Voice For Liberty

Tag: Cronyism

  • 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.

  • Economic development in Wichita: Two tales

    Tonight as Wichita Mayor Carl Brewer delivers his State of the City address, Wichitans will want to remember past addresses, statements, admonitions, and projections from the mayor.

    Here’s one for the record book: In his 2008 address, Brewer promised specific development at the struggling Waterfront development, which is heavily subsidized. Beaming with pride, Brewer said to the audience: “And, great strides are being made at Wichita Waterwalk. The topping out ceremony for Waterwalk Place is scheduled for this Thursday and I invite everyone to this event. I am pleased to announce two more national tenants that will be a part of the WaterWalk restaurant and entertainment development. … I am pleased to announce two more national tenants that will be a part of the WaterWalk restaurant and entertainment development. Joining Saddle Ranch Chop House will be Funny Bone Comedy Club and Wet Willies restaurant and daiquiri bar. These are just a couple of the fun and exciting tenants that will help make WaterWalk — Wichita’s Next Great Gathering Place.” (The repeated sentence is still in the original text, after five years, so it must mean something.)

    Five years later, none of these establishments have started construction at Waterwalk. In fact, no restaurant or entertainment venue has. We still subsidize it, though. That hasn’t changed.

    Here’s another — and more substantial — example of a deal pitched to Wichitans as a unique situation. Something too good for Wichita to pass on.

    In 2010 Wichita movie theater owner Bill Warren proposed building an Imax theater in west Wichita. When the Wichita City Council considered this matter …

    Wait. Stop right there. Why, if someone wants to build a movie theater, does the city council have to be involved? We’ll see.

    The city staff’s agenda report for the item stated “The proposed new IMAX Theater will provide a regional tourism/entertainment attraction that is expected to draw visitors from throughout Kansas and parts of Missouri, Oklahoma, Texas and Nebraska.” This so impressed Wichita politicians and bureaucrats that they approved Warren’s request for Industrial Revenue Bonds. The effect of these bonds is that American Luxury Cinemas, Inc. escapes paying property taxes on the new theater, estimated by the city to be $136,099 each year. The company also avoided paying an estimated $630,000 in sales taxes, according to the city document.

    So with Wichita having this unique attraction that will spur people to drive all the way to Wichita from Texas to watch movies, I was surprised, just one year later, to see the Wichita Business Journal report that Warren might open a similar Imax theater in Moore, Oklahoma. That’s between Wichita and Texas.

    Recall that just one year earlier Warren received economic development incentives from the city based partly on the singular nature of the proposed theater in the region. At that time Wichita city officials said the Wichita theater would be a “major tourism attraction,” drawing from as far away as Texas. But with another Warren IMAX built in suburban Oklahoma City, I think we can now acknowledge that we were mislead by someone. As political head of Wichita, that would be Mayor Carl Brewer.

    When Warren applied to the Wichita City Council for favored tax treatment for the Wichita theater, Mayor Brewer bought into the myth that there can be only one Warren IMAX theater in the region when he said: “A lot of other cities want this IMAX … they’re on the internet watching this city council meeting to see what we’re going to do because they’re going to make a bid for this IMAX.”

    Evidently the mayor couldn’t imagine that there could be more than one IMAX theater in the region.

    By the way, Warren received incentives from the Moore City Council, too. Minutes from a council meeting report on “the proposed agreement between the City of Moore/Moore Economic Development Authority and Oklahoma Warren Theatres is a sales tax rebate agreement for the construction and operation of an IMAX Theatre to be located directly north of the existing Warren Theatre. … The ending date is set for December 2019 or when the agreed upon rebate amount of $2 million is reached, whichever comes first. The rebate will be made up of 100% of the City’s 3% sales tax, excluding the ½ cent sales tax added on for the purpose of residential roads and public safety.”

    warren-theater-brewers-best-bbq-sauce-small

    Well, at least that city isn’t shortchanging residential roads and public safety to pay for movie theaters.

    I wonder: Do the Warren theaters in Oklahoma sell Mayor Brewer’s barbeque sauce, as is the case in Wichita?

    Inquiring minds want to know.

  • Wichita economic development: We can’t be satisfied with this

    Today as the Wichita City Council approved another round of cronyism and business welfare in the name of economic development, Mayor Carl Brewer spoke approvingly of the city’s efforts in this regard.

