Voice For Liberty

Tag: Corporate welfare

  • Kansas bonds downgraded; economic development programs imperiled

    money-bag-struggleMoody’s Investor Service has downgraded the credit rating of a series of bonds that Kansas uses to fund an economic development program. The program is IMPACT (Investments in Major Projects and Comprehensive Training), which provides financial benefits to companies locating to or expanding in Kansas.

    The problem is that the state borrows money to give to companies, and uses the withholding taxes of these companies’ employees to repay the bonds. So what happens if the state reduces — or eliminates — the personal income tax? Moody’s explains:

    Because IMPACT program bonds are backed by a statutory allocation of revenue from income tax withholding, efforts to eliminate the state income tax without defeasing the debt or substituting a new revenue source will expose bondholders to risks greater than previously anticipated. IMPACT debt has historically been supported by steadily growing revenues from a source that was broad-based and important to the state’s continued operations. Last year’s major income tax rate reductions, followed by additional cuts this year, constitute what we expect to be a trend of repeated cuts in the revenues pledged to these bonds. The final maturity on the IMPACT bonds is 2023, by which time Kansas may have fully removed the income tax. So far, there is no assurance the state will allocate revenue from a different source or take other steps protect bondholders. (Moody’s downgrades Kansas Department of Commerce IMPACT bonds to A3 from Aa3)

    I don’t think there’s much likelihood that the state will fail to pay these bonds fully as payments become due. Even though the spending that produced this debt, in my opinion, is ill-considered, it’s still an obligation of the state.

    But in a blog post, the Wichita Eagle editorial board could barely conceal its glee that a State of Kansas program might encounter difficulties during the Brownback regime. That’s because income tax rates have been reduced, and will fall farther. This threatens the government spending that the Eagle editorialists favor over private-sector spending.

    Besides this one Kansas spending program, others will probably also be affected by lower income tax rates. Another economic development program Kansas uses is the Promoting Employment Across Kansas (PEAK) program. Administered by the Kansas Department of Commerce, the program allows qualifying companies to retain 95 percent of the state income withholding taxes their employees pay.

    It’s a roundabout method of distributing corporate welfare that allows companies — and gullible or self-serving politicians — to pretend as though this program has no cost, or that companies are in fact investing their own money.

    What’s interesting is that the money paid to companies is based on the withholding of employee taxes, not actual taxes paid. Withholding is just an estimate. At the end of the year employees file tax returns to compute their actual tax liability. Based on the difference between withholdings and liability, the state may issue a refund (or maybe the employee owes more).

    It’s common for people to receive tax refunds. For employees that work for companies participating in PEAK, their tax withholdings (less five percent) have already been spent by the state in the form of economic development incentives. Their refunds have to be funded in some other way.

    Other government spending programs will be affected, too. Historic preservation tax credits are used to funnel millions to developers in downtown Wichita, for example. These credits have value only as long as someone owes income tax (or similar taxes paid by financial institutions) to the state. If there are no income taxes, these tax credits have no value.

    This is all good. It’s great that tax rates are falling. It’s also good that the state loses some of its tools for dishing out business welfare. With programs like PEAK and tax credits, the legislature authorizes the program by passing a law. After that, the programs function on auto-pilot. Companies apply for the benefits, and then either automatically or at the discretion of the bureaucracy, applications are approved and benefits flow.

    This leads to systems with little accountability. Expenditures are barely noticed. The normal basis for justifying taxation is threatened. Employees that work at PEAK companies might look at the Kansas tax withheld on the paychecks and rationalize “Well, at least it’s going for the kids’ schools or some other beneficial purpose.”

    No. Their withholding taxes are being paid (less five percent) to their employer.

    Without these tax expenditure programs, legislatures would have to pass specific bills to spend taxpayer money. Can you imagine if the State of Kansas passed a bill to give $3.5 million in taxpayer credits to developers of a luxury hotel in downtown Wichita? Citizens would look at things differently. They’d wonder why we’re spending this way. Using semi-mysterious mechanisms like PEAK and tax credits shrouds the true economic transactions taking place.

