On the first Friday in June — that’s the outdoor music night in Old Town Wichita — I went downtown. One of the things I did was to ride the Q-Line. That’s the free trolley or shuttle bus that provides service in Old Town and downtown, including Exploration Place.
Wichita Q-Line riders and cost
I rode the entire route, and I was the only passenger. So I got to wonder about ridership and costs.
The Q-Line service has been offered three nights per week, Thursday through Saturday. In early October it started operating six nights a week after Sedgwick County added some funding.
Considering only the $11,000 per month of operating costs, you can see that the cost per rider is quite high. Most months it’s around eight dollars or so, and much more in some months.
If two or three people traveling as a group get on the trolley, the cost becomes much more than a taxi ride anywhere in downtown — or across town, for that matter.
The problem with the high cost per rider on the Q-Line is representative of the high cost of public transit and the huge subsidies it requires to function. According to Michael Vinson, Director of Transit for the City of Wichita, for the city’s regular bus service, fare-box revenue covers 22.5% of operating cost. The remainder is paid for by grants from local, state, and federal government.
So those who might think that the $1.25 fare to get on a city bus is a good deal might want to realize that their contribution to the fare box is matched by $4.30 from other people.
And that’s for operating costs only. It doesn’t include capital costs.
As we move forward in the planning for the revitalization of downtown Wichita, transit is always mentioned as a central component. Hopefully we’ll be able to get the cost per rider down to a reasonable figure. Wichita hasn’t shown the ability to do that so far.
Remarks to the Wichita City Council, October 20, 2009.
Mr. Mayor, members of the council,
I’m not here to speak as much to the specifics of the current case, but to the city’s policy of granting property tax exemptions and abatements, whether they are implemented through the economic development exemption program or through industrial revenue bonds.
At the same time we’re told we must build up our tax base, we tear it down. Nearly every week this council grants tax exemptions or abatements to companies that meet the criteria of the several programs the city uses.
These tax breaks are justified by benefit-to-cost analysis. I’ve been told that the modeling tools used to perform this type of analysis have no negative numbers in them, and that many people, myself included, believe that these tools are suspect.
But there’s also the simple recognition that when companies make capital investment, more economic activity happens. In the case before you today, benefit-to-cost ratios range from a scant 1.06 to one up to 9.70 to one, depending on the local governmental unit.
These numbers — especially the larger ones — sound like a good deal for citizens. But I think that what a lot of people may not realize is that the benefits to the various units of local government are in the form of the taxes they collect. After all, taxes are what constitute revenue to government. It’s not like a business making a capital investment and then gaining additional sales revenue. That represents, of course, voluntary transactions with their customers.
Or if a business makes a capital investment and becomes more efficient, its increased productivity is a benefit. More capital will be available for investment somewhere else.
Instead, the benefit to government is more tax revenue. That’s not really a benefit to citizens.
The broader question is this: If it’s good for the city and other local governmental units to give tax exemptions or abatements to Company A, what about granting them to Company B? And Companies C, D, E, and F? It’s almost like a perpetual motion machine: The more taxes we forgive, the more we gain.
Actually, the reality is not far removed. I spoke with Art Hall, Executive Director of the Center for Applied Economics at the University of Kansas. He suggested that we should grant all businesses an automatic property tax exemption for five years on new capital investment. That would generate a lot of new economic activity and jobs.
The city’s own analysis hints at this when it states “Granting an ad valorem property tax exemption will encourage the business to create new job opportunities and stimulate economic growth for the City of Wichita and Sedgwick County.”
The problem now is that a business and its capital investment must fit into a set of criteria in order to qualify for an exemption. There is a lengthy list of criteria. Some are objective. I am concerned that companies may find themselves formulating their capital investment plans so that they qualify for the tax exemption, rather than doing what makes the most sense economically for their unique situations.
Other criteria are subjective, and that opens the door for decisions to be made for political rather than economic reasons.
