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The Real Scandal at City Hall

In 2003, local Wichita news media devoted extensive news coverage to two officials in the City of Wichita’s finance department. They were accused of improperly spending between $52,000 and $73,800 on travel. While I don’t condone this waste and I’m glad that our local news media uncovered it, the amount involved is relatively small. Furthermore, the people who wasted this money are no longer in a position to repeat.

The real scandal, however, is the ongoing lack of care exercised when spending our money. Time and time again we read in the newspaper how the mayor or city council members are surprised by facts and circumstances arising after a decision has been made.

For example, in an article titled “Kolb goal: full facts in future city deals” (Wichita Eagle, September 26, 2004) we read this:

“Due diligence should have been done,” Mayor Carlos Mayans said when he learned of the losses: “We expect the staff to provide us with information that helps us make sound decisions.”

In the same article, council member Paul Gray, upon hearing of bad financial news at the city-owned ice rink, is quoted as saying “Why is it just now coming to us?”

Continuing in the same article, council members were described as being surprised upon learning that the industrial revenue bonds and property tax abatement awarded to a local business also included a sales tax break. How could they be surprised? The City of Wichita website contains a nicely-done page titled “Industrial Revenue Bonds” (located at http://www.wichitagov.org/Business/EconomicDevelopment/IRB) (This is the first result that appears when you use the wildly popular Google search engine and search for “Wichita IRB.”) The first link on this page is titled “IRB Overview: Industrial Revenue Bond Issuance in the State of Kansas,” and you don’t have to read very far before you come to the sentence reading “Generally, property and services acquired with the proceeds of IRBs are eligible for sales tax exemption.”

Is it asking too much that someone at City Hall read the City’s own website? Or, is it possible that they knew this, but decided to overlook inconvenient facts?

Recently, in an article titled “Plaza falls short” (Wichita Eagle, November 14, 2004), we read this:

The cinema plaza is the latest in a series of public and public-private projects that have underperformed compared with projections. Others include the Hyatt Regency Wichita, Ice Sports Wichita and Auburn Hills Golf Course.

Mayans said he’s getting tired of such surprises and is working with City Manager George Kolb to make changes.

“We need to find out why we have so many projects (from) previous years that are having financial difficulties,” he said. “From now on, we have to make sure that we are not using anyone else’s numbers and we are doing our own due diligence.”

In fairness to Mayor Mayans, I emphasize that these decisions were made before he took office.

Now as we undertake spending even more money on projects such as the Waterwalk and the downtown Wichita arena, how can we restore confidence in our local government officials?

The best thing to do would be to stop spending on projects that are better handled by the private sector. It seems like the City of Wichita, when partnering with private developers, often assumes most of the risk but is not in position to received the rewards the private developers earn (and rightly deserve to earn) if the project succeeds.

A recent editorial by Phillip Brownlee in the November 21, 2004 Wichita Eagle illustrates the risk involved in these dealings. The editorial, when recommending how to avoid future mistakes like the Old Town Square tax shortfall, states there should be “Better communication between the developers and the city, especially if the project changes.” The key idea in this sentence is change. Things always seem to change. Private developers, being close to the ground and having their own money at risk, sense the need for change earliest. If they are spending their own money, they have the perfect right to change as they see fit. But if they have agreed with the government on a course of action, and now that course needs correction, they have to go back to the government and ask permission to change. That can take a long time — maybe too long to respond adequately to the changing markets.

The editorial also recommends “Clearer expectations (and in writing) about what the developers will build and what occupancy rates likely will be.” First, this sentence illustrates the element of risk again, what the rates likely will be. No one knows. There is risk in developing a business of any type. It seems like the City assumes the risk, however. Also, I am wondering why Mr. Brownlee seems to imply that expectations have not been given in writing. Furthermore, what recourse does the City have if expectations are not met?

Finally, the editorial reads “Closer City Council scrutiny before projects are approved (members at the time now say they didn’t know who all the Old Town development partners were, and they seemed to accept on faith the assurances by city staff that the project would exceed revenue projections).” I first note that it seems like city staff are acting as cheerleaders for these projects, when they should provide a sober assessment. Furthermore, if the project would exceed revenue projections, why not adjust the projections so that they accurately reflect what we believe the future will hold?

The City of Wichita can do a better job. At one time it seemed like our mayor would be better. From an article titled “Mayans takes on WaterWalk” (May 30, 2003 Wichita Business Journal):

One area Mayans says he’s concerned about is a “leasehold mortgage” referred to in the agreement. That means the city is allowing the developer to place a first lien on the ground owned by the city and leased to the developers for the project, Mayans says. Later, the agreement specifies that the city agrees that their ownership of the ground is to be “subordinated” to a loan obtained by the developer to build the improvements.

“If the project is unsuccessful, the lender then has the right to take not only the improvements, but also the city’s land,” Mayans says.

This is the type of thorough analysis and due diligence needed before the City enters into agreements of any type. Why is the city staff not providing this, and why are the Mayor and City Council members not demanding it?

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One Comment

  1. Anonymous November 30, 2004

    The city owned Hyatt Hotel lost over $3 million dollars during its first four years of operation (1997-2000). I have copies of the financial statements that are all entitled, “statement of loss”.

    In the fifth year, 2001, the atrocities committed September 11 worsened the financial situation and the city bought out the hotel at at cost of millions more. I have requested an annual financial report using the Kansas Open Records law but was told that no report was issued in 2001.

    More recently whole floors of the hotel have been closed off and there was a flurry of negative publicity when it was revealed that someone had set up a meth lab on one of these vacant floors.

    This is another great case of the Wichita taxpayers being taken to the cleaners.

    Karl Peterjohn
    Kansas Taxpayers Network
    http://www.kansastaxpayers.com
    http://www.noarenatax.com

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