Wichita makes case for tax credits

At yesterday’s meeting of the South-central Kansas legislative delegation with government officials, the City of Wichita spent most of its time presenting the case that cuts made to a program of tax credits for historic buildings should be restored.

Initially Mayor Carl Brewer asked legislators for continued funding for the affordable airfares effort, for the National Institute for Aviation Research, and the aquifer recharge project.

But the primary focus of the city’s requests became clear when Jeff Fluhr of the Wichita Downtown Development Corporation introduced Christy Davis, a historical preservation consultant who operates a company that assists property owners and governments in obtaining funding for historic preservation projects.

She said that there is public policy in Kansas that supports historic preservation, and that the tax credit program has been a great success. In particular, she said the tax credits leverage the financing necessary for historic preservation projects.

She said that every dollar in tax credits supports an additional three dollars of private investments. Rehabilitation of existing structures is 50 percent more labor intensive than new construction, so more jobs are created. Since 2002, $66.4 million in Kansas tax credits have been issued, and Davis said this has leveraged over $260 million in private investment, also creating jobs and income.

Returning to the podium, Fluhr said that tax credit program needs to be predictable, so that the private sector knows they can depend on it. Also the transferability of the credits is important, so that developers can sell them to raise capital.

Fluhr presented examples of several buildings in Wichita that have been rehabilitated, including the Wichita High Apartments, which he said will rent for $1,000 to $2,000. He mentioned condos in the Grant Telegraph building, which he said range in price from $300,000 to $950,000. Davis presented examples of rehabbed buildings whose property owners said the projects would not have been possible without the tax credits.

In 2009, the legislature placed a cap or lid on the amount of tax credits. Davis said that it was intended to be a 10 percent cut, but it turned out to be a 70 percent cut.

Both Fluhr and Davis presented the case of the Broadview Hotel in downtown Wichita. That project, already receiving various forms of subsidy from the City of Wichita, requires historic tax credits for its financial viability, according to the developers and the city. (Uncertainty over Broadview’s future doesn’t bother Wichita)

Analysis

The city’s quest for more tax credits is likely to face a rough road in the statehouse.

Spending advocates, especially schools, want the legislature to close tax exemptions. Generally, these are sales tax exemptions, so that organizations such as the Girl Scouts (expect them to make several field trips to the statehouse soon) don’t have to pay sales tax.

Kansas Secretary of Revenue Joan Wagnon says that repealing these sales tax breaks could generate $200 million per year in revenue. She also wants a three-year moratorium on new tax breaks.

These sales tax exemptions are “passive” from the standpoint of the legislature, in that the legislature created them, and then people have to initiate economic activity in order to benefit. The only involvement of the state in the transaction is that it doesn’t collect tax that it would have. For believers in limited government, that’s good.

But tax credits are active. When an applicant qualifies, the state, in essence, pays money to the applicant. While some may disagree that tax credits are in fact a payment by the state, Fluhr mentioned the transferability of the tax credits and the ability to sell them as important to developers. Recently some have started to use the word “tax appropriations” to describe tax credits. These expenditures don’t go through the normal legislative process that most appropriation do.

Indeed, if the state issued checks to real estate developers, citizens would look at things differently. They’d wonder why they’re subsidizing the construction of apartments that rent for up to $2,000 monthly, or condos worth nearly a million dollars. These aren’t low-income housing tax credits, after all.

By characterizing subsidies to developers as tax credits, it seems much less benign, although the economic effect is the same.

For believers in the collective wisdom of free people trading voluntarily in markets — instead of government intervention — making grants to favored developments through tax credits is one of the most harmful things that government can do. In the case of historic building credits, it represents the desires of a relatively small band of enthusiasts. As John W. Sommer wrote in The Cato Journal:

With few exceptions, historic or landmark preservation illustrates the powerful force of cultural elites who impose their tastes on the landscape at the expense of the general public. City after city has been confronted by small groups of architectural aesthetes who are as highly organized as they are both righteous and wealthy. In city after city these groups have succeeded in stalling, or permanently freezing, the pace of physical and functional change. In the name of “heritage” or “culture” or “a livable city,” and invariably “in the public interest,” preservationists seek to legislate “charm” for others.

