Voice For Liberty

Tag: Cronyism

  • 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.

  • Entrepreneurial activity, Kansas vs. other states

    Entrepreneurship, EntrepreneurEntrepreneurship is important for a growing and dynamic economy. The performance of Kansas in entrepreneurial activity is not high, compared to other states.

    The Ewing Marion Kauffman Foundation prepares the Kauffman Index of Entrepreneurial Activity. According to the Foundation, “The Kauffman Index of Entrepreneurial Activity improves over other possible measures of entrepreneurship because of its timeliness, dynamic nature, inclusion of all types of business activity, exclusion of ‘casual’ businesses, and information on owner demographics.”

    The following interactive visualization presents KIEA data. You may use the visualization below, or click here to open it in a new window, which may work better, as this is a large visualization. Use Ctrl+Click to add or remove states for comparison. Data is from Kauffman Index of Entrepreneurial Activity. Visualization created by myself using Tableau Public.

  • Wichita sees results of new economic development policy

    The first action under a new Wichita economic development policy doesn’t produce economic growth, and in fact, harms the Wichita economy.

    Government takes and gives

    A feature of Wichita’s recently-revised economic development policy grants property tax and sales tax forgiveness for speculative industrial buildings. These are buildings built without having a tenant in place. The proposed plan had a formula that grants a higher percentage of tax forgiveness as building size increases, but the council eliminated that and voted a 100 percent tax abatement for all buildings larger than 50,000 square feet.

    Given tax costs and industrial building rents, this policy gives these incentivized buildings a cost advantage of about 20 percent over competitors. That’s very high, and makes it difficult for existing buildings to compete. Probably no one will build these buildings unless they qualify for and receive this incentive.

    The city hopes that these incentivized buildings will generate new jobs in Wichita. But there appears to be nothing in the policy that prevents existing Wichita companies from moving to these buildings. If this happens, it doesn’t create any new jobs. The company that moves will save a lot in property taxes. Some other landlord in Wichita will have empty space, not through his own fault, but because of Wichita city policy.

    This is what has happened. The first tenant for the first building built under this incentive policy is a company already in Wichita. It’s simply moving its existing operations within the city. The Wichita Business Journal reports that an existing Wichita company will vacate its current space to move in to the new building. It will use about one-third of the available space. (Big industrial spec building signs first tenant)

    (Paying less in property taxes is good, as money remains in the private sector instead of being transferred to government. But city hall doesn’t believe this. Politicians and bureaucrats want to increase the tax base, but here is an example of giving it away.)

    Will the owners of speculative buildings rent only to companies newly moving to Wichita, or will they rent to whoever is willing to pay? Will Wichita companies want to move to a new building with cheaper rent? We now have answers to these questions. So far, the city’s new policy has simply moved jobs from one location to another, creating no new jobs. It has harmed landlords with existing buildings.

    Existing industrial landlords in Wichita — especially those with available space to rent — must be wondering why they attempt to stay in business when city hall sets up subsidized competitors with new buildings and a large cost advantage.

    Citizens must wonder about equality. A principle of taxation is that everyone pays equally, and that policy should be applied uniformly. But this program creates a special class of landlords and tenants who do not have to bear their full share of the cost of city, county, school district, and state government.

    Do incentives work?

    We must ask ourselves what do we really get for the cost of incentives. Alan Peters and Peter Fisher wrote an academic paper titled The Failures of Economic Development Incentives, published in Journal of the American Planning Association. A few quotes from the study, with emphasis added:

    Given the weak effects of incentives on the location choices of businesses at the interstate level, state governments and their local governments in the aggregate probably lose far more revenue, by cutting taxes to firms that would have located in that state anyway than they gain from the few firms induced to change location.

    On the three major questions — Do economic development incentives create new jobs? Are those jobs taken by targeted populations in targeted places? Are incentives, at worst, only moderately revenue negative? — traditional economic development incentives do not fare well. It is possible that incentives do induce significant new growth, that the beneficiaries of that growth are mainly those who have greatest difficulty in the labor market, and that both states and local governments benefit fiscally from that growth. But after decades of policy experimentation and literally hundreds of scholarly studies, none of these claims is clearly substantiated. Indeed, as we have argued in this article, there is a good chance that all of these claims are false.

    The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering their expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government — providing the foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.

    In 2008 Kansas Legislative Division of Post Audit investigated spending on economic development. It found about the same as did Peters and Fisher.

    There is one incentive that can be offered to all firms: Reduce tax costs for all. The Tax Foundation report from last year should be a shrill wake up call to the city and state that we must change our ways.

