analysis indicates that the incremental tax revenue will not cover the debt service on City TIF bonds.”
City staff is proposing to shift the debt to the city’s debt service fund, using money there to pay off the $2.5 million in temporary TIF financing bonds. Then, Ken-Mar will repay the debt service fund through the district’s incremental tax revenue over a period of 17 years, along with three percent interest.
The original development plan from 2009 includes a table that specifies an interest rate of 4.91 percent for the TIF bonds. Now the city is replacing that with its own debt, and charging Harding and Ken-Mar just three percent interest. My calculations indicate this reduced interest rate will save Harding about $30,000 per year, or about $516,000 over the course of the loan.
This action can only be characterized as a bailout, with all the negative connotations that accompany that word. It’s not the first time Wichita has had to create a bailout for a failing TIF district.
The second item the council will deal with is a change to the development plan. The development agreement from 2009 contemplates that changes will need to be made, “with the approval of City Representative from time to time.”
While the agreement doesn’t explicitly state that changes to the plan must be approved before proceeding, this is the only reasonable way to interpret the agreement.
But in this case, Harding made changes before getting approval from the city. And he didn’t just use a different paint color or different flowers in the landscaping. Instead, he made a big change. He demolished a large portion of the structure that was to be renovated, according to the plan he agreed to.
The world changes. No doubt about that. Changes to plans are necessary to accommodate changes in the world. But this is more evidence of how government is not prepared to serve as entrepreneur, or as partner with entrepreneurs.
There was an agreement in place. Harding changed it, and only several months later is the city going to grant its approval. This places the city in the position of appearing not to care whether its agreements are followed. The council finds itself in the awkward position of approving an agreement to do something that’s already been done.
(This is not an unusual position for the city, as recently it approved a letter of intent to do something for which it had yet to hold a public hearing.)
Underlying the story of Ken-Mar and Reverend Harding is a lesson on the need for pay-to-play laws in Wichita and Kansas. As reported in 2009, Harding and his wife made campaign contributions to Wichita City Council Member Lavonta Williams (district 1, northeast Wichita), who is presently serving as vice-mayor. These campaign contributions, made in the maximum amount allowable, were out of character for the Hardings. They had made very few contributions to political candidates, and they appear not to have made many since then.
But in June 2008, just before the Ken-Mar TIF district was to be considered for approval, the Hardings made large contributions to Williams, who is the council member representing Ken-Mar’s district. Harding would not explain why he made the contributions. Williams offered a vague and general explanation that had no substantive meaning.
The close linkage between the contributions and Harding asking the city council to grant him money illustrates the need for pay-to-play laws in Wichita and Kansas. These laws impose various restrictions on the activities of elected officials and the awarding of contracts or other largesse to those who have made political contributions.
An example is a charter provision of the city of Santa Ana, in Orange County, California, which states: “A councilmember shall not participate in, nor use his or her official position to influence, a decision of the City Council if it is reasonably foreseeable that the decision will have a material financial effect, apart from its effect on the public generally or a significant portion thereof, on a recent major campaign contributor.”
In the absence of such laws, and with Harding and Williams unwilling to explain, we’re left with questions like these:
If the Ken-Mar TIF district served a genuine public purpose, why did the Hardings make the campaign contributions to Williams?
Must those who want to form a TIF district make contributions to the council member representing the district?
If council member Williams is accessible to her constituents, why the contributions?
Must those who receive money from the city offer a thank-you contribution?
None of these reflect well on the reputation of Wichita.