  • Starwood calls on Wichita

    Office worker using telephone and computer

    This Tuesday the Wichita City Council considers economic development incentives to Starwood Hotels & Resorts for a call center to open in Wichita.

    Besides the usual problems with cronyism and corporate welfare (see Wichita-area economic development policy changes proposed for explanation of some problems), there are a few issues to consider regarding this item.

    First, the site where the Starwood call center will be located is owned by Max Cole. He and his wife are significant campaign contributors to Wichita City Council Member James Clendenin (district 3, southeast and south Wichita). Under the concept of pay-to-play laws that Wichita needs, Clendenin should refrain from voting on this matter.

    Second, a table of salaries supplied in the agenda packet makes an implied promise that probably won’t be kept. The table shows numbers of jobs (actually full-time equivalents), the hourly pay rate, and the annual wage. The annual wage, in all cases, is 2,080 times the hourly rate, meaning it is assumed that workers will work 40 hours per week, 52 weeks per year.

    Information from the Kansas Department of Commerce offers more detail. Initially, 495 full-time and 55 part-time jobs will be created. In year five, the total will be 860 full-time and 95 part-time total. There is also this notation: “The company will pay at least 50% of employee health insurance benefits.”

    As you may be aware, one of the provisions of Obamacare is that if employees work over 30 hours per week, the employer must provide health insurance or be fined. As a result, many companies across the county are scaling back weekly work hours to less than 30.

    We ought to ask if Starwood intends to hire employees who will work 40 hours per week, if they want to. Will the liberals on the Wichita City Council — Mayor Carl Brewer, Council Member Lavonta Williams (district 1, northeast Wichita), and Council Member Janet Miller (district 6, north central Wichita) — ask that Starwood operate under the standards of Obamacare? The table presents data as “full-time equivalents,” which provides room for Starwood to go either way.

    Starwood is asking for a forgivable loan of $200,000 from Wichita, and another of the same amount from Sedgwick County. I asked the Kansas Department of Commerce if it would reveal the programs and incentives that Starwood will receive from the State of Kansas. It would not supply that information at this time, but I obtained the information by another means. The state describes its offer to Starwood as worth “up to $1,583,272.” Of this, $750,000 would be in the form of direct cash grants.

    Here is a link to the relevant pages from the Wichita city council agenda: Starwood Hotels & Resorts Economic Development Incentive Agreement with City of Wichita, Kansas. Also, from the Department of Commerce: Starwood Hotels & Resorts Economic Development Incentives offered by State of Kansas.

  • Governing by extortion destroys freedom

    By Dave Trabert, Kansas Policy Institute.

    Government takes and gives

    Merriam-Webster defines extortion as the “… exaction of money or property through intimidation or undue exercise of authority.” It’s illegal for individuals or corporations to engage in extortion, but some governments are increasingly using forms of extortion to exact higher taxes, make citizens more dependent upon government and ultimately, strip away economic and political freedom.

    Government intimidation may not come with Soprano-like threats of violence. Some government officials may not even realize they are extorting the populous — the practice of presenting the government solution as the only option has become that commonplace. But no matter how politely or subtly phrased, the message is “give us what we want or else …” The “or else” comes in many forms.

    The federal government punishes citizens with flight delays and service cuts to senior citizens while continuing to lavish taxpayer money on favored political friends and countless other examples of waste and duplication. The federal government will either get to borrow and spend as much as it wants or innocent citizens will pay the price.

    Some state officials in Kansas want to extend a temporary sales tax and/or take away deductions for home mortgage interest and property taxes. They say it’s necessary to avoid massive budget deficits that would de-fund schools and services. The message is that higher taxes are the only alternative, when in fact they could choose to bring down the cost of government services and stop giving out corporate welfare in the name of economic development.