We have to wonder if these are the correct criteria. Are we smart enough to recognize the types of capital investment we want in Wichita? Have companies made investments, only to find they don’t qualify for tax breaks? Can very small businesses qualify? They create a lot of jobs, too.
There also the issue that the city has not always applied its own policies. There have been several cases where a company did not meet the promised performance goals at the five year review time, but the city continued the tax exemption contrary to policy. In the case of one company last year, Mr. Bell said “I don’t think it would be productive at this time to further penalize them … by putting them back on the tax roles at this time.”
In any case, if the city decides to forgo property taxes, the rest of the taxpayers in the city must step up to make the difference. This leads to resentment.
A solution is this: If the city grants a tax exemption of a certain amount, it should, at the same time, cut city spending by the same amount.
This would accomplish two goals. First, we’d be aware of the cost of granting these exemptions. Second, the rest of the taxpayers in the city — businesses, utilities, and homeowners — wouldn’t have to step up and pay the taxes that are exempted or abated.
That’s important because these parties engage in economic activity too. When they have to pay more tax, they have less to spend and invest.
Mr. Mayor and members of the council, instead of this city granting tax exemptions and abatements company by company, week by week, I urge that we consider a broad revision to our property tax policy that will stimulate investment across the city, for all businesses.
At the meeting of the WichitaCity Council last week, several city council members gave their reasons for supporting the planning for the revitalization of downtown Wichita. It’s worthwhile to take a look at two members and their remarks.
“We’ve given the free market a chance in downtown,” Miller said. There’s a few things we can disagree with in this statement. First, the market downtown is not very “free.” There are TIF districts overlaying much of downtown, for example. These TIF districts are an example of government interventionism in the extreme, something quite different from free markets.
Besides this, Miller frames the decision incorrectly. To her, downtown redevelopment is something that must happen, and since people haven’t responded to this decree very well, that’s a failure of the market. But the correct decision point is when people and business decide to be downtown or somewhere else. That’s where we see free markets in action and the decisions people make. Because they make decisions other than what Miller wants them to make, that doesn’t mean that free markets have failed. Instead, people have simply made a decision other than what she believes is the correct decision.
She also said this: “Without incentives, the free market just doesn’t work.” To which I say: “Where there are incentives, markets are not free.” That’s government interventionism. It’s axiomatic.
Then, there’s this quote from Miller: “Just like the human body cannot succeed with rot at its core, neither can a city be healthy with rot at its core.” Variations on this nostrum are constantly repeated by government-subsidized downtown revitalization supporters. This analogy is meaningless. I’ve asked the city to supply evidence of this — something more authoritative than the mayor’s vision and dreams — and so far none has been supplied.
Regarding public and private investment in downtown Wichita: A document published earlier this year showed that public and private investment in downtown Wichita over the past decade is nearly even, or about a one to one ratio. Now Miller says: “I’ve heard the city manager talk about moving us toward a return more in the neighborhood of 15 to one, private contribution to public.”
So has something new been discovered in the last ten years that allows public-private partnerships to reap such fabulous rewards? It doesn’t seem likely.
Furthermore, if it is possible to achieve such impressive results from public investment, why is this our goal only now? Shouldn’t we have had this goal earlier? Is this an example of the incompetence of previous city councils, of which Mayor Brewer has been a member for many years?
“Without a plan, there is chaos,” she said, noting that some people think that the things we’ve done downtown may be chaotic. “Hopefully this bond will bring us all together. … Downtown is everybody’s community, but it’s not going to be if you don’t have everybody buying in to what’s going on.”
She urged citizens to attend meetings so that their comments are validated.
William’s analogy — downtown planning and running her classroom — is not meaningful. There’s simply no comparison between the two. One is a highly structured situation, while the other is a problem of immense complexity with very little structure. My post Planning downtown Wichita revitalization: an impossible task? summarizes some of the characteristics that make planning such a difficult task. Deluding ourselves that the task is as simple as Williams posits is a sure path to failure.
Then, I have some news for Williams: not everyone is going to buy in to these plans and the huge public subsidies that will accompany them. We’re not all going to come together on this. As council member Miller recognized in her remarks: “There’s a great variety of opinions on this subject.”