We’d be better off with requiring that preservationists rely on the market for the financing and success of their projects.

6 thoughts on “Wichita makes case for tax credits”

  1. HEY BOB – I agree with your basic point that the federal & state government should try to influence its citizens behavior by issuing tax credits (even if it is for a noble cause such as encouraging energy efficiency in homes or trying to reduce the number of gas guzzling clunkers on the road or subsidizing 1st time homebuyers) . However you miss the bigger point that tax credits (like TIFs) invariably lead to corruption & influence peddling by good old boy attorneys or lobbyists that are former office holders. Because the amount of low income housing & historic preservation tax credits is limited by the state legislature or US Congress, they must be awarded by commissions made up of good old boy appointees. When writing future analysis, please consider how government accountability & transparency is affected. The bipartisan corruption in Wichita is out of control because good old boys from across the political & racial spectrum have their snouts in the government trough. Ideally both small government conservatives & big government liberals should be able to agree that accountability & transparency are essential unless of course they want to be part of the good old boy network. Why don’t you write a follow up column describing how credits are awarded? Bill McKean 316 293-6079

  2. Geez Bill, you’re not anywhere in the ballpark with your comments about how tax credits are awarded. Furthermore, it’s ridiculous to suggest that there is corruption involved in the awarding of the tax credits; especially when you understand how they are awarded. (BTW, elected officials have very little to say about the awarding of tax credits.) Suggest that you and/or anyone else who continually (and I do mean continually) make assertions that our elected officials are corrupt, then bring the evidence or just shut up about it. That said, yes, transparency and knowledge of the process is important. Yes, we as citizens should be concerned about the use of tax credits.

  3. Pat, while Bill is a little strong in his comments, it doesn’t mean that he is not correct. The old library building (next to Fidelity Savings Bank) was sold to the Bastian for a lower amount than a competing proposal for development that offered more money to the City (the City also supported the tax credits). If you check the contribution campaign report of Mayor Brewer, you will find several contributions from the Bastian family members. Coincidence????????

  4. Richard, I understand what you’re saying and he’s saying but to make baseless charges of corruption is slanderous. Point is corruption is serious and felonious and when someone starts making accusations then they’d better have evidence. I would agree that there needs to be transparency in government affairs and that it always hasn’t been the case in a number of instances. Too often, misinformed citizenry cry foul but don’t take the time or are too d*mn lazy to become objectively knowledgeable of the facts. In this town, it’s becoming epidemic of the later case.

    That said, not everyone who submits a proposal is capable of delivering. If someone who had no experience as an auto mechanic offered to tune-up your car for $60 versus a full service auto repair’s estimate of $450, would you choose the $60 option? Of course not.

    All proposals have to be based and evaluated upon a group of criteria and parameters. Unfortunately, too often it’s difficult to get an apple to apple comparison of proposals because either the criteria hasn’t been established up front, or the proposals are often based upon proprietary and competitive knowledge.

    The process of awarding tax credits is done at the State of Kansas level and the state has a fairly objective process. It can be researched under the Kansas Department of Commerce’s website.

  5. I think that John Sommers article is really dealing with the issue of a property owners rights as it deals with Historic Preservationist and not so much as the use of Tax Credits. This seems to be the gist of the quote that was used in the article here but if you read the entire text Sommers gives examples of where progress is stopped due to preservation of historic buildings (Dallas Texas ‘“Terry Maxon, “Landmark Panel Stymies Skyscraper,” Dallas Times Herald, April 14,1982.). As to the statement made by Richard that the City accepted a lower bid because of campaign contributions. I would remind you that price paid is not always the final determination in accepting a proposal. Ability to perform, jobs, neighborhood concerns, and historic preservation are all additional issues that come into play. So don’t be so quick to slander others efforts.

  6. Hi, while there is not proof of corruption in the whole downtown deal, it smells bad anyway. Why does the whole city council care only about downtown? We must have a downtown waterwalk, we must have a casino downtown, we must have an arena downtown, what’s next a Wichita Space needle? It would at least lessen the finger pointing if the city council actually tried to put something nice (like a library, park or baseball diamonds) somewhere in Wichita other than Downtown.

    Mike

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