    University officials in Kansas say they will raise tuition, eliminate professors, and restrict student admissions if state aid is even slightly reduced. They say nothing of reducing administrative costs that rose three times faster than inflation or using large cash reserves that accumulated from a 137 percent increase in tuition and fees over the last ten years. Give them what they want or students, parents, and staff will suffer.

    Local governments routinely tell citizens that taxes must be increased to avoid police and fire layoffs, pool closings and other direct service reductions. Why not consolidate overlapping government programs and bureaucracy instead of raising taxes? Or maybe stop giving taxpayer money away to friendly developers who support the growth of government and help underwrite campaigns for public office?

    Our state and nation were founded on the principles of freedom and limited government. Yet those who stand in defense of freedom are often met with ridicule. Carl Brewer, the Mayor of Wichita, recently issued a thinly veiled threat to sue a woman for asking him to recuse himself from a vote to give a $700,000 sales tax exemption to a campaign contributor (and fishing buddy). A columnist for the Hutchinson News falsely blamed those who want less government intrusion in our lives for poverty, high property taxes and other woes as opposed to following his prescription for progressive, big government solutions.

    Thomas Jefferson said, “Government exists for the interests of the governed, not for the governors.” Some in our state seems to have forgotten that and are working to prove another of his maxims, “The natural progress of things is for liberty to yield and government to gain ground.”

    Citizens must be persistent and vocal in reminding elected officials of the former or we shall continue to suffer the loss of liberty.

  • Developer welfare expanded in Kansas

    Money Grabber

    This week the Kansas House of Representatives considered a bill that would expand the application of tax increment financing (TIF) and community improvement district taxes. The bill, HB 2086, is not a major expansion, but is still harmful.

    On Monday the bill failed to pass, with 61 members voting in favor, and 60 against. (63 votes are needed to pass a bill.)

    On the following day, Rep. Scott Schwab made a motion to reconsider. If agreed to, Schwab’s motion would force another vote on the passage of the bill. The motion passed, and when the vote on the bill was tallied, it had passed with 81 votes.

    Democrats who changed their votes from No to Yes are Barbara Ballard, Brandon Whipple, Ed Trimmer, Jerry Henry, Julie Menghini, Nancy Lusk, Patricia Sloop, Paul Davis, Stan Frownfelter, Tom Burroughs and Valdenia Winn.

    Republicans who changed their votes from No to Yes are Dennis Hedke, James Todd, Kelly Meigs, Kevin Jones, Marty Read, Ramon Gonzalez, Scott Schwab, and Vern Swanson.

    One Republican, Marc Rhoades, changed his vote from Yes to No.

    The original coalition of votes that defeated the bill on Monday was a mix of free-market Republicans and Democrats. The free-market members vote against this bill because it is contrary to the principals of capitalism. Many Democrats vote against bills like this because they see it as welfare for greedy developers or other business interests. An example of the latter is Rep. Ed Trimmer, who on the Kansas Economic Freedom Index for last year scored very near the bottom in terms of voting for economic freedom.

    But somehow, he and the other Democrats listed above were persuaded to change their votes.

    (Click here to open spreadsheet in new window.)

  • Carl Brewer: The state of Wichita, 2013

    Wichita Mayor Carl Brewer, State of the City Address, January 29, 2013Much like President Barack Obama in his recent inaugural address, Wichita Mayor Carl Brewer displayed his collectivist instincts in his “State of the City” address for 2013. His speech, as prepared, may be read here.

    Opening, the mayor said “Wichita has overcome great challenges in the past and will overcome these as well, but we’ll need to work together.”

    Near the close, the mayor said “THE TIME FOR ACTION IS NOW! We have reached a point where we MUST come together as a community, and create a plan that defines our priorities and the City we are to become.” And then: “For all of our differences, I have never doubted this community’s ability to come together and protect what matters most.” (The capitalization is in the mayor’s prepared text.)

