Tag: Downtown Wichita revitalization

Articles about the redevelopment of downtown Wichita and its impact on the economic freedom of Wichitans.

  • At Wichita city council, does the field tilt?

    At the January 12 meeting of the Wichita City Council, several citizens and one council member addressed the “unlevel playing field” and its implications for development in downtown Wichita.

    Speaking about the unlevel playing field, council member Janet Miller said: “My own philosophy on that would say that really, incentives are often used to actually level the paying field.” Referring to downtown Wichita, she said that there may be conditions that make development more costly, or there may be other conditions that make development more difficult.

    Miller didn’t name specific factors, but often land assembly issues are mentioned as an impediment to developing in downtown Wichita. A parcel may be owned by many parties, the story goes, and it can be difficult and expensive to contact all parties and come to agreement with them.

    But land assembly is not an issue with the proposed hotel in WaterWalk. There is no doubt as to land ownership. It’s just one party, and one who is willing to lease it for $1 per year.

  • Concerning Wichita’s WaterWalk, I have a few questions

    As the City of Wichita decides whether to offer subsidy to a hotel in the downtown WaterWalk development, there are a few questions that deserve answers. Most of these questions are my own, but some are questions that people have told me I should ask.

    What is the development budget for this project? I’ve been told by several sources that $100,000 per room seems to be too high for a limited-service hotel like this.

    What are the terms of the ground lease? Will the developers of the proposed hotel be paying any private person or entity for the rights to lease the ground under the hotel? If so, who and how much?

    What are the terms of the parking space arrangement? Will any private person or entity be receiving payment for allowing the use of the parking spaces? If so, who and how much?

    Jack DeBoer, owner of WaterWalk, has recently been quoted saying he doesn’t want any more of Wichita’s money. Will any of the city subsidy or any of the cost of this proposed hotel be flowing to him?

    The city says it has performed a “gap analysis” which indicates that city subsidy is needed for the proposed hotel to be financially feasible. May we see that analysis? Are the underlying assumptions used in this analysis realistic? What is the source of these assumptions? Do these assumptions come from someone who has a financial motive in showing a financing gap?

    Could the project be modified so that there is no financing gap?

    What is it about downtown Wichita that makes it unprofitable to make an investment without subsidy from the city and other government? Can we fix any problems so that development may proceed without taxpayer subsidy?

    City council members spoke of a “critical mass” of hotels developing downtown, but the proposed hotel will have an exclusivity period of four years in WaterWalk. Will the developer of the proposed hotel consider proceeding without such a restrictive agreement?

    The stated reason for the need for the proposed hotel is to boost the city’s convention business. What, precisely, is the benefit of convention business to Wichita? Is the claimed benefit general, applying to a broad sector of the city’s economy? Or do primarily certain sectors of the economy benefit?

    What is the estimate of the amount of transient guest tax this hotel will generate?

    According to the Wichita budget: “The Tourism and Convention Fund, financed through a six percent transient guest tax on hotel and motel rooms in Wichita, provides monies to support tourism and convention, infrastructure, and promotion of the City.” Further, from the same document: “Fund priorities are: 1) debt service for tourism and convention facilities, 2) operational deficit subsidies and 3) care and maintenance of Century II.” In the case of this proposed hotel, the transient guest tax generated by the proposed hotel will be used to pay off bonds that benefit only this hotel. Is this consistent with the city’s stated policy for use of the transient guest tax?

    There’s a move in Topeka to limit or eliminate tax exemptions, including sales tax exemptions such as planned for this hotel. Is the city confident it can secure the planned sales tax exemption?

    At the city council meeting, Jim Korroch, the developer of the proposed hotel, said that the hotel will pay property taxes. Will those property taxes go to fund the general operations of government? Or will they be used to retire bonds that were issued for the specific benefit of the WaterWalk development?

    What is the financial performance of the city-owned Hyatt Hotel? Are all floors back in operation? On September 13, 2004 the Wichita Eagle reported “Wichita police arrested one man Sunday after discovering a meth lab at the Hyatt Regency Wichita.” Are we sure there are no meth labs operating there today?

    Other articles on this issue include:

  • Public forum on WaterWalk hotel proposal

    On Monday January 25, a group of citizens will hold a public forum concerning the proposal for a hotel in the WaterWalk development in downtown Wichita.

    The event is from 7:00 pm to 8:00 pm in the meeting room of the Wichita Downtown Public Library. The meeting room is on the top floor of the library.

    Tirza Heflin is the organizer of this forum. She says:

    “You and the public are invited to join a group of interested citizens to discuss the proposed Water Walk hotel.

    An invitation to join this public forum discussion has been sent to Wichita Mayor Carl Brewer and all of the Wichita City Council members.

    The forum is being organized by a group of citizens who are interested in downtown redevelopment, and want to see our downtown thrive. Several citizens have questions about the public sector interests in the WaterWalk public/private partnership before our City Council considers the letter of intent for this project on February 2, 2010.”

    Contact Tirza Heflin at 316-201-8353 or tvgustadj_88@yahoo.com.