    As quoted by the Wichita Eagle, Brewer said this of his critics:

    “We recognize you can make any argument you choose,” Mayor Carl Brewer said. “Cities that prosper, the things they have to do … is make investments to do things. As long as we’re putting people to work and creating an environment … where new businesses come to our community, it provides the opportunity to grow new business.”

    If the mayor and council believe what we’ve been doing has created prosperity and jobs, I wish he would take a look at numbers. When we compare the Wichita MSA to other areas and the country as a whole, we realize we’re not doing well at all.

    Wichita MSA GDP growth

    This illustration shows GDP growth for the Wichita MSA (purple line) as compared to U.S. metropolitan areas (blue line) and all other MSAs (dimmed lines). I use data for MSAs because that is what is made available. Also, the city and county like to talk about a regional approach.

    The top two charts show the growth in GDP for government, and then for the private sector. The bottom chart shows growth in GDP per capita (per person).

    What can we observe from these charts? First, when considering output generated by government, Wichita tracks right along with the average U.S. MSA.

    But when looking at GDP generated by private industry, Wichita does worse than the average of U.S. MSAs. There are not many MSAs that perform worse than Wichita.

    Considering GDP Per Capita, we see the same story: Wichita underperforms.

    If you would rather measure jobs instead of gross domestic product, see here for charts that tell the same story in different words: Wichita economic development solution, postponed.

    Even if we believe that an active role for government in economic development is best (and I don’t believe that), we have to conclude that our efforts aren’t working. Carl Brewer has been on the city council or served as mayor since 2001, which is the time period illustrated in these charts.

    Brewer, most city council members, and the city’s bureaucratic staff believe in taking an active role in economic development. Their vote to approve such action today is another in a long line of efforts to improve the economic performance of Wichita.

    But I would ask Mayor Brewer and the council: How can you argue that this record reflects success?

    (Dollar amounts are in chained 2005 dollars to eliminate the effects of inflation. Each metropolitan area is indexed to start at 100% so we can see the relative rates of growth. Data from U.S. Bureau of Economic Analysis (BEA). The interactive version of this visualization is at Growth in Gross Domestic Product by metropolitan area.)

  • Wichita STAR bonds project not good for capitalism

    Tomorrow the Wichita City Council considers approval of the project plan for a STAR bonds project in Wichita.

    The formation of the district has already been approved. This action by the council will consider the development plan and the actual authorization to spend money.

    If approved, the city will proceed under the State of Kansas STAR bonds program. The city will sell bonds and turn over the proceeds to the developer. As bond payments become due, sales tax revenue will make the payments.

    It’s only the increment in sales tax that is eligible to be diverted to bond payments. This increment is calculated by first determining a base level of sales for the district. Then, as new development comes online — or as sales rise at existing merchants — the increased sales tax over the base is diverted to pay the STAR bonds. Estimates are that annual revenue available for the bonds will be over $5,000,000.

    For this district, the time period used to determine the base level of sales tax is February 2011 through January 2012. A new Cabela’s store opened in March 2012, and it’s located in the STAR bonds district. Since Cabela’s sales during the period used to calculate the base period was $0, the store’s entire sales tax collections will be used to benefit the STAR bonds developer.

    (There are a few minor exceptions, such as the special CID tax Cabela’s collects for its own benefit.)

    Which begs the question: Why is the Cabela’s store included in the boundaries of the STAR bonds district?

    With sales estimated at $35 million per year, the state has been receiving around $2 million per year in sales tax from this store. But after the STAR bonds are sold, that money won’t be flowing to the state. Instead, it will be used to pay off bonds that benefit the project’s developer.

    Some questions

    Curiously, the city doesn’t provide a cost-benefit study for this project. This is the usual mechanism the city relies on as justification for investments in economic development projects.

    Often developers ask government for incentives because they claim the project is not economically feasible without assistance. Is that the case with this development? If not, why the need for subsidies?

    And if taxpayer subsidy is required for this development, we need to ask what it is about Kansas that discourages this type of business investment.

    STAR bonds should be opposed as they turn over tax policy to the private sector. We should look at taxation as a way for government to raise funds to pay for services that all people benefit from. An example is police and fire protection. Even people who are opposed to taxation rationalize paying taxes that way.

    But STAR bonds turn tax policy over to the private sector for personal benefit. The money is collected under the pretense of government authority, but it is collected for the exclusive benefit of the owners of property in the STAR bonds district.