    There is a lesson to be learned: Economic development incentives have a cost. Other businesses (and people) have to pay these costs. That only increases the motivation to seek incentives from the city and state. In fact, it may make it necessary to receive subsidies in order to be competitive with those companies who have incentives.

    All this raises the cost of government. It’s a spiral that leads to ever-increasing control of economic activity by city hall. If all this produced results, that would be one thing. But Wichita has been lagging in economic growth for many years. The results of the first project undertaken under a new Wichita economic development policy holds clues as to why Wichita lags behind.

    Wichita needs to build a dynamic economy that is based on free enterprise and entrepreneurship rather than government planning and handouts. This is the way we can have organic and sustainable economic development that will increase jobs and prosperity for everyone.

  • As Southwest arrives in Wichita, something else happens

    Airplane

    Wichita officials are proud that Southwest Airlines is starting service in Wichita soon. Great economic benefit is anticipated. But at the same time Southwest arrives, AirTran Airways leaves.

    It’s true that Southwest is adding five new flights, as Wichita officials are quick to remind. (City officials are equally diligent at overlooking the end of the AirTran flights.) But it’s unknown what impact the loss of the Atlanta AirTran flights will have on Wichita travelers.

    In 2012, 73,980 passengers enplaned AirTran jets in Wichita. In total, there were 147,101 AirTran passengers in Wichita, out of 1,509,206 total passengers in Wichita. This means that the routes that 9.7 percent of Wichita passengers used will no longer be available after June 2.

    Whatever the impact, it’s difficult to see Southwest producing the touted economic benefits. The city has a report prepared by Wichita State University Center for Economic Development and Business Research that forecasts traffic increases of around 35 percent and the creation of 7,000 jobs.

    That’s a lot, and it would be great if it happened. But we have to remember that at the same time Southwest arrives, AirTran leaves. It’s difficult to see how merely a different discount carrier could make such a difference.

    We have to be very careful when evaluating job creation projections such as the one prepared by CEDBR for the arrival of Southwest. Consider the 2003 study prepared by CEDBR (Wichita Mid-Continent Airport Economic Impact) on the economic impact of the Wichita airport, which concluded that the airport had an impact on employment of 41,634 jobs, with payroll of $1,630,079,797.

    In its calculations, the report included all the employees of Cessna and Bombardier — 12,134 in total — in determining the economic impact of the airport. Why? To quote the study: “While it might appear that manufacturing businesses could be based anywhere in the area, both Cessna and Bombardier require a location with runways and instrumentation structures that allow for flights and flight testing of business jet airplanes.” This is true, but it is quite a stretch to attribute all the economic impact of these employees solely to the airport.

    For one thing, if we count the economic impact of the income of these employees as belonging to the airport, what then do we say about the economic impact of Cessna and Bombardier? We would have to count it as very little, because the impact of their employees’ earnings has been assigned to the airport. This is, of course, assuming that we count the impact of these employees only once.

    This double-counting of the economic impact is a problem. Since this report was released, both Cessna and Bombardier have asked the state, city, and county for incentives and subsidies. Companies use the economic impact of their employee payroll as justification for the subsidies. But these dollars will have already been used, as they were attributed to the airport.

    Does anyone at city hall track this, that the purported economic impact of employees has already been claimed by the airport?

    Further: Suppose that Cessna tires of being on the west side of town, so it moves east and starts using Jabara Airport. Would Cessna’s economic impact on the City of Wichita, Sedgwick County, or State of Kansas be any different? I think it wouldn’t. But its impact on the Wichita airport would now be zero, or very nearly so.

    The CEDBR study does provide some figures with the manufacturing employees excluded. The impact without the manufacturing employees included is estimated at $183 million, or about 11 percent of the $1.6 billion claimed earlier.

    It is a convenient circumstance that these two manufacturers happen to be located near the airport. To credit the airport with the economic impact of these companies — as though the airport was involved in the actual manufacture of airplanes instead of providing an incidental (but important) service — is to grossly overstate the airport’s role and its economic importance.

    Of course the airport is important to Wichita. We should seek to measure its impact sensibly instead of stretching to attribute every dollar possible to it. When advocates of any cause manufacture figures like the $1.6 billion economic impact, it casts doubt on other arguments they advance.

    Similarly, we need to be realistic about the economic impact of Southwest Airlines in Wichita.

  • Joseph Ashby Show: Mayor Carl Brewer and cronyism

    Today on the Joseph Ashby Show, the host had a few comments regarding a television news story about Wichita Mayor Carl Brewer. An excerpt follows.