Please note: Effective October 2, 2009, the location of Wichita Pachyderm Club meetings has changed. The new location is the Wichita Petroleum Club.
This Friday, the Wichita Pachyderm Club presents Wichita city manager Bob Layton as guest speaker.
All are welcome to attend Pachyderm club meetings. Lunch is $10. It’s a delicious buffet lunch including salad, soup, two main dishes, and ice tea and coffee. The meeting starts at noon, although it’s recommended to arrive five or ten minutes early to get your lunch before the program starts.
The Wichita Petroleum Club is on the ninth floor of the Bank of America Building at 100 N. Broadway (north side of Douglas between Topeka and Broadway) in Wichita, Kansas (click for a map and directions). Park in the garage just across Broadway and use the sky walk to enter the Bank of America building. Bring your parking garage ticket to be stamped and your parking fee will be only $1.00. There is usually some metered and free street parking nearby.
Remarks to be delivered to the October 13, 2009 meeting of the Wichita City Council.
Mr. Mayor, members of the council,
I’m here today to ask this council to put aside consideration of this proposal. My reasons are not particular to this proposal or planning firm, but rather I am concerned that we believe we have the ability to successfully plan at all.
Here’s just one reason why I’m concerned: Wichita’s favorite method of financing developments is the TIF district. Recognizing this, the Goody Clancy proposal under the heading “Opportunities” mentions “Continue to employ established TIF funding mechanisms.”
Another reason I’m concerned is that our attempts at downtown redevelopment so far have produced mixed results. In particular, the WaterWalk project in downtown Wichita has so far consumed $41 million in public subsidy, and we have very little to show for it. Shouldn’t we see if we can nurture this project to success before we take on projects that are much larger?
Then there’s the presumption expressed by city leaders that downtown must be revitalized for the sake of our entire city. Several months ago I asked Mr. Williams to supply me with references that provide evidence for the claimed benefit of downtown redevelopment. At first he referred me to the mayor’s vision statement. But with all due respect, Mr. Mayor, your visions and dreams aren’t evidence.
We do have a document that describes what’s been built in several cities. But the mere fact that buildings were built or renovated is not evidence of success. In these descriptions there’s no discussion of the cost, or the public subsidy needed to redevelop these downtowns, and importantly, no discussion of the effect on the entire city.
When we look at the effect of things like TIF districts on an entire city, we find evidence like economists Richard F. Dye and David F. Merriman found. They concluded that yes, development happens in the subsidized TIF district. But it’s often at detriment to the entire city.
Besides TIF districts, I’m also concerned about the use of other public subsidy, including a sales tax that some are talking about. I’m also concerned about the potential for eminent domain abuse. This summer I traveled to Anaheim, California to learn about a redevelopment district where the city decided not to use these techniques. The article Anaheim’s mayor wrote about this planning effort is subtitled “Foundation of Freedom Inspires Urban Growth.”
That’s what I’m really concerned about: freedom.
Why aren’t we satisfied with letting people live where they want to live? Why aren’t we satisfied with letting developers’ capital flow to where they think it finds its most valued use? Why do we think that centralized government planning can do a better job of making decisions and allocating resources than the dispersed knowledge of all the people of Wichita?
These difficulties can be summed up like this: If we think that we can plan the revitalization of downtown Wichita, we ought to heed this quote from Friedrich Hayek’s book The Fatal Conceit: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
Mr. Mayor and members of the council, our efforts at downtown redevelopment have produced mixed results at best. Yet we have a lot of development — commercial and residential — taking place in Wichita. It’s just not happening downtown. Instead, it’s happening where people want it to happen. It’s happening without TIF districts, public subsidy, or the use of eminent domain.
Currently, Wichita is struggling to find enough parking spots downtown to meet the demand expected to be created by the new Intrust Bank Arena. It’s been a contentious issue, with many Wichitans skeptical of the city’s ability to supply enough parking at prices that people are willing to pay for.