    But what’s really important to Wichita is economic development. Regarding that, Brewer said this:

    As we struggle to compete for new businesses and new jobs, especially in light of job losses in aviation, we must face the reality that we are competing with other cities that offer economic incentives for business development and expansion. If we want to be IN the game, we need to PLAY the game, but we have no dedicated funding source for economic development. If we’re serious about finding new jobs for our people — and I am — we must change this scenario as soon as possible. Where will those incentive dollars come from? (Capitalization, again, is from the original.)

    The idea of a dedicated funding source for economic development is something that many in Wichita would support. Many would oppose it, too. But instead of just lobbing rhetorical questions (Where will those incentive dollars come from?), the mayor should give us some answers. Or, at least make a specific proposal. Does the mayor recommend a sales tax increase? Or allocating specific levels of property tax to economic development? (The city is doing this on a temporary basis.) Or asking the state legislature to fund Wichita’s economic development, as we insist the legislature fund our airline subsidy program?

    Whatever it is, Mayor Brewer, give us some specific ideas as to how you want to raise this money, and how you would spend it.

    It’s that spending, I think, that people in Wichita have concern over. The cumulative record of Brewer, the city council, and city bureaucratic staff hasn’t inspired trust and confidence. Giving the city additional dollars to spend on economic development is not a wise investment.

    For example, the mayor says that subsidizing downtown development is good economic development strategy. But we see the mayor and nearly all council members voting to give an overpriced no-bid contract to their significant campaign contributors. This happened despite the company’s large cost overruns on previous no-bid contracts awarded by the city. Is that good economic development practice?

    We see the city council sitting in a quasi-judicial role, adjudicating the award of an airport construction contract when one of the parties is a significant campaign contributor. In fact, Key Construction — the company that prevailed in that decision — through its principals and executives, was the sole source of campaign funds raised by Lavonta Williams (district 1, northeast Wichita) in 2012 as she prepared to run for reelection this spring.

    Key’s executives also contributed heavily to James Clendenin (district 3, southeast and south Wichita) last year. He’s running this spring, too.

    At the time this airport contract was being handled, Council Member Jeff Longwell (district 5, west and northwest Wichita) was campaigning for the Sedgwick County Commission. Campaign finance reports revealed contributions from parties associated with Walbridge, a Michigan construction company. Why would those in Michigan have an interest in helping a Wichita City Council member fund his campaign for a county office? Would the fact that Walbridge is a partner with Key Construction on the new airport terminal, and that Longwell would be voting on that contract, provide a clue?

    Or: A movie theater owner and business partners contribute to the mayor’s (and other) campaigns. Mayor and council vote to give a no-interest and low-interest loan and tax breaks to theater owner and his partners. Mayor goes into barbeque sauce business. Mayor’s barbeque sauce is now sold at movie theater.

    Doesn’t Carl Brewer see anything wrong with this? Don’t his advisors tell him that this creates the appearance of impropriety? Does the mayor consider whether these actions make a positive impression on those who might want to invest in Wichita?

    We see the city awarding economic development incentives that were not necessary for the project to proceed. It took a special election to teach the mayor and council that lesson. By the way, that unneeded and rejected incentive was awarded to the significant campaign contributors of Mayor Brewer and most council members.

    We see the city taking credit for building up the tax base, yet giving away tax revenue in the form of property tax abatements, IRBs, tax increment financing, and STAR bonds.

    The bureaucratic missteps: The Southfork TIF district is just the latest example.

    The lack of respect for citizens’ right to know how taxpayer funds are spent is another troubling aspect of Brewer’s tenure as mayor. None of the words “accountability,” “transparency,” or “open government” were mentioned in the mayor’s address this year, as they have been in the past. No sense in calling attention to an area where the city has failed, I suppose.