    [powerpress url=”http://wichitaliberty.org/audio/joseph-ashby-show-2013-04-23-excerpt.mp3″]Joseph Ashby Show, April 23, 2013 (excerpt)

    The KAKE TV news story referred to may be seen here. Background on this issue is here.

  • Janet Miller corrects misinformation

    A Wichita City Council member sets out to correct misinformation, but instead makes a number of factual errors.

    At last week’s Wichita City Council meeting, Council Member Janet Miller (district 6, north central Wichita) took an opportunity to correct misinformation she says was presented. It wasn’t the first time she’s done that; see On Wichita’s Exchange Place TIF, Janet Miller speaks, City council members on downtown Wichita revitalization, Wichita Old Town TIF district illustrates cost and harm of subsidy, Wichita fluoridation debate reveals attitudes of government, and At Wichita City Council, facts are in dispute for other examples of Miller attempting to correct misinformation.

    It should be noted that Miller and some other council members make these statements from their perch on the city council bench. There, their statements can’t be questioned or rebutted except by other council members. That happens only rarely. It’s left to others to do that job.

    Here are some examples from the most recent meeting, with video following.

    On the positive economic impact to the city of the project, Miller said “For every dollar that the city invests in any part of this project the return to the public good is two point six two.” But as I detail in In Wichita, economic development policies are questioned, this is not true for this project when the large cost to the city’s debt service fund is considered, as has been the city’s policy for economic development incentives. Except: Apparently new policy has been formulated to suit the special needs of this project.

    Also, the hotel received tax credits that were a cost to the state and the nation, of which Wichita taxpayers are part. These costs were not included in the cost-benefit study that Miller cited.

    In promoting the benefit of the hotel, Miller said that the city retains one hundred percent of the guest tax collected by the hotel. She didn’t tell the audience that this wasn’t her preference. Miller voted for an ordinance that would have re-routed 75 percent of that tax back to the hotel, to be used in any way its owners want. But Kansas law allowed citizens to challenge the special type of ordinance that was used to implement this law. By gathering signatures and winning an election, this guest tax redirection that Miller supported was defeated. Now, she says that having no such redirection is a positive factor.

    Miller also mentioned the retail space lease in the parking garage, saying it’s “being leased to a third party professional management entity who has the expertise to recruit high quality tenants,.” She added that this will result in increased tax revenue to the city.

    This is true, I suppose. But it doesn’t negate what Miller voted to do for one of her long-time campaign supporters. She vote to build, at taxpayer expense, about 8,500 square feet of retail space in the garage. Then she voted to lease it to her campaign contributors for $1 per year. This space can then be rented out for, at minimum, about $127,500 annually. We don’t really know what the public purpose for this is, or why this had to be done. Except for cronyism — we’re sure of that.

    Miller also said that as a council member she earns a salary that is 30 percent of her previous salary. Council members have a salary of around $35,000, which implies that Miller previously earned around $116,000. Good for her to have earned that.

    Miller also carped about the referendum election in February 2012, noting that the “city” could not raise money and campaign for the project. That’s not entirely true. We saw that in November 2004 and November 2008, government officials campaigned “off the books” for the temporary county sales tax and Wichita school bond. Council members could have spoken as private individuals in favor of their position, whatever it was.

    As it turned out, the Ambassador Hotel group spent four times as much as the side that won. Lack of money to get out a message was not a problem.

    As far as misinformation during the campaign, I would ask readers to review the Wichita Eagle’s fact-checking article, as well as my own article Fact checking the Wichita Ambassador Hotel campaign. Additionally, the campaign site I created at dtwichita.com is still available, as are the articles on wichitaliberty.org. If Miller or anyone else is able to find an error, I will post a correction.

  • In Wichita, economic development policies are questioned

    For an update on this story, see Wichita: No such document.

    At Tuesday’s meeting of the Wichita City Council, I was prepared to ask the council to not approve issuance of Industrial Revenue Bonds. My reason, explained here, was that the cost-benefit analysis did not meet the standard the city has established in its economic development incentives policy.

    At the meeting, though, Urban Development Director Allen Bell and Wichita city manager Robert Layton both explained that for downtown projects, the city’s policy that the debt service fund must show a cost-benefit ratio of 1.3 to one or better doesn’t apply. (Video of Bell explaining this policy is here, and of Layton doing the same, here.)

    I thought I should have known about that policy. I felt bad — embarrassed, even — for not being aware of it.

    There’s a certain logic to their arguments. The parking garage is available to the public — at least some parking stalls. But the garage was not built until the Ambassador Hotel project was finalized. And the number of parking spots actually available to the public is difficult to determine. One analysis shows that the number of spots available to the public is zero, although the city says otherwise.

