The City of Wichita insists on a certain level of return on investment for its economic development incentives, but doesn’t apply that criteria to overlapping jurisdictions.
This week the Wichita City Council will consider an economic development incentive to a company. The council requires that incentive projects show a benefit-cost ratio of 1.3 to one or greater, meaning that the city expects to gain $1.30 or more for every dollar it invests in the incentive program.
For the project the city will consider on May 6, that threshold is met for the city’s general and debt service funds, and also for Sedgwick County and the State of Kansas. But for USD 259, the Wichita public school district, the benefit-cost ratio is 1.23 to one. That’s below the criteria the city requires for itself, although the policy contains many exceptions.
The program used to deliver this incentive is Economic Development Exemption (EDX) . It provides relief from property taxes based on a formula that considers job creation and capital investment. In this case, the company qualifies for a 93.25 percent real property tax exemption for up to ten years. Not 92 percent, and not 94 percent. Instead, the city has determined that precisely 93.25 percent is the correct amount of property tax exemption to be awarded. (Which reminds me of the saying that economists use a decimal point now and then to remind us they have a sense of humor.)
Furthermore, the decision to award the tax exemption is made solely by the City of Wichita. The other taxing jurisdictions have no say in the matter and no ability to object. So while Wichita requires a benefit-cost ratio of 1.3 to one or better, it’s saddling the Wichita school district with a benefit-cost ratio of 1.23 to one.
This is all the more meaningful when we consider that the Wichita school district is the largest participant in the incentive. The amount of tax revenue the school district is giving up — perhaps against its will — is almost as large as the city, county, and state put together. These are the amounts of foregone tax revenue for each jurisdiction, according to city documents.
City $14,096
State $651
County $12,738
USD 259 $24,810
Perhaps it’s time to consider laws in Kansas that would allow counties, school districts, and the state to opt out of economic development incentive decisions made by cities.
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