    All this is done in the name of economic development and jobs. But Wichita is underperforming Kansas and the nation in these areas. Under Brewer’s leadership, however, we are overachieving in the advancement of cronyism and its ills.

    The record indicates that our officeholders, and those who advise them, are not worthy of our trust, and certainly not more taxes for economic development.

    After last year’s State of the City speech, I noted “Wichita’s mayor is openly dismissive of economic freedom, free markets, and limited government, calling these principles of freedom and liberty ‘simplistic.’ Instead, his government prefers crony capitalism and corporate welfare.”

    I also wrote: “Relying on economic freedom, free markets, and limited government for jobs and prosperity means trusting in free people, the energy of decentralized innovation, and spontaneous order. A government plan for economic development is the opposite of these principles.”

    This year, the outlook for economic freedom and limited government in Wichita is gloomier than ever before. The door for those who wish to profit through cronyism is wide open. We’ll have to hope that, somehow, Wichita can learn to thrive under this regime.

  • Questioning Pat Roberts

    One of the small news items emerging from the Kansas Republican Party Convention last weekend is that Pat Roberts will run for reelection to the U.S. Senate next year.

    So is this a good thing, or not? Gidget of Kansas GOP Insider (wannabe) offers one opinion in her post on the topic:

    Look, I like Sen. Roberts. He’s a nice enough guy, but he will not make any waves. He will not rock any boats. I do not understand it. Most 76 year olds are willing to wear purple suits and red hats in public as some sort of matter of pride. It’s their way of saying, I’ve lived long enough I’ll do as I damn well please.

    But not Sen. Roberts.

    Where every member of the Kansas delegation in the House voted against the plan to avoid the so-called fiscal cliff — there was Roberts being a “statesman” by raising your taxes without the agreement of any cuts.

    This is a regularly repeated occurrence for those in the U.S. Senate. They are absolutely willing to sell the people down the river in return for being called “statesman” and getting re-elected.

    The truly disgusting part is that we’re all going to vote for Sen. Roberts again.

    If he draws a primary opponent, it will be a miracle. And even if he does draw a primary opponent, everyone will tip toe around for fear of upsetting Roberts and the many people who owe him their careers.

    The Wall Street Journal noticed a vote made by Senator Roberts in committee that lead to the fiscal cliff bill. The newspaper explained the harm of this bill in its editorial:

    The great joke here is that Washington pretends to want to pass “comprehensive tax reform,” even as each year it adds more tax giveaways that distort the tax code and keep tax rates higher than they have to be. Even as he praised the bill full of this stuff, Mr. Obama called Tuesday night for “further reforms to our tax code so that the wealthiest corporations and individuals can’t take advantage of loopholes and deductions that aren’t available to most Americans.”

    One of Mr. Obama’s political gifts is that he can sound so plausible describing the opposite of his real intentions.

    The costs of all this are far greater than the estimates conjured by the Joint Tax Committee. They include slower economic growth from misallocated capital, lower revenues for the Treasury and thus more pressure to raise rates on everyone, and greater public cynicism that government mainly serves the powerful.

    Republicans who are looking for a new populist message have one waiting here, and they could start by repudiating the corporate welfare in this New Year disgrace.

    The Journal took the rare measure of calling out the senators who voted for this bill in committee, as shown in its nearby graphic. There it is: Pat Roberts voting in concert with the likes of John Kerry, Chuck Schumer, and Debbie Stabenow.

    If Tom Coburn of Oklahoma could vote against this bill in committee, then so could have Pat Roberts. But he didn’t.

  • Charles Koch profiled in Forbes

    The new issue of Forbes features a cover story on Charles and David Koch. It is very interesting and seems a balanced and fair article, but there are a few things that stand out. (Inside The Koch Empire: How The Brothers Plan To Reshape America.)

    An example: “Both Kochs innately understand that — unlike the populist appeal of their fellow midwestern billionaire Warren Buffett and his tax-the-rich advocacy — their message of pure, raw capitalism is a much tougher sell, even among capitalists.”

