Last week’s release of a report produced by the Kansas Legislative Division of Post Audit is an embarrassment to City of Wichita elected officials and staff, the Kansas Regional Area Economic Partnership, and the Wichita State University Center for Economic Development and Business Research. The audit found that economic development claims of the Kansas Affordable Airfares program are significantly overstated. This program pays a subsidy to discount airlines providing service in Kansas, primarily Airtran Airways in Wichita.
The primary finding of the report is this: “Overall, the program appears to have had the desired effect. Since Wichita’s original affordable airfare program (FairFares) began in 2002, fares have decreased, while the number of passengers and the number of available flights have increased. However, the Regional Economic Area Partnership’s (REAP) annual reports on the program contain numerous inconsistencies and inaccuracies. Further, the economic impact of the program has been significantly overstated. Specifically, the estimated number of jobs created and the State’s return on investment were overstated because of key methodological errors and the use of some inaccurate data. We also found that overall accountability for the State funds is lacking.”
The audit may be read in its entirety at Affordable Airfares: Reviewing the Benefits Claimed As a Result of State Funding to Lower Airfare. A summary of highlights is here.
Several news stories provide additional coverage. See Wichita Eagle: Audit: Airfare subsidies’ impact was overstated, Topeka Capital-Journal: Audit: Wichita air subsidy questioned, and Kansas Watchdog: Analysts and Elected Officials Ignored Flaws in Air Subsidy Claims .
The airline subsidy program in Wichita has a long tradition of overreaching. In 2004, Troy Carlson, who was at the time chairman of Fair Fares, a group that sought to provide a guarantee of business and operating subsidy to a discount airline, wrote that a discount airline’s presence in Wichita had an annual economic impact of $4.8 billion for the state. His claims had their starting point in a WSU CEDBR study, although Carlson extended them in a way I’m sure the study’s authors hadn’t intended.
In 2005, Sam Williams, who had taken over the role of chairman of Fair Fares from Carlson, testified to the Wichita City Council that Wichita’s leadership in providing subsidies to airlines was just like the role Kansas played when it entered the Union in 1861.
Fortunately, these ridiculous claims fell by the wayside. Except gullible city council members and legislators believed them.
Future of targeted economic development subsidies
The big takeaway from the Affordable Airfares audit is that boosters of state-sponsored and funded economic development rely on figures that often vastly overstate the effect of the programs they’re promoting. Having made a large mistake like this, agencies like REAP and CEDBR need to be watched carefully.
More fundamentally, we need to question the role of targeted economic development subsidies in Kansas. The day after the Affordable Airfares audit was released, Governor Sam Brownback released his economic development plan for Kansas. This plan calls for an end to present practices, especially the heavy-handed methods cities like Wichita use. While the plan and the governor’s budget include continued funding for Affordable Airfares, this decision was made before the audit’s findings were released to the public.
There is an alternative method of funding the airline subsidy besides taxing everyone in the state, or City of Wichita for that matter. When government provides services that benefit everyone, such as police protection, most people agree that taxes to pay for these services should be broad-based. But we can precisely identify the people who benefit from cheap airfares: the people who buy tickets. Wichita could easily add a charge to tickets for this purpose. The mechanism is already in place.
The charge wouldn’t have to be very much, either. With 1,549,395 passengers in 2010, and with the Affordable Airfares program costing $6.67 million, the charge would need to be just $4.30 per passenger, or double that for a round trip ticket.
City and REAP officials will argue that low airfares benefit everyone. But as we’ve seen, these claims are overstated.
Mayor Knight was able to attract Airtran by starting the airline subsidy program funded by Wichita’s taxpayers only. This was a $2 million dollars two year program offering Airtran $1 1/2 million in 2002 and $500,000 in 2003. This was a temporary incentive in order to establish service and it was to be discontinued once Airtran was known in our marketplace. The agreement also called for jet service only to be part of the subsidy. In 2003, I became Mayor and decided to pursue the idea (I had introduced the concept as a legislator in Topeka in the 2000 session) that if we were going to subsidy any airline that it should be with State of Kansas dollars since many of our passengers were not residents of Wichita. In 2005, I formed a task force of City, County, REAP, Business, and Legislators to pursue the State of Kansas funding (Gov. Sebelius came to Wichita in support) and the State decided to fund Airtran for 5 yrs subject to annual appropriation. The concept has been expanded since I left office to include non-jet aircraft and the amount of the subsidy has been increased by 40%.
The problem with the fair fares program appears to be a one day story in the Wichita news media. That is too bad. It deserves more attention when state finances are so troubled.
The fact that a highly respected and usually very cautious Legislative Post Audit referred to this spending program as “..contain numerous inconsistencies and inaccuracies. Further the economic impact has been significantly overstated,” is highly newsworthy to this kansan.
Good show bob.
I hear crickets when I ask for a subsidy. If one business can have it, then why not all the rest? Pretty unfair.