    Citizens should be asking this: Why do we need taxation, if we can simply excuse some from participating in the system?

    Another question: In the words of the Kansas Department of Commerce, the STAR bonds program offers “municipalities the opportunity to issue bonds to finance the development of major commercial, entertainment and tourism areas and use the sales tax revenue generated by the development to pay off the bonds.” This description, while generally true, is not accurate. This STAR bonds district includes much area beyond the borders of the proposed development, including a Super Target store, a new Cabela’s store, and much vacant ground that will probably be developed as retail. The increment in sales taxes from these stores — present and future — goes to the STAR bond developer. As we’ve seen, since the Cabela’s store did not exist during the time the base level of sales was determined, all of its sales count towards the increment.

    STAR bonds, or capitalism?

    In economic impact and effect, the STAR bonds program is a government spending program. Except: Like many spending programs implemented through the tax system, legislative appropriations are not required. No one has to vote to spend on a specific project. Can you imagine the legislature voting to grant $5 million per year to a proposed development in northeast Wichita? That doesn’t seem likely. Few members would want to withstand the scrutiny of having voted in favor of such blatant cronyism.

    But under tax expenditure programs like STAR bonds, that’s exactly what happens — except for the legislative voting part, and the accountability that sometimes follow.

    Government spending programs like STAR bonds are sold to legislators as jobs programs. Development, it is said, will not happen unless project developers receive incentives through these spending programs. Since no legislator wants to be seen voting against jobs, many are susceptible to the seductive promise of jobs.

    But often these same legislators are in favor of tax cuts to create jobs. This is the case in the Kansas House, where many Republican members are in favor of reducing the state’s income tax as a way of creating economic growth and jobs. On this issue, these members are correct.

    But many of the same members voted in favor of tax expenditure programs like the STAR bonds program. These two positions cannot be reconciled. If government taxing and spending is bad, it is especially bad when part of tax expenditure programs like STAR bonds. And there’s plenty of evidence that government spending and taxation is a drag on the economy.

    It’s not just legislators that are holding these incongruous views. Secretary of Commerce Pat George promoted the STAR bonds program to legislators. Governor Sam Brownback supported the program.

    When Brownback and a new, purportedly more conservative Kansas House took office, I wondered whether Kansas would pursue a business-friendly or capitalism-friendly path: “Plans for the Kansas Republican Party to make Kansas government more friendly to business run the risk of creating false, or crony capitalism instead of an environment of genuine growth opportunity for all business.” I quoted John Stossel:

    The word “capitalism” is used in two contradictory ways. Sometimes it’s used to mean the free market, or laissez faire. Other times it’s used to mean today’s government-guided economy. Logically, “capitalism” can’t be both things. Either markets are free or government controls them. We can’t have it both ways.

    The truth is that we don’t have a free market — government regulation and management are pervasive — so it’s misleading to say that “capitalism” caused today’s problems. The free market is innocent.

    But it’s fair to say that crony capitalism created the economic mess.

    But wait, you may say: Isn’t business and free-market capitalism the same thing? Not at all. Here’s what Milton Friedman had to say: “There’s a widespread belief and common conception that somehow or other business and economics are the same, that those people who are in favor of a free market are also in favor of everything that big business does. And those of us who have defended a free market have, over a long period of time, become accustomed to being called apologists for big business. But nothing could be farther from the truth. There’s a real distinction between being in favor of free markets and being in favor of whatever business does.” (emphasis added.)

    Friedman also knew very well of the discipline of free markets and how business will try to avoid it: “The great virtue of free enterprise is that it forces existing businesses to meet the test of the market continuously, to produce products that meet consumer demands at lowest cost, or else be driven from the market. It is a profit-and-loss system. Naturally, existing businesses generally prefer to keep out competitors in other ways. That is why the business community, despite its rhetoric, has so often been a major enemy of truly free enterprise.”

    The danger of Kansas government having a friendly relationship with Kansas business is that the state will circumvent free markets and promote crony, or false, capitalism in Kansas. It’s something that we need to be on the watch for. The existence of the STAR bonds program lets us know that a majority of Kansas legislators — including many purported fiscal conservatives — prefer crony capitalism over free enterprise and genuine capitalism.

    The problem

    Government bureaucrats and politicians promote programs like STAR bonds as targeted investment in our economic future. They believe that they have the ability to select which companies are worthy of public investment, and which are not. It’s a form of centralized planning by the state that shapes the future direction of the Kansas economy.

