In this episode of WichitaLiberty.TV: A look at some elements of Wichita’s legislative agenda for state government, in particular special tax treatment for special artists, problems with the city’s numbers regarding airfares, and why we should abandon the pursuit of passenger rail. Then, why are people not more involved in political affairs? View below, or click here to view at YouTube. Episode 67, broadcast December 7, 2014.
Wichita government spending on economic development leads to imagined problems that require government intervention and more taxpayer contribution to resolve. The cycle of organic rebirth of cities is then replaced with bureaucratic management.
As the City of Wichita prepares its legislative agenda for 2015, an issue arises for the first year. It seems that the success of government spending on development has created rising property values, which creates higher tax bills, and that is a burden for some. Here’s the issue the city has identified: “Cultural arts enterprises in certain areas are threatened by rising property values and the resulting tax burden.”
Here’s the solution the city proposes: “The Wichita City Council supports state legislation that would allow local governments to use innovative measures to protect cultural arts enterprises from circumstantial increases in property taxes. The intent is to nurture and preserve arts activity throughout the City of Wichita and the State of Kansas.”
What are the “innovative measures” the city wants to use? Nothing special; just allowing a special group of people to shirk paying the same taxes that everyone else has to pay. The city wants to be able to use tax abatements for up to ten years. The percentage of taxes that could be forgiven could be as high as 80 percent.
So there’s really nothing innovative to see here. The city merely wants to broaden the application of tax forgiveness. Which means the tax base shrinks, and the people who still find themselves unlucky enough to still be part of the tax base face increasing demands for their tax payments.
The city manager said that artists from Commerce Street came to the city looking for a solution to their problem. Which is about the same problem that everyone else has: high taxes.
Here’s the nub of the problem, as explained by the city manager: “The more successful that we are with the redevelopment, the higher the value of the properties, and therefore harder for them who are on thin margins to begin with to stay in the districts, so they lose their charm of being the artistic or art districts.”
The proposed solution, which will require a change to state law, is that a government bureaucrat will decide the boundaries of one or more cultural arts districts. The bureaucrat will also decide which types of business firms qualify for discounts on their taxes. Besides Commerce Street, the manager identified Delano, Old Town, and the Douglas Design District as possible districts where artists might receive 80 percent discounts on their property taxes.
After this, other taxpayers have to make up the lost tax revenue from the artists. That is, unless the city decides to reduce spending by the amount of the tax discounts. I’ve proposed that to the city in other similar circumstances, and the idea was rejected. I believe council members thought I was delusional.
There are many people and business firms that operate on the same “thin margins” that the city manager wants to help artists escape. We see them come to city hall seeking special treatment. As a result, the city plans and manages an increasing share of the economy, and economic freedom, entrepreneurship, and the potential for a truly dynamic economy decline.
Who will stake out the next frontier?
There are many problems with the idea the city is proposing.
One is that the city is asking poor people to pay their full share of property taxes while granting artists a discount. This is a serious problem of equity, which is that people in similar circumstances should be treated the same. Just because someone chooses art as a business or vocation doesn’t mean they should be treated specially with respect to the taxes they pay.
Bob Weeks and Bill Goffrier in the artist’s studio, Flatiron Building, Wichita, 1982Another problem is that the process of establishing arts districts will interrupt the dynamism of the way cities develop. Arts districts develop because artists want (or need) places with cheap rent. Unless they can persuade city hall to grant property tax discounts, this generally means artists rent space in “bad” parts of town, that is, parts of town that are run down, blighted, and may have high crime rates. Thus, cheap rent.
If things go well, that is, the artists are successful and a community develops, things get fixed up. Rents rise. Taxes rise. The artists can’t afford the higher rent and taxes and have to move on. Which means the cycle repeats. The artists on the cutting edge find other places to move to, and the cycle repeats. Other parts of the city are reborn — organically — through the benefits of markets, not government bureaucracy. This is good.
Except: The City of Wichita is proposing to end the cycle by granting discounts on taxes to artists so they may remain where they are.
We replace dynamism with stagnation by bureaucracy. The city says this is innovative.
Campaign activity by the Wichita Downtown Development Corporation appears to be contrary to several opinions issued by Kansas Attorneys General regarding the use of public funds in elections.
While the Wichita Downtown Development Corporation presents itself as a non-profit organization that is independent of the City of Wichita, it receives 95 percent of its revenue from taxes, according to its most recent IRS Form 990. While Kansas has no statutes or court cases prohibiting the use of public funds for electioneering, there are at least two Kansas Attorney General opinions on this topic.