    I think the author should have written “even among business executives” rather than capitalists. That’s because Charles Koch has been outspoken about business cronyism, in September writing in The Wall Street Journal: “Far too many businesses have been all too eager to lobby for maintaining and increasing subsidies and mandates paid by taxpayers and consumers. This growing partnership between business and government is a destructive force, undermining not just our economy and our political system, but the very foundations of our culture.”

    I would imagine that most of the business leaders seeking government subsidies and mandates consider themselves capitalists. That’s a problem.

    Then: the description of “pure” capitalism as raw. I think we’re starting to realize just how raw politics and government have become. Capitalism, however, is a system based on respect for property and peaceful, beneficial exchange. Tom G. Palmer in the introduction to The Morality of Capitalism explains: “Far from being an amoral arena for the clash of interests, as capitalism is often portrayed by those who seek to undermine or destroy it, capitalist interaction is highly structured by ethical norms and rules. Indeed, capitalism rests on a rejection of the ethics of loot and grab, the means by which most wealth enjoyed by the wealthy has been acquired in other economic and political systems. … It’s only under conditions of capitalism that people commonly become wealthy without being criminals.”

    Often corporations are criticized by liberals as being too focused on short-term gains, that corporate raiders buy firms, gut them, chop them up, sell off assets, lay off employees, pile on debt — you know the story as used against Mitt Romney. But look at how Koch Industries operates:

    Charles spent $6 billion upfront to buy Georgia-Pacific, and rather than satisfy quarterly earnings estimates or dividend-hungry investors, he immediately directed the new division’s cash flow toward paying down the $15 billion in liabilities that it inherited. …

    The Koch long-game strategy is absolute: If it makes sense to them, the Kochs stay with the plan, no matter how burdensome or how long it takes. “We buy something not to milk it but to build it, to take its capabilities and add to them, and build new businesses,” [Charles] Koch says.

    That sounds like a business strategy the left should embrace, not vilify.

    Another curious statement by the author: “Given their strict adherence to the principals of transparent free markets, the Kochs’ secrecy seems hypocritical.” This is curious because transparency is an attribute not often associated with advocacy for free markets. Transparency is more associated with government as a desirable goal. Charles and David Koch are private citizens, not agents of government.

    There’s good news near the end of the article:

    The brothers’ new political emphasis in the coming year? Fighting corporate welfare.

    While Obama talks about getting rid of lobbyists, Charles says, the “only way he can achieve that stated objective is to get government out of the business of giving goodies. That’s like flies to honey,” he adds. “The first thing we’ve got to get rid of is business welfare and entitlements.”

    There’s much more in the article, available at Inside The Koch Empire: How The Brothers Plan To Reshape America.

  • Wichita’s $60 million gift to Spirit Aerosystems — not

    When I read that Wichita had invested nearly $60 million in its Spirit AeroSystems plant, I thought I must have been napping during a city council meeting. Instead, the lede of the story in the Tulsa World newspaper was a misstatement of the mechanism of Industrial Revenue Bonds (IRBs).

    The News reported “News that the city of Wichita is moving to invest nearly $60 million in its Spirit AeroSystems plant has Vision2 backers warning that Tulsa’s aerospace jobs are at risk of poaching by other cities.”

    A Tulsa television news report offered similar reporting: “… after the City of Wichita, Kansas offered roughly $60 million in incentives to try and steal Spirit Aerosystems away from Tulsa.”

    When news stories cover IRBs, the stories usually focus on the amount of the bonds, as in these two examples. That’s unfortunate, as the amount of the bonds is really a minor component of the story.

    You see this misunderstanding revealed in comments left to newspaper articles reporting the issuance of IRBs, where comment writers complain that the city shouldn’t be in the business of lending companies money.

    This confusion hides the reason why IRB transactions take place, which is tax avoidance. That’s the real story of Industrial Revenue Bonds: Companies escape paying the property and sales taxes that you and I — as well as most business firms — must pay.

