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Missing from Wichita city documents: Sales tax

It would be simple for the City of Wichita to include additional relevant information regarding economic development incentive decisions.

When the Wichita City Council makes decisions regarding economic development incentives, the Center for Economic Development and Business Research at Wichita State University prepares an analysis for the city. The purpose of the analysis is to determine benefit-cost ratios for overlapping governmental jurisdictions, purporting to show that these jurisdictions will receive more in benefits than they pay in costs. An example of the analysis for a large project is here.

The city does not make this analysis document available to the public. It is a public record, though. Every time I have asked, they have been provided.

One thing, then, that the city could do to increase transparency is to simply make these analysis documents available. Perhaps not in the agenda packet, but as a supplement, such as the way the city provides Powerpoint presentations for council meetings.

Another thing the city could do is to include relevant data that would take just a little more effort.

Consider sales tax exemptions. For a recent industrial revenue bond decision, city documents stated: “The project will also qualify for a sales tax exemption on bond-financed purchases.” 1 But the document doesn’t state the dollar value of the sales tax exemption, even though the CEDBR analysis includes this number. 2 That value, for this recent project, is $1,111,264.

Is that information relevant to decision-makers? City documents estimate the value of the property tax abatements in the first year as $773,604. So for the total tax forgiveness received in the first year, the sales tax exemption is larger than the property tax abatement, accounting for 59.0 percent of the total. 3 That is relevant.

Even over the ten-year life of the property tax abatement, the sales tax exemption is still 11.8 percent of the total tax forgiveness. That — the duration of the property tax abatement — is another opportunity to increase transparency. The CEDBR analysis gives the total cost of the incentives for ten years. (A nearby table summarizes.) These totals are speculative, as the city council must revisit the matter in five years to determine whether the company deserves the property tax abatement for an additional five years. (This is known as a “five-plus-five year tax exemption.”)

But the total value of the exemptions is relevant, as it flows into the benefit-cost ratio calculations.

Given all the numbers the city presently reports from the CEDBR analysis documents, not including the value of the sales tax exemption is a significant omission, and one easy to correct.


Notes

  1. Wichita city council agenda packet for January 21, 2020, item V-1
  2. Center for Economic Development and Business Research. January 8, 2020, version 8. Available at https://drive.google.com/file/d/1Mg3B0sJVy67_r4gNl4NZbclZKZsdgQUx/view.
  3. Assuming all sales taxes are paid during the first year.
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