    Arnold King has written about the ability of government experts to decide what investments should be made with public funds. There’s a problem with knowledge and power:

    As Hayek pointed out, knowledge that is important in the economy is dispersed. Consumers understand their own wants and business managers understand their technological opportunities and constraints to a greater degree than they can articulate and to a far greater degree than experts can understand and absorb.

    When knowledge is dispersed but power is concentrated, I call this the knowledge-power discrepancy. Such discrepancies can arise in large firms, where CEOs can fail to appreciate the significance of what is known by some of their subordinates. … With government experts, the knowledge-power discrepancy is particularly acute.

    Despite this knowledge problem, Kansas legislators are willing to give power to bureaucrats in the Department of Commerce who feel they have the necessary knowledge to direct the investment of public funds. One thing is for sure: the state and its bureaucrats have the power to make these investments. They just don’t have — they can’t have — the knowledge as to whether these are wise.

    What to do

    The STAR bonds program is an “active investor” approach to economic development. Its government spending on business leads to taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form.

    Professor Art Hall of the Center for Applied Economics at the Kansas University School of Business is critical of this approach to economic development. In his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy, Hall quotes Alan Peters and Peter Fisher: “The most fundamental problem is that many public officials appear to believe that they can influence the course of their state and 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 expectations about their ability to micro-manage economic growth and making the case for a more sensible view of the role of government — providing foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.”

    In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers that Kansas and many of its cities employ: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”

    In making his argument, Hall cites research on the futility of chasing large employers as an economic development strategy: “Large-employer businesses have no measurable net economic effect on local economies when properly measured. To quote from the most comprehensive study: ‘The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.’”

    There is also substantial research that is it young firms — distinguished from small business in general — that are the engine of economic growth for the future. We can’t detect which of the young firms will blossom into major success — or even small-scale successes. The only way to nurture them is through economic policies that all companies can benefit from. Reducing tax rates is an example of such a policy. Government spending on specific companies through programs like STAR bonds is an example of precisely the wrong policy.

    We need to move away from economic development based on this active investor approach. We need to advocate for policies at all levels of government that lead to sustainable economic development. We need political leaders who have the wisdom to realize this, and the courage to act appropriately. Which is to say, to not act in most circumstances.

    Public Hearing Considering the Adoption of a STAR Bond Project Plan for the K-96 Greenwich Star Bond Projec… by

  • Campaign contributions show need for reform in Wichita

    Candidates for Wichita City Council have filed campaign finance reports, and the filings illustrate the need for campaign finance reform in Wichita and Kansas.

    Two incumbents, both who have indicated their intent to run in the spring elections, received campaign contributions in 2012 from two sources: A group of principals and executives of Key Construction, and another group associated with theater owner Bill Warren.

    The incumbent candidates receiving these contributions are Wichita City Council Member James Clendenin (district 3, southeast and south Wichita) and Wichita City Council Member Lavonta Williams (district 1, northeast Wichita).

    Except for $1.57 in unitemized contributions to Clendenin, these two groups accounted for all contributions received by these two incumbents.

    Those associated with Key Construction gave a total of $7,000. Williams received $4,000, and $3,000 went to Clendenin.

    Those associated with Warren gave $5,000, all to Clendenin.

    So do these two groups have an extraordinarily keen interest in Wichita city government that’s not shared by anyone else?

    Yes they do, and it’s not benevolent. Both have benefited from the cronyism of the Wichita City Council, in particular members Williams and Clendenin.

    Here’s one example, perhaps the worst. In August 2011 the council voted to award Key Construction a no-bid contract to build the parking garage that is part of the Ambassador Hotel project, now known as Block One. The no-bid cost of the garage was to be $6 million, according to a letter of intent. Later the city decided to place the contract for competitive bid. Key Construction won the bidding, but for a price $1.3 million less.

    Both Williams and Clendenin voted for this no-bid contract that was contrary to the interests of taxpayers. They didn’t vote for this reluctantly. They embraced it.

    Last summer Williams and Clendenin, along with the rest of the council, participated in a decision to award the large contract for the construction of the new Wichita airport to Key Construction, despite the fact that Key was not the low bidder. The council was tasked to act in a quasi-judicial manner, to make decisions whether discretion was abused or whether laws were improperly applied.