    Reading the city council agenda packet regarding the IRB issue tells the story. The city is not lending Spirit money. In fact, no one is, according to the city document: “Spirit AeroSystems, Inc. intends to purchase the bonds itself, through direct placement, and the bonds will not be reoffered for sale to the public.”

    Also, the city has no obligation to pay the bondholders should Spirit default. This is a moot point in this case, as the issue of the bonds is also the buyer. But this is the case with all IRBs.

    It’s not uncommon for the issuing company to buy the bonds. So why issue the bonds? The agenda packet has the answer: “The bond financed property will be eligible for sales tax exemption and property tax exemption for a term of ten years, subject to fulfillment of the conditions of the City’s public incentives policy.”

    City documents didn’t give the amount of tax Spirit will avoid paying, so we’re left to surmise. Bonds could be issued up to $59.5 million. Taxable business property of that value would generate an annual tax bill of around $1.8 million per year, but Spirit would not pay that for up to ten years. If all the purchased property was subject to sales tax, that one-time tax exemption would be $4.3 million. These are the upper bounds of the tax savings Spirit Aerosystems may receive. Its actual savings will probably be lower, but still substantial.

    These numbers are the economic benefit of the bonds to Spirit, and the opportunity cost of the bonds to taxing jurisdictions. The $60 million “investment” or “incentive” reported by two Tulsa news sources is incorrect.

    Industrial Revenue Bonds, a confusing program

    IRBs are a confusing economic development program. It sounds like a loan from the city or state, but it’s not. The purpose is to convey tax avoidance.

    Here’s language from the Wichita ordinance that was passed to implement the bonds: “The Bonds, together with the interest thereon, are not general obligations of the City, but are special obligations payable (except to the extent paid out of moneys attributable to the proceeds derived from the sale of the Bonds or to the income from the temporary investment thereof) solely from the lease payments under the Lease, and the Bond Fund and other moneys held by the Trustee, as provided in the Indenture. Neither the credit nor the taxing power of the State of Kansas or of any political subdivision of such State is pledged to the payment of the principal of the Bonds and premium, if any, and interest thereon or other costs incident thereto.”

    So no governmental body has obligations to pay the bondholders in case of default. But this language hints at another complicating factor of IRBs: The city actually owns the property purchased with the bond proceeds, and leases it to Spirit. Here’s the preamble of the ordinance: “An ordinance approving and authorizing the execution of a lease agreement between Spirit Aerosystems, Inc. and the City of Wichita, Kansas.”

    Other language in the ordinance is “WHEREAS, the Company will acquire a leasehold interest in the Project from the City pursuant to said Lease Agreement.” There’s other language detailing the lease.

    We create this imaginary lease agreement — and that’s what it is, as it doesn’t have the same purpose and economic meaning as most leases — for what purpose? Just so that certain companies can avoid paying taxes.

    The city does have another program that allows it to exempt these taxes under some circumstances without having to issue bonds. In this case the goal of the program is laid clear: tax avoidance.

    IRBs are a confusing program that obfuscates the actual economic transaction. That’s not good public policy, whether or not you agree with the concept of selective tax abatements as economic development.

    Similarly, a principle of good tax policy is that those in similar situations should face the same laws. IRBs are contrary to this.

    While we can understand that citizens — with their busy lives — may not be informed or concerned about the complex workings of IRBs, we should expect more from our elected (and paid) officials. But we find often they are not informed.

    As an example, in 2004 the Wichita Eagle reported: “In July, the council approved industrial revenue bond financing and a $1.7 million property tax abatement for Genesis Health Clubs. Council members later said they didn’t realize they had also approved a sales-tax break.” (Kolb goal : Full facts in future city deals, September 26, 2004)

    Here we see Wichita City Council members not aware of the basic mechanism of a major city program that is frequently used. This is in spite of an informative city web page devoted to IRBs which prominently states: “Generally, property and services acquired with the proceeds of IRBs are eligible for sales tax exemption.”