One, opinion 93-125, states in its synopsis: “The public purpose doctrine does not encompass the use of public funds to promote or advocate a governing body’s position on a matter which is before the electorate. However, public funds may be expended to educate and inform regarding issues to be voted upon by the electorate.”
Campaign activity at the office of the Wichita Downtown Development Corporation.The “governing body” in this instance is the Wichita City Council.
While some governing bodies spend taxpayer funds to present information about ballot measures, this is not the case with the Wichita Downtown Development Corporation. It explicitly campaigns in favor of the issue. It displays pro-sales tax campaign signs at its office. It publicly endorsed passage of the sales tax.
A more recent Kansas Attorney General opinion, 2001-13, holds this language: “While the Kansas appellate courts have not directly addressed the issue of whether public funds can be used to promote a position during an election, there are a number of cases from other jurisdictions that conclude that a public entity cannot do so.”
The opinion cites a court case: “Underlying this uniform judicial reluctance to sanction the use of public funds for election campaigns rests an implicit recognition that such expenditures raise potentially serious constitutional questions. A fundamental precept of this nation’s democratic electoral process is that the government may not ‘take sides’ in election contests or bestow an unfair advantage on one of several competing factions.”
The opinion reaffirms 93-125, stating: “In Attorney General Opinion No. 93-125, Attorney General Robert T. Stephan concluded that public funds may not be used to promote or advocate a city governing body’s position on a matter that is before the electorate.”
Given these Kansas Attorney General opinions, and considering good public policy, Wichita voters need to ask: Should an organization that is funded 95 percent by taxes be campaigning for a ballot issue?
This is the Wichita Downtown Development Corporation. It routinely advocates for special deals whereby downtown developers don’t have to pay property taxes or sales taxes. Or if they do pay property taxes, they might be routed back to them for their exclusive benefit. But as you can see, WDDC campaigns for low-income households to pay more sales tax on groceries.
In this episode of WichitaLiberty.TV: We’ll talk about the proposed Wichita sales tax, including who pays it, and who gets special exemptions from paying it. Then, can we believe the promises the city makes about accountability and transparency? Finally, has the chosen solution for a future water supply proven itself as viable, and why are we asking low-income households to pay more sales tax on groceries for drought protection? View below, or click here to view at YouTube. Episode 63, broadcast October 26, 2014.
Testimony of John Todd to the Wichita City Council, October 7, 2014.
I want to complement the Union Station LLC group for tackling an important redevelopment project in downtown Wichita.
I am troubled however, by the developer’s request for $17.3 million in Tax Increment Finance (TIF) funding for his project because it diverts increases in future property tax revenues away from the public treasury and back to the developer for 20 years. Under current taxing levies this means that roughly one-third or $5 million plus of future Union Station property tax revenues would be diverted from the City of Wichita needed for public safety items like police and fire protection, and the building of public infrastructure. Plus, roughly one-third or $5 million plus would be diverted from the Sedgwick County treasury needed to provide for our Court System, the maintenance of property ownership records, the Sheriff’s office and detention center. The last one-third or $5 million plus would be diverted from Wichita Public Schools needed for the education of our children.
The diversion of future property tax revenues away from local governmental treasuries should concern every taxpaying citizen when one considers the many needs for these funds. On the city level, $5 million over 20 years could go a long way towards funding needed street maintenance and repairs, or providing the revenue needed for a viable public bus system, and finding a long-term solution to our cities’ future water needs. Sedgwick County could use $5 million to re-open the Judge Riddel Boys Ranch that helps turn boy’s lives around and makes our community a safer place to live and play by reducing recidivism and crime. And, just think of how many teachers could be hired with $5 million to prepare our young people for productive lives and jobs.
I am of the opinion that Mr. Gary Oborny has the track record to prove that he is one of the most creative and exceptional real estate developers in the City of Wichita and that he possesses the professional talents needed to make the Union Station project work without TIF public funding.
I believe at some point downtown redevelopment needs to be market driven, stand on its own, and pay taxes into the city treasury like other city development projects do.
Today, you have the opportunity to exercise your leadership skills in achieving this transformation. I urge you to seize it.
Wichita city hall promises policies that are clear, predictable and transparent, except when they’re not.
