Wichita mayoral debate

Details of the Wichita baseball stadium land deal were an issue at the first Wichita mayoral debate.

The Wichita first mayoral debate of the general election season between Wichita Mayor Jeff Longwell and Brandon Whipple was characterized by the Wichita Eagle headline, “Wichita mayor candidates accuse each other of lying in first debate.” But I noticed a story told by the mayor that sounds like a good deal, but deserves scrutiny.

It has to do with the four acres of land sold for $1 per acre to the owners of the new Wichita baseball team. The controversy is that the fact of the sale was not known by the public until shortly before the council was asked to approve the deal. As reported by the Wichita Eagle:

The City Council sold four acres of public land for $1 an acre in a deal where some city staff members acknowledged they didn’t follow city guidelines for selling city property.

“We can always communicate better,” Longwell said. “Certainly, it was a learning opportunity for many of those at City Hall that had been working on that bill for a long time.

“But let me tell you what really didn’t get reported. The previous stadium had a contract where the team paid us $25,000 a year to play there. The new team is going to be paying us up to $600,000 a year. I’ll negotiate four acres away every day for $600,000 every year that we can put into the Wichita city coffers and all of the growth that it’s going to bring that river corridor.

“So at the end of the day, what people are not arguing is how good the deal is. They’re just complaining about the communications, and we can improve that.” ¹

Let’s look at “how good the deal is.” The money Longwell referenced is called a “management fee.” More commonly, a payment like this is called “rent.” It’s paid to the city by the new baseball team annually. Here’s the contract language: “Beginning with the first year of the Initial Term, the Team will pay annual fees of Three Hundred Fifty Thousand Dollars ($350,000) per year, with an increase to be determined every five years based on the average increase in the Consumer Price Index for All Urban Consumers over the previous five years.” ²

I’m not sure how to model the calculation described in this agreement, but one attempt showed that inflation would have to be nearly four percent per year in order to reach an annual payment of $600,000 at the time of last adjustment. For reference, the average inflation rate for the last ten years is about 1.6 percent.

But the inflation rate doesn’t really matter, as the purpose of a payment that increases with inflation is so that its value remains constant in real dollars. So whatever the annual management fee years from now, it should be worth, in real terms, its value today, which is $350,000.

Click for larger.

Then: No matter what the management fee paid by the new team, some of it goes to the Wingnuts, the old team. Nearby is a table from the agreement between the city and the Wingnuts. ³ The $2,200,000 the city needs to pay is more than the first six years of management fees the new team will pay.

One more thing: In order the get these management fees, the city had to build a stadium costing some $75 million. The management fees, after the Wingnuts are paid off, represent a rate of return of one-half of one percent.

The mayor mentioned that a benefit would be “all of the growth that it’s going to bring that river corridor.” For now, that growth exists as plans only. I hope the river corridor is a commercial success, but the city’s experience in development is mixed.

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