Wichita Exchange Place TIF should be rejected

Tomorrow’s meeting of the Wichita city council will feature a public hearing as to whether a tax increment financing district that benefits Real Development should be modified. The TIF district is already approved in the amount of $9.3 million. The applicants are asking that the city’s contribution be increased to $11.8 million, plus approval of changes to the project plan.

The first issue we should address is the purpose of these public hearings. Presumably notice of their existence is given not only so citizens and interested parties can plan to attend, but also so that there can be discussion of the details of the issue. This second reason is not fulfilled to any meaningful extent. There just isn’t time for anything to happen. The agenda report for this matter did not appear on the city’s website until around noon Friday, just two business days before the hearing.

Furthermore, the plan may be revised as late as today — the day before the public hearing — according to reporting in today’s Wichita Eagle.

There needs to be more time if these public hearings are to be anything but a sham. The city approved April 13 as the date for the public hearing on March 23. So the public hearing is announced, but details of the project are not known. How will the public — much less city council members — become aware of the final plan?

The plan to be heard tomorrow is the second revision of the original plan, which was first approved in 2007. Some may criticize Real Development for the shifting plan. But this is the nature of business. Change, however, is something that government bureaucracy is particularly ill-equipped to deal with.

There are reasons to be concerned with these particular applicants. Several floors in buildings they own in Wichita have been subject of foreclosure actions. While it is not Real Development that failed to pay the loans that were foreclosed on, this happened in buildings Real Development owns and developed with a condominium-style of ownership.

There is also issue of allegations made by tenants of Real Development that it is not performing on its obligations. These tenants will not come forward in public, as they are afraid that if the city stops subsidizing Real Development, the tenants will suffer.

But the largest and overriding issue is that the city should not be directing taxpayer investment outside the market process. It is an undeniable fact that the city is considering forcing Wichita taxpayers to risk an investment of around $10 million in this project. And if the investment doesn’t work out, the city is likely to force Wichitans to spend even more money on this project, as the city did when it made a no-interest and low-interest loan to a downtown theater that was underperforming in its TIF district.

It would be one thing if TIF districts were good for the city, but there is no such evidence. There is evidence that TIF districts are great for the developers — after all, wouldn’t like to have their increase in property taxes spent for their exclusive benefit, which is the purpose of a TIF district — but not so good for the rest of the city. The article Tax Increment Financing: A Tool for Local Economic Development by economists Richard F. Dye and David F. Merriman states, in its conclusion:

TIF districts grow much faster than other areas in their host municipalities. TIF boosters or naive analysts might point to this as evidence of the success of tax increment financing, but they would be wrong. Observing high growth in an area targeted for development is unremarkable.

So TIFs are good for the favored development — not a surprising finding. What about the rest of the city? Continuing from the same study:

We find evidence that the non-TIF areas of municipalities that use TIF grow no more rapidly, and perhaps more slowly, than similar municipalities that do not use TIF.

So TIF districts may actually reduce the rate of economic growth in the rest of the city.

Cato Institute Senior Fellow Randal O’Toole has written this about tax increment financing:

TIF does not increase the total amount of development that takes place in a city or region; it merely transfers development from one part of the region to another. … The new developments in the TIF districts consume fire, police, and other services, but since they don’t pay for those services, people in the rest of the city either have to pay higher taxes or accept a lower level of services. This means people outside the district lose twice: first when developments that might have enhanced their property values are enticed into the TIF district and second when they pay more taxes or receive less services because of the TIF district.

Similar findings apply to the issuance of industrial revenue bonds, as the city issued last week and issues frequently.

Finally, I have a simple question for the mayor, city council, and city staff: Will any downtown development occur without public subsidy?

Resources on tax increment financing:

Exchange Place Redevelopment Plan April 13, 2010

9 thoughts on “Wichita Exchange Place TIF should be rejected”

  1. “Finally, I have a simple question for the mayor, city council, and city staff: Will any downtown development occur without public subsidy?” First of all, it’s an incentive not a subsidy. Secondly, the answer to your question is yes. Some development does occur without use of public finance incentives. And, public finance incentives are used throughout the city.

  2. Pat, I have to disagree.

    “Finally, I have a simple question for the mayor, city council, and city staff: Will any downtown development occur without public subsidy?”

    It doesn’t matter is it is a subsidy or an incentive. “Everyone else got one” so I’d be stupid to invest MY MONEY downtown when no one else does. Simple, but unfortunately true.

    Mike

  3. If TIFs are such a great idea, let’s make the entire community a TIF. In fact, let’s make the state a TIF. Ooops, can’t do that, wouldn’t be prudent, just for the select few.

    Mike is right. This is a special subsidy. This is a special subsidy for a a very small but well conntected special interest.

    This is facilitated by a person with a web of ties to city hall’s leadership. The good ‘ol boys of whatever race/gender are alive and well in Wichita’s city hall.

  4. Let’s not forget the fact that the enabling legislation for the use of TIFs is found in the state statutes. This legislation was passed by a Republican House and Senate and signed into law by a then Republican governor. Accordingly, TIFs are an economic tool that people other than the city council felt would be of benefit to the community.

    Secondly, Wichitator is right. TIF is for a small group that have a special interest. It’s called property owners who are dealing with blighted property conditions. And, no, there is no distinction between who has access and who doesn’t. I mean for Pete’s sake, they almost gave a TIF to someone who had no business of getting a TIF and no track record of success. And to a certain extent, the entire state IS already a TIF.

    TIF is just earmarking incremental tax dollars that would otherwise not be realized but for the development. That earmark simply means directing the dollars to a specific purpose. Is that not true in the suburbs as well? New growth creates new tax base. New growth also creates the need for upgrades to streets, water, sewer, drainage, emergency services, etc. Are not their new incremental tax dollars also being earmarked to serve the new development?

    Third, Mike, there are people who invest in downtown because that’s where they want to be. Some want to be close to financial and government centers, i.e. Intrust, federal courthouse, county commission, and, yes city offices. Not everyone who does a deal downtown want to use a TIF. Why? Because it’s a major undertaking and a lot of up-front costs, such as financial analysis, third-party reports, etc.

  5. Pat: Who the heck are you that you always seem to know so much about what is going on downtown? What is your tie that binds?

  6. Just a community activist who understands that most of what affects the pubic on a day to day basis happens either at city hall, the county courthouse, or over at the 259 offices.

  7. Charlie,
    What I would like to know is what Pat means when she says that she understands “what affects the pubic on a day to day basis”. She is either medically trained or misspelled the word pubic, but that makes her not very smart?????

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