    So the next day I sought to inform myself of this policy regarding the cost-benefit ratio for the city’s debt service fund for downtown projects.

    I found a document titled “City of Wichita Downtown Development Incentives Policy” as approved by the Wichita City Council on May 17, 2011. It doesn’t address cost-benefit ratios for any funds, at least by my reading.

    (By the way, that document, which was available on the city’s website at wichita.gov, wasn’t available after the city recently transitioned to a new website.)

    There is also the evaluation matrix for downtown projects. It includes as a criterion “Extent City’s ROI exceeds benefit/cost ratio of 1.3:1 on CEDBR Model.”

    I don’t see either of these documents supporting what was stated by two top city officials at Tuesday’s meeting, that the cost-benefit ratio of 1.3 to one requirement does not apply to the debt service fund for downtown projects.

    I’ve asked the city to provide such a policy document. So far, city officials have searched, but no such document has been provided. You’d think that if there is a document containing this policy, it would be readily accessible.

    Whether the “new” policy explained Tuesday by Messrs. Bell and Layton is sound public policy is something that should be discussed. It might be a desirable policy.

    But this entire episode smacks of molding public policy in order to fit the situation at hand.

    The city relies on cost-benefit analysis produced by Wichita State University Center for Economic Development and Business Research. The positive result produced for the general fund — the 2.62 that Bell referred to — was used to justify the public investments the city asked taxpayers to make in September 2011.

    We didn’t know about the unfavorable result for the city’s debt service at that time. City officials, however, knew, as it’s contained in the analysis provided to the city from CEDBR.

    City officials could have — if they had wanted to — explained this special debt service policy for downtown projects at that time. City officials or the mayor could have explained that part of the Ambassador Hotel project doesn’t meet the city’s economic development policies, but here’s why the project is a good idea nonetheless.

    City officials and the mayor could have used that opportunity to inform Wichitans of the special policy for downtown projects regarding the debt service fund, if such a policy actually existed at that time.

    But they didn’t do that. And if the policy actually existed at that time, it was a well-kept secret, and was until Tuesday.

    I’m sure some will say that we should just shrug this off as an innocent oversight. But this project is steeped in cronyism. It is the poster child for why Wichita and Kansas need pay-to-play laws so that city council members are prohibited from voting to send millions to their significant campaign contributors and the mayor’s fishing buddy.

    Soon the city will probably ask Wichitans to trust it with more tax revenue so the city can do more for its citizens. The city commissioned a survey to justify this. Also, the mayor wants a dedicated stream of funding so that the city can spend more on economic development.

    In other words, the city wants its citizens to trust their government. But in order to gain that trust, the city needs to avoid episodes like this.

  • Wichita Mayor Carl Brewer, incorrectly, deflects attention

    Wichita City Hall SignWhen Wichita Mayor Carl Brewer was asked to refrain from voting on a matter when he has a relationship with one of the parties that will benefit from his vote, here’s what the mayor said:

    “What you’re basing your information on is basically what’s been disclosed on Mr. Weeks’ website, and for his information I think he needs to get it correct. I’ve never been to the Caribbean, and most people ask me can’t he tell that that’s Lake Texoma. So I start questioning those types of things.” (Video is here.)

    On his radio show, Joseph Ashby deconstructed Brewer’s remarks. Audio is here, and it’s worth listening to.

    Regarding the mayor’s remarks quoted above: First, I never reported that the photograph of the mayor was taken at any location. I didn’t know where the photo was taken until the mayor said Lake Texoma at Tuesday’s council meeting. Last year I asked the mayor by email that and other questions regarding this photograph, but he chose not to respond.

    Clinton Coen reports the Wichita Post published that the picture was taken in the Caribbean. As far as I know, the Wichita Post is owned by Wichita businessman Craig Gabel. Some time ago I gave that newspaper blanket permission to use my material, just as I always grant permission for any newspaper, blog, radio station, television station, think tank, advocacy group, or website to use my material. I don’t have editorial control over what they do with the material, and the mere fact that my content appears somewhere does not mean that I endorse or approve of its use.

    So if the mayor has quibbles with facts that someone reported, let him direct his criticism at the responsible outlet.

    But here’s the real problem with Mayor Brewer’s remarks, from Ashby on his radio show: “What does it matter how we found out about it?” And does it matter whether the mayor vacations with someone in the Caribbean or Lake Texoma?

    The important fact is that on Tuesday Brewer voted to give his significant campaign contributors and fishing buddy $703,017. That’s what the mayor tried to deflect attention away from.