    Judges shouldn’t preside over decisions that hugely enrich their significant campaign contributors. No matter what the merits of the case, this is bad government.

    Did Key’s political involvement and campaign contributions play a role in the council awarding the company a no-bid garage contract and the airport contract? Key Construction executives and their spouses are among a small group who routinely make maximum campaign contributions to candidates. These candidates are both liberal and conservative, which rebuts the presumption that these contributions are made for ideological reasons, that is, agreeing with the political positions of candidates. Instead, Key Construction and a few others are political entrepreneurs. They seek to please politicians and bureaucrats, and by doing so, receive no-bid contracts and other benefits. This form of cronyism is harmful to Wichita taxpayers, as shown by the Ambassador Hotel garage.

    Warren and his business partners have received largess from the council, too. In 2008 (before Clendenin joined the council) the Wichita City Council approved a no- and low-interest loan to Bill Warren and his partners. Reported the Wichita Eagle: “Wichita taxpayers will give up as much as $1.2 million if the City Council approves a $6 million loan to bail out the troubled Old Town Warren Theatre this week. That’s because that $6 million, which would pay off the theater’s debt and make it the only fully digital movie theater in Kansas, would otherwise be invested and draw about 3 percent interest a year.”

    Wichita’s need for campaign finance reform

    The campaign finance reports of Williams and Clendenin reinforce and spotlight the need for campaign finance reform in Wichita and Kansas.

    When it is apparent that a “pay-to-play” environment exists at Wichita City Hall, it creates a toxic and corrosive political and business environment. Companies are reluctant to expand into areas where they don’t have confidence in the integrity of local government. Will I find my company bidding against a company that made bigger campaign contributions than I did? If I don’t make the right campaign contributions, will I get my zoning approved? Will my building permits be slow-walked through the approval process? Will my projects face unwarranted and harsh inspections? Will my bids be subjected to microscopic scrutiny?

    We need laws to prohibit Wichita city council members from voting on or advocating for decisions that enrich their significant campaign contributors. Citizens are working on this initiative on several fronts. Some find the actions of these candidates so distasteful and offensive that they are willing to take to the streets to gather thousands of signatures to force the Wichita City Council to act in a proper manner.

    That huge effort shouldn’t be necessary. Why not? The politicians who accept these campaign contributions say it doesn’t affect their voting, and those who give the contributions say they don’t give to influence votes.

    If politicians and contributors really mean what they say, there should be no opposition to such a “pay-to-play” law. Citizens should ask the Wichita City Council to pass a campaign finance reform ordinance that prohibits voting to enrich significant campaign contributors.

  • Wichita’s Lux applies for more business welfare

    Tomorrow the Wichita City Council considers yet another layer of business welfare for The Lux, a luxury real estate development in downtown Wichita. This project, despite having already received millions in assistance from taxpayers, is not economically viable, according to city documents.

    The Lux has already received the benefit of Industrial Revenue Bonds, the purpose of which, despite their name, is to relieve the Lux from paying sales taxes.

    If approved for historic preservation tax credits, the Lux could receive several millions in tax credits, which are equivalent to a cash grant. It’s likely to be approved.

    These programs and actions result in taxpayers paying for the lifestyle choices of a relative few.

    The assistance program the council will consider tomorrow is relatively benign. The city will allow the Lux to tap up to $1.7 million in special assessment financing. The amount owed becomes a lien in the property, and the risk of the city not being paid back is small. But this action puts our city deeper in debt, and that’s a problem.

    Additionally, Wichita is taking on risk that the project’s bankers are not willing to take, even though they would also have a claim on the building if it fails. Even if the bank would loan, its interest rate would be higher than what the city charges on special assessment financing. This lower interest rate is likely the real reason for the developers claiming the need for this program.

    What’s the matter with Wichita?

    We have to wonder why so many projects in downtown Wichita require massive doses of taxpayer subsidy. Here’s what city documents tell us:

    “The Office of Urban Development has reviewed the economic (gap) analysis of the project and determined a financial need for incentives exists based on the current market. The project lender, Intrust Bank, has advised that the bank cannot increase the loan amount, leaving a gap in funding sources that is filled by the City’s facade program.”

    When the city is willing to fill in financing gaps, you can be sure that gaps will be created.