    The Facebook page for this event is Public forum on WaterWalk hotel proposal.

  • Goody Clancy market findings presented to Wichita audience

    Goody Clancy market findings 2010-01-13 08On January 13, 2010, planning firm Goody Clancy presented some findings to a Wichita audience at the Scottish Rite Temple.

    Last Wednesday Boston planning firm Goody Clancy presented some preliminary findings regarding the planning process for the revitalization of downtown Wichita. While the presentation contained some material specific to Wichita, those looking for a preview of how the planning process will deliver its promised benefits were likely to be unsatisfied.

    As always when talking about downtown, there was talk about how a thriving downtown is necessary for a healthy Wichita and region. One presenter said “If you have a healthy downtown, you will have a healthy region. If the downtown starts to fail, the region will start to fail.” Believers of this mantra, however, are not able to supply evidence as to the truth of this.

    A theme repeated over and over is that downtown development will succeed as downtown becomes more walkable.

    David Dixon, the Goody Clancy principal for this project, told how that in the future, Wichitans will be able to “enjoy the kind of social and cultural richness” that is found only at the core. “Have dinner someplace, pass a cool shop, go to a great national music act at the arena, and then go to a bar, and if we’re lucky, stumble home.”

    Dixon said that this planning effort is grounded in data and hard analysis. As an example, Dixon promoted Walk Score as a measure of the value we place in downtown. Walk score, according to its website, “calculates the walkability of an address based on the distance from your house to nearby amenities. Walk Score measures how easy it is to live a car-lite lifestyle — not how pretty the area is for walking.”

    I’ve found that the walk scores are not credible measures. The score for 525 E. Douglas, the block the Eaton Hotel is in and mentioned by Dixon as a walkable area, scored 91, which means it is a “walker’s paradise.” Examination of the results, however, leads us to have little confidence in this measure.

    For example, an important “amenity” — that’s a favorite word of planners — that should be nearby is a grocery store. The details for the walk score indicates a grocery store just 0.19 miles away. It’s “Pepsi Bottling Group,” located on Broadway between Douglas and First Streets. Those familiar with the area know there is no grocery store there, only office buildings. Those familiar will also know that the nearest grocery is several miles away.

    For a nearby library, it lists Robert F. Walters Digital Library, which is a specialized geological library costing $1,500 per year to use — over the internet.

    For a drug store, it lists Rx Doctor’s Choice, which is a specialty store selling oral chelation treatments. It’s nothing at all like a general-purpose drug store. One of those is nowhere nearby.

    Sedgwick County projected employmentSedgwick County projected employment, according to planning firm Goody Clancy. This excerpt starts with 2009.

    Some claims and evidence just don’t make sense. A slide titled “The Sedgwick County economy is projected to grow” contained a graph that, while showing a projected increase in employment for the next few years, becomes flat for many years. This slide was used twice in different presentations.

    Some of the most specific information about Wichita was contained in the residential and hotel market presentations. Regarding the hotel market — the presentation is available at the WDDC website — the preliminary conclusions are: there is market to support additional hotel rooms downtown, limited service hotel niche is a near term opportunity, cluster hotels in mixed-use, pedestrian-oriented environments, and to maximize leverage, locate hotels near convention center.

    The residential market findings are not available online at this time, but the main finding is that downtown Wichita should be able to support 1,000 new residential units over the next five years, about 200 new units per year. The mix, according to the presenter, should be 134 rentals, 48 condominiums, and 18 live-work spaces. Rental prices would range from $400 to $2,100, while purchase prices would range from $150,000 to $400,000.

    Some speakers from Goody Clancy revealed a condescending attitude towards those who hold values different from this group of planners. One presenter said “Outside of Manhattan and Chicago, the traditional family household generally looks for a single family detached house with yard, where they think their kids might play, and they never do.”

    Regarding office buildings, walkability again was a theme: “We need to offer an urban product. What we do not need is a large office building surrounded by a sea of parking and call that a downtown office building.” But parking and transit linkages are important, the presenter said.

    The presenter on retail topics had been in Wichita only once for a period of four days — “not a lot” by his own admission. His presentation was mostly generic and could have been presented at any city.

    In his closing remarks, Dixon noted that there was no disagreement among the presenters and panelists, except in one case over parking, and that really wasn’t a disagreement after all. He also said that the presentation tonight was not just an infomercial for downtown, but a presentation of data about our markets.

    In the short time devoted to questions from the audience — about ten minutes from a two hour meeting — several questioners wasted much time delivering their own personal stories instead of asking questions.

    One question asked about cooperation between the downtown planning effort and a committee working on homeless issues. The answer by Dixon was noncommittal.

    Another question asked about the use of eminent domain and the use of public subsidy. Dixon replied that eminent domain has been used and misused, and is much less available at this time. Regarding public investment — and he stressed the word “investment” — he said this is a market-driven effort, and there will be a role for public investment. The kinds of public investments are still to be determined, he said.