On July 22, 2104, a presentation to the Wichita City Council sought to assure the council and public that a proposed jobs fund created with money collected by the proposed sales tax would have policies that govern the spending of funds: “GWEDC – Finds businesses to expand, recruit, follows established policies for retention/recruitment.”
But there’s a problem. It’s difficult for governments to establish policies that will satisfy everyone. How do we know today what we’ll need five or ten years down the road? When governments change policies to fit particular circumstances, taxpayers are rightfully concerned that the alterations are to suit the needs of special people — the cronies that feed from the city hall trough of taxpayer money. When you couple in what public choice theory tells us, which is that the cronies who want money from government have a much stronger motive to succeed than the bureaucrats are motivated to protect citizens and taxpayers, we can have trouble.
This has happened before in Wichita. Last year when a project didn’t meet the (supposedly) required benefit-cost ratio, the city simply said that it didn’t apply in that case. See Wichita’s policymaking on display.
Now, Wichita seeks to modify its policies again in response to the wants and desires of one person.
Here’s the background you need to know. When the city passed a downtown development incentives policy in 2011, here’s what the city said was its goal: “The business plan recommends the development of a prudent public investment policy that is clear, predictable and transparent, maximizes public investment and enhances market-driven development.” (emphasis added)
The meeting minutes contained further elucidation: “Scott Kneibel Planning Department stated the purpose of the policy is to put in place something that is clear and predictable in terms of how the public would invest in downtown projects through partnership with the private sector. Stated that sort of statement by this governing body has not been made to date. Stated that is the purpose of this policy so that developers will know what types of investments the City of Wichita is interested in making and how the City of Wichita will make those decisions.” (emphasis added)
But as in the past, we find city proposing the change the standards in the middle of the game. Here’s an excerpt from the agenda packet for Tuesday’s meeting, in which a large incentive package for the redevelopment of Union Station may be considered: “In the opinion of the evaluation team, the established criteria do not adequately address projects such as Union Station where the requested incentives do not involve City debt.”
For this project we see that city policy is being modified on the fly to meet the circumstances of a particular project. This is not necessarily bad. Entrepreneurship demands flexibility. But the city promises policies that are clear, predictable and transparent, and city officials say Wichita has a transparent, open government.
Can you imagine conscientious developers who want to invest in downtown Wichita, but after studying the city’s policies, realize their projects don’t conform to the city’s published standards? How many moved on to other cities, not realizing that our standards can be altered and waived?
As Wichita voters consider the value to give to promises from city hall, they should consider these episodes when the city promises there will be “established policies” for the spending of economic development funds generated by the proposed sales tax.
Documents the Wichita City Council will use to evaluate a development proposal contain material errors. Despite the city being aware of the errors for more than one month, they have not been corrected.
On August 19, 2014 the Wichita City Council considered an agenda item titled “Resolution Considering the Establishment of the Union Station Redevelopment District, Tax Increment Financing.” The purpose of the item was to set October 7, 2014 as the date for the public hearing on the formation of a TIF district. The council passed this resolution.
On August 27 Bob Weeks inquired this of Wichita city officials based on information contained in city documents that were prepared for the August 19 meeting:
“On the Union station TIF proposal, there is mentioned ‘$3,766,156 in monetized historic tax credits.’ Do you know whether these are federal or state tax credits, and the face value of the credits? I presume that ‘monetized’ means the value the developers expect to receive when selling the credits at a discount.”
That same day he received this response from Allen Bell, the city’s Director of Urban Development.
“The Developer has not yet provided the City with details on the tax credits. However, staff analyzed the project to ascertain a ballpark estimate of how much it could generate in both state and federal tax credits and came up with a similar amount. We assume that $3,766,156 is the amount of net proceeds to be injected into the project from the sale of tax credits and that it is discounted from the face value of the credits.”
On follow up, Weeks asked this:
“I was also wondering which incentive program allows for the sales tax exemptions included in the CEDBR analysis.”
The response from Bell was:
“The only incentive program available to Union Station that would provide a sales tax exemption is IRBs. The Developer did not request IRBs or a sales tax exemption. I would guess that CEDBR factored it into the cost-benefit analysis to be extra conservative.”
CEDBR is the Center for Economic Development and Business Research at Wichita State University.
In addition to Bell, other city officials participating in these emails were Van Williams, Public Information Officer; Mark Elder, Development Analyst; and Scott Knebel, Downtown Revitalization Manager.