    When other taxpayers have to bear the cost of incentives for the Lux and its owners, other spending and investment is reduced. While the spending on incentives is concentrated and easy to see — there will be groundbreaking and ribbon-cutting ceremonies to make sure we don’t miss it — the missing spending and investment is dispersed. The missing spending and investment is difficult to see. But it is every bit as real as this project.

    In fact, this missing spending and investment is more valuable than government spending on this project. That’s because when people spend and invest on their own, they choose what is most important to them, not what is important to politicians and bureaucrats. This is a special problem in Wichita, where the mayor and city council members have a history of awarding over-priced no-bid contracts to their campaign contributors.

    Sometimes these subsidies are justified by the claim that renovating historic buildings is more expensive than new construction. If that’s true, we have to recognize that investing in, or living in, a historic building is a lifestyle choice. The people who make these choices should pay themselves, just like we expect others to pay for the characteristics of the housing they choose. Likewise, building a home with granite kitchen counter tops and marble floors in the bathrooms is more expensive than a plainer home. These premium features are chosen voluntarily by the homeowner, and it is right and just that they alone should pay for them.

    We should recognize historic buildings for what they are: a premium feature or amenity whose extra cost should be born solely by those who chose to own them or rent them. There’s no difference between these premium features and choosing to live in a historic building. Those who desire them choose them voluntarily, and should pay their full cost. Forcing everyone to subsidize this choice is wrong. It’s an example of a special interest gone wild. But in Wichita we call this economic development.

    I wonder: After the Lux receives its millions in grants in the form of tax credits — which it is quite likely to receive — will it still have a gap at that time?

    Fortunately for taxpayers the Lux does not qualify for the facade improvement grant program.

  • O’Donnell critics should look inward first

    Wichita City Council Member Michael O’Donnell (district 4, south and southwest Wichita) made a mistake when he recently offered his opinion to the Sedgwick County Commission. The mistake was noted and corrected before the commissioners voted, so it had no influence on how the commissioners voted.

    Yet, all members of the Wichita City Council have “expressed varying degrees of anger” over O’Donnell’s statement, according to Wichita Eagle reporting. (O’Donnell won’t be censured for remarks to County Commission)

    Before these council members and the mayor express much more angst, they should take a look at their own actions, and how O’Donnell successfully opposed their assault on Wichita taxpayers.

    In September 2011, all council members except O’Donnell voted to award a no-bid contract to a construction company for a parking garage and retail space as part of the Ambassador Hotel project, then known as Douglas Place and now known as Block One. (Mayor Carl Brewer was absent that day, but earlier he voted for the letter of intent to do the same.)

    Then, thanks to O’Donnell and Pete Meitzner (district 2, east Wichita), the city put the contract out for competitive bid. The result was a price about 20 percent less, saving taxpayers over $1.2 million. (Wichita city manager proposes eliminating no-bid construction projects, February 5, 2012 Wichita Eagle.)

    Ironically, the company that submitted the winning bid was the same company that received the no-bid contract: Key Construction, a company well-known for its owners’ and executives’ campaign contributions to Mayor Brewer and nearly all council members, regardless of political ideology. Also involved in the project was Dave Burk, who along with his wife also make large and regular contributions to a broad range of council members.

    Wichitans need to know that all except O’Donnell — and belatedly, Meitzner — thought it was proper to award their significant campaign contributors with a padded contract that awarded excess profits to Key at the expense of taxpayers.

    Wastefully squandering taxpayer money in order to reward significant campaign contributors is not productive economic development. Instead, it’s cronyism of the worst kind, and illegal in some places. In Wichita, however, this is standard operating practice for some council members.

    Such blatant cronyism reduces the prosperity of our community. It causes citizens to lose confidence in government. It stirs citizens to petition their government for redress. That literally happened in Wichita, motivated in part by behavior like this.

    The bad behavior of the Wichita City Council has received national attention. In its commentary on the successful referendum in Wichita this year, the Wall Street Journal remarked: “Local politicians like to get in bed with local business, and taxpayers are usually the losers. So three cheers for a voter revolt in Wichita, Kansas last week that shows such sweetheart deals can be defeated.”

    Now citizens are investigating campaign finance reform laws that would, hopefully, reduce the incentive for the shameful practice of awarding no-bid contracts to significant campaign contributors. As the Wichita City Council, except for O’Donnell, has shown no interest in reforming itself, citizens must do it themselves.

    Instead of being angry with the departing O’Donnell, the council and mayor should look at themselves first and reform their proven harmful practices.