But did you know that there is likely to be fewer parking spots in downtown Wichita if the firm likely to lead downtown revitalization planning has its way?
Here are a few excerpts from the proposal submitted by Goody Clancy, the firm the city is likely to choose to lead the planning process:
Because transit, walking and biking will be viable options, less parking will be needed. … Parking policy will also unlock opportunity to redevelop parking lots … The effects of visionary choices such as increasing downtown residential development, expanding transit service, and constraining parking supplies will be investigated. … A sound and coordinated approach, encompassing economics, engineering and urban design, is needed to free up existing parking lots for redevelopment. (emphasis added)
I wonder: do city leaders know that their herculean effort to develop more parking downtown is an obstacle to downtown Wichita revitalization?
A recent Wichita Eagle editorial starts with this: “Seven years into a project that was supposed to give Wichita a grand gathering place full of shops, restaurants and night spots as well as offices and condos, some City Council members and citizens remain skeptical at best about WaterWalk’s ability to deliver on its big promises. … True, the skepticism to date is richly deserved.”
The editorial goes on to report that public investment in this project has risen to $41 million. I don’t know if this figure includes long-term land leases for $1 per year.
In any case, there’s little to show for this investment. Even the proposal for the redevelopment of downtown Wichita from the planning firm Goody Clancy realizes that WaterWalk is a failure:
Indeed, Water Walk might be struggling to fill its space because it has, simply put, hit a ceiling: it is focusing on food and fun, and perhaps there is room for only one such district (Old Town) in Downtown Wichita. The Arena could help in this regard, but until the publicly subsidized Water Walk is a rousing success, it might not make sense to split the pie still further.
With this glaring example of failure of a public-private partnership staring right at us in downtown Wichita, why do we want to plan for more of this? Shouldn’t we at least wait until WaterWalk is finished (if that ever happens) before we go down the path of throwing more public investment into the hands of subsidy-seeking developers?
At minimum, we ought to insist that the developers of the WaterWalk project be excluded from any consideration for further taxpayer subsidy. The WaterWalk development team: Dave Burk, Marketplace Properties, LLC; Jack P. DeBoer, Consolidated Holdings, Inc.; Gregory H. Kossover, Consolidated Holdings, Inc.; David E. Wells, Key Construction, Inc.; and Tom Johnson, CRE, WaterWalk LLC need to recognize their failure and the tremendous amount they have cost the Wichita taxpayer.
Some of these people — Burk and Wells to be specific — are partners in the failed Old Town Warren Theater TIF district. In that case, the city felt it had to make a no-interest (later becoming a low-interest) loan to protect its interests.
It’s a near certainty that the plans for downtown Wichita — at least plans as grand as revitalization supporters must be thinking of — will require massive subsidy. Already new taxes are being talked up. We don’t have a good record of protecting the taxpayers’ investment in Wichita. What makes us think we can change now?
At tomorrow’s meeting of the Wichita City Council, consideration of a plan for the revitalization of downtown Wichita is on the agenda. Before the city goes down this path, we ought to become aware of some of the difficulties with this type of planning.
Any who say they can write a comprehensive, long-range plan for a city or region necessarily presumes that
they can collect all the data they need about the values and costs of the land, improvements, and proposed and alternative projects in the planning area;
they can accurately predict how those values and costs will change in the future;
they can properly understand all the relationships between various parts of their region and activities in those areas;
they can do all this quickly enough that the plan is still meaningful when they are done; and
they will be immune to political pressures and can objectively overcome their own personal preferences.
What are the technical barriers to the success of planning? O’Toole lists these:
The Data Problem: Planning requires more data than can be collected in time for it to be useful to planners;
The Forecasting Problem: Planners cannot predict the future;
The Modeling Problem: Models complicated enough to be useful for planning are too complicated for anyone to understand; and
The Pace of Change Problem: Reality changes faster than planners can plan.
Are we in Wichita about to take on an impossible task?
Wichita Q-Line riders and cost