On October 2, when the city released the agenda packet for the October 7 meeting, the tax credits and sales tax information was not changed.
By the city’s admission, the value of tax credits for this project is a guess, and we don’t know if the project is actually eligible for these tax credits. The sales tax exemption included in the CEDBR is an incentive this project is not eligible for and will not receive. Despite several city officials being aware of these errors, the material the city council will consider on October 7 has not been corrected.
Supporters of a proposed sales tax in Wichita promise there will be no conflicts of interest when making spending decisions. That would be a welcome departure from present city practice.
“Yes Wichita” website.In November Wichita voters will decide on a new one cent per dollar sales tax, part to be used for economic development, specifically job creation. “Yes Wichita” is a group that supports the sales tax. Language on its website reads: “Conflict-of-interest policies will prohibit anyone from participating in decisions in which there is any self-interest.” The page is addressing the economic development portion of the proposed sales tax. It’s part of an effort to persuade Wichita voters that millions in incentives will be granted based on merit instead of cronyism or the self-interest of politicians, bureaucrats, and committee members.
The problem is that while the city currently has in place laws regarding conflicts of interest, the city does not seem willing to observe them. If the proposed sales tax passes, what assurances do we have that the city will change its ways?
Following, from October 2013, is one illustration of Wichita city hall’s attitude towards conflicts of interest and more broadly, government ethics.
Wichita contracts, their meaning (or not)
Is the City of Wichita concerned that its contracts contain language that seems to be violated even before the contract is signed?
No member of the City’s governing body or of any branch of the City’s government that has any power of review or approval of any of the Developer’s undertakings shall participate in any decisions relating thereto which affect such person’s personal interest or the interests of any corporation or partnership in which such person is directly or indirectly interested.
At Tuesday’s meeting I read this section of the contract to the council. I believe it is relevant for these reasons:
Wichita Mayor Carl Brewer is a member of a governing body that has power of approval over this project.
Bill Warren is one of the parties that owns this project.
Bill Warren also owns movie theaters.
Wichita Mayor Carl Brewer owns a company that manufactures barbeque sauce.
Brewer’s sauce is sold at Warren’s theaters.
The question is this: Does the mayor’s business relationship with Warren fall under the prohibitions described in the language of section 11.06? Evidently not. After I read section 11.06 I asked the mayor if he sold his sauce at Warren’s theaters. He answered yes. But no one — not any of the six city council members, not the city manager, not the city attorney, not any bureaucrat — thought my question was worthy of discussion.
(While the agreement doesn’t mention campaign contributions, I might remind the people of Wichita that during 2012, parties to this agreement and their surrogates provided all the campaign finance contributions that council members Lavonta Williams and James Clendenin received. See Campaign contributions show need for reform in Wichita. That’s a lot of personal interest in the careers of politicians.)
I recommend that if we are not willing to live up to this section of the contract that we strike it. Why have language in contracts that we ignore? Parties to the contract rationalize that if the city isn’t concerned about enforcing this section, why should they have to adhere to other sections?
While we’re at it, we might also consider striking Section 2.04.050 of the city code, titled “Code of ethics for council members.” This says, in part, “[Council members] shall refrain from making decisions involving business associates, customers, clients, friends and competitors.”
That language seems pretty clear to me. But we have a city attorney that says that this is simply advisory. If the city attorney’s interpretation of this law is controlling, I suggest we strike this section from the city code. Someone who reads this — perhaps a business owner considering Wichita for expansion — might conclude that our city has a code of ethics that is actually observed by the mayor and council members and enforced by its attorneys.
As the City of Wichita prepares its legislative agenda for 2015, an issue arises for the first year. It seems that the success of government spending on development has created rising property values, which creates higher tax bills, and that is a burden for some. Here’s the issue the city has identified: “Cultural arts enterprises in certain areas are threatened by rising property values and the resulting tax burden.”
The diversion of future property tax revenues away from local governmental treasuries should concern every taxpaying citizen when one considers the many needs for these funds. On the city level, $5 million over 20 years could go a long way towards funding needed street maintenance and repairs, or providing the revenue needed for a viable public bus system, and finding a long-term solution to our cities’ future water needs. Sedgwick County could use $5 million to re-open the Judge Riddel Boys Ranch that helps turn boy’s lives around and makes our community a safer place to live and play by reducing recidivism and crime. And, just think of how many teachers could be hired with $5 million to prepare our young people for productive lives and jobs.