    Yes, that page was active in 2004.

  • Wichita economic development, two stories

    Two items on the agenda for the Wichita City Council give an insight into the nature and efficacy of economic development efforts in Wichita.

    First, a local company will come to the Wichita City Council asking for a property tax exemption. This is not unusual, as it happens almost every week, and multiple times at some meetings. In this case, we learn that estimates of job creation used to support an economic development incentive weren’t realistic.

    The company, MoJack, had received a forgivable loan from Wichita and Sedgwick County based on promises to create a certain number of jobs. The loan amount was $35,000 from each, for a total of $70,000. If MoJack meets the job and payroll targets, the loan will be forgiven.

    But we learn in city materials this week that there’s been a change: “As a result of this expansion, Mojack plans to add at least 26 new employees to its workforce at a starting average wage of $44,000. In June 2012, Mojack repaid the forgivable loan because it had been based on an earlier estimate that 53 new jobs would be created, which was not realistic.” (The agenda report may be read at Public Hearing and Tax Exemption Request (Mojack Holdings, LLC/Mojack Distributors, LLC).)

    In June, MoJack repaid its forgivable loan to Sedgwick County, presumably for the same reasons.

    While city officials say they conduct due diligence before granting economic development incentives, the reality is that economic development officials have to work with whatever figures the applicant companies provide. How can the city verify the projected growth of a company? We wouldn’t want to even give that a try.

    What’s important is this: Greater Wichita Economic Development Coalition is our economic development agency. In their annual report of their activities, they took credit for the MoJack jobs. Now that the number of jobs to be created is expected to be smaller, will GWEDC update its job creation figures?

    Also, MoJack participated in several economic development incentives from the state of Kansas. Hopefully the Kansas Department of Commerce will consider the new, revised employment projects with managing its incentive awards, and will also update its claims of job creation accordingly.

    We also learned this week that Hawker Beechcraft may not be meeting its agreed-upon employment levels required to continue to receive incentives from the state, Sedgwick County, and City of Wichita.

    In Wichita Business Journal reporting we learn the numbers:

    Hawker Beechcraft Corp. appears to be close to violating an agreement with state and local governments to maintain employment of at least 4,000 workers in Wichita.

    The company has declined to discuss its employment level in detail and as recently as last week told the Wichita Business Journal that it had employment of 4,500 workers, the same number it reported to the WBJ in March.

    However, according to a database of mass layoffs maintained by the Kansas Department of Commerce, from March to June this year Hawker issued 885 60-day layoff notices to Wichita employees. And since late July it has filed layoff notices for 56 more Wichita workers.

    All told, that’s 941 layoff notices since March. If all those job cuts have taken place, and the 4,500 number was accurate in March, that would suggest a current employment level of 3,559 in Wichita, based solely on layoffs and not assuming any potential attrition or, on the other hand, new hires.

    The article explains that while the official job count for agreement compliance purposes is taken at the end of the year, Hawker is not forthcoming with information about its employment levels. While it is not required to answer WBJ’s questions about its job count, we should remember that we have a public-private partnership with Hawker, under which taxpayers will be investing millions in the company. Wichita economic development leaders tout the public-private partnership as a powerful tool.

    By taking our money and entering in a partnership, Hawker ought to be more forthcoming with legitimate information requests. Failure to do so is not polite, even if it is not required.

    There’s also this question: When Hawker releases its employment figures, will GWEDC adjust its success story to reflect the likely lower number of jobs? If we’re to have an economic development effort that’s based on factual information, GWEDC should. But based on past history, I doubt it will. Therefore, we continue to make decisions based on incomplete data and facts.

    By the way, the Hawker Beechcraft campus is outside the city limits of Wichita. By what authority does the city give it Wichita taxpayers’ money?