  • Bowllagio property purchases seem overpriced

    As part of a planned real estate development, taxpayers may be asked to pay property owners much more than the appraised values for the parcels.

    According to documents obtained from the Wichita city manager’s office, developers of Bowllagio have budgeted to pay a collective $1,110,300 over the property’s appraised values. This is 63 percent over the appraised values for the 14 parcels.

    The source of funds for these purchases is a proposed tax increment financing (TIF) district created for the benefit of Maize 54, LLC, the developer of Bowllagio. The Wichita City Council approved the formation of the district on November 20. Now the Goddard School District and Sedgwick County Commission may veto the formation of the district. The approval of these two bodies is not required; but they have the right to cancel the formation of the district.

    A meeting last week with Goddard school officials resulted in learning that it seems unlikely that the school district will take up the matter. The item is on the agenda of the county commission’s Wednesday meeting.

    The Sedgwick County Appraiser’s Office explains appraised values: “The value of property is determined by market transactions. The Appraiser’s office has the responsibility to study those transactions and appraise property accordingly. The Appraiser’s office determines market value through the use of generally accepted appraisal methods.”

    If the appraiser’s valuations are close to the market value of the properties — and we have reason to believe they are — we have to ask why did the Wichita city council approve spending so much taxpayer money on these properties?

    And, will the Sedgwick County Commission give its approval to this waste of taxpayer money?

    Proposed home purchases for Maize 54 / Bowllagio development

  • Economic development incentives questioned

    When the New York Times is concerned about the cost of government spending programs, it’s a safe bet that things are really out of control. Its recent feature As Companies Seek Tax Deals, Governments Pay High Price reports on economic development incentive programs that are costly and produce questionable benefits.

    Do we know the cost of economic development incentives? No, reports the Times: “A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards. Nor do they know if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.”

    Kansas Governor Sam Brownback appears in a video that accompanies the story.

    A concern of the newspaper is that the money spent on incentives could be spent on other government programs, primarily schools. My concern is that government spending on incentives is harmful to the economy. It redirects capital from productive to unproductive uses. Charles Koch recently explained:

    Today, many governments give special treatment to a favored few businesses that eagerly accept those favors. This is the essence of cronyism.

    Many businesses with unpopular products or inefficient production find it much easier to curry the favor of a few influential politicians or a government agency than to compete in the open market.

    After all, the government can literally guarantee customers and profitability by mandating the use of certain products, subsidizing production or providing protection from more efficient competitors.

    Cronyism enables favored companies to reap huge financial rewards, leaving the rest of us — customers and competitors alike — worse off.

    In another article Koch wrote: “Instead of protecting our liberty and property, government officials are determining where to send resources based on the political influence of their cronies. In the process, government gains even more power and the ranks of bureaucrats continue to swell.”

    We must distinguish between business and capitalism and hold business groups accountable when they fail to promote economic freedom and capitalism. An example is the Wichita Metro Chamber of Commerce. Its legislative platform reads “The Wichita Metro Chamber believes the State should practice fiscal discipline.”

    But the Chamber recommends retaining several business welfare programs that are harmful to capitalism and economic freedom.

    Next week the agenda for the meeting of the Wichita City Council contains six items that dish out business welfare and promote cronyism. Another item recommends approval of the city’s legislative agenda, which contains this:

    ISSUE: Existing economic development tools are essential for the continued growth and prosperity of our community.

    RECOMMEND: The Wichita City Council supports continuation of its 2012 legislative agenda item, calling for protection of existing economic development tools for local public-private partnerships. Among those are Tax Increment Financing (TIF) districts, Community Improvement Districts (CIDs), Industrial Revenue Bonds (IRBs) and Sales Tax Revenue (STAR) bonds.

    The premise is false twice: These economic development tools are not “essential,” and Wichita is not growing and prospering, compared to other cities: “The inflation-adjusted gross domestic product for the Wichita metro area declined 0.4 percent in 2010, according to initial estimates from the federal Bureau of Economic Analysis. The decline slowed from the year before, when this measure of economic growth plummeted by 7.7 percent. … Wichita’s decline came even as GDP grew by 2.5 percent nationwide in 2010. GDP increased in 304 of 366 metro areas nationwide.” (Wichita Business Journal, Wichita’s real GDP declined in 2010 amid national recovery, database shows.)