    The fact that these investments are still to be determined is unsettling. Downtown revitalization boosters promote ratios of up to fifteen to one of private investment to public investment. This is after a decade of public investment in downtown Wichita has produced private investment approximately equal to public investment. If Goody Clancy has a method of going from one to fifteen, it wasn’t revealed at this meeting.

    It’s starting to be revealed that the fifteen to one returns will be realized after “critical mass” is achieved. It appears that public investment will be at the front, with private investment blossoming later — according to plans. As there is no definition of what constitutes critical mass, any criticism can always be deflected by claiming that that mass has not yet been achieved.

    Dixon is correct in that the use of eminent domain is more restricted than in the past. But in Kansas, the threat of its use is still available, and may be as effective as its actual use.

    After the event I received feedback from two residents of Wichita who are skeptical of downtown planning. One said “I thought the answers to questions they gave were very generic and broad. Answers that could have applied to any city or town anywhere.”

    Another made an observation about the composition of the discussion panel members: “Something else I observed was that the panel existed of mostly those that seem to be already on the ‘in’ when it comes to elected officials in the city. Now I recognize that there are two ways of looking at this situation. People can be insiders either because they are active in developing downtown and are the ‘go to’ guys, or they are developing downtown because they are insiders and know where the money is to get the projects done to line their pockets. I really do not care which is the case with the people that are on the panel, but to me I just wish that there was a larger pool of people that the WDDC and Goody Clancy chose from to sit on the panels.”

  • Waterwalk hotel issue receives public input

    Tuesday’s meeting of the Wichita city council featured a lengthy discussion of a proposal that in the past, might have been passed without much public discussion. Instead, some useful information emerged, and the meeting opened the possibility of more citizen input not only on this item, but also on future city initiatives.

    The issue is a proposal for a hotel in the city’s WaterWalk district. My preview of the matter, which includes the city-supplied agenda report, is at Waterwalk hotel deal breaks new ground for Wichita subsidies.

    As an example of information that was revealed at this meeting, there was concern expressed by council member Sue Schlapp that the proposed hotel might be granted a period in which it would be the only hotel in WaterWalk. Bell replied that we don’t have the answer to this question, and that this has not been addressed. Later, a representative of WaterWalk revealed that the proposed hotel had an agreement that it would be the only hotel in WaterWalk for three years and possibly up to four years.

    This is an important piece of new information, as downtown boosters continually speak of the idea of “critical mass.” The idea, I believe, is that multiple hotels may feed off the presence of each other, instead of being in competition with each other. Or it might be that if other hoteliers see this proposed hotel doing well, they’ll be induced to build one on their own. But if there will not be another hotel in WaterWalk for at least three years, that puts a damper on the formation of critical mass. Hotels, of course, could be built in other parts of downtown.

    Council member Lavonta Williams asked about the survey the city is conducting to see if the proposed hotel would harm the city-owned Hyatt Hotel: Will it look at nearby hotels that the city doesn’t own? Bell said the consultant may look at those hotels, interview their management, and may be able to offer some information as to that. But Bell said that the present agreement considers only the Hyatt Hotel.

    Council member Jell Longwell said we’re sensitive about the burden on our local taxpayers. But the taxes on the proposed hotel would fall on out-of-area taxpayers, he said. His clear implication was that taxing visitors to our city is okay. The problem is that many visitors to a city pay attention to taxes. When a $100 hotel bill blooms to $114.30 with taxes, people notice, even business travelers whose employers may pay the bill.

    (The taxes are 6% for the transient guest tax or “bed tax,” 6.3% for our present sales tax, and another 2% for the Community Improvement District tax. Then if the governor has his way, there will another 1% in Kansas sales tax, and if some downtown boosters have their way, there will be yet another 1% city sales tax to provide subsidy for downtown.)

    Council member Paul Gray answered his own question with: “why would you?” The question was why would anyone build a hotel downtown privately when there are several subsidized hotels already operating? The unlevel playing field was created long ago, he said, and it’s unlikely that anyone will develop a hotel without receiving similar benefits from the city. He also said that we’re on the hook for the bonds sold for the WaterWalk TIF district. He made reference to the “giant hole that we’ve already created with the financial obligations we’ve placed on that.”

    After citizen John Todd spoke, Longwell asked how much lead time the council should give citizens for matters like this. He said that the Wichita Eagle reported the story, adding “I thought everybody read the Eagle.” (I wonder if Longwell has noticed the layoffs at the Wichita Eagle and the poor financial performance of most newspapers as fewer people read them.)

    A search of the Eagle for stories on this topic shows a blog column from Wednesday January 6, just six days before the city council meeting where the item was to be considered. The Eagle printed stories on Friday and Sunday. These stories, however, don’t report the detailed information that some people would like to have. There’s simply not room in a newspaper, as the agenda report for this item contained ten pages of small print. Not many people are interested in such detail, either.

    (The city’s agenda packet for this meeting, which is the important source of detailed information, became available on the city’s website probably late Thursday. The pdf file indicates that it was created at 4:51 pm that day.)

    Longwell pressed Todd: “How much lead time do we need?” I have an answer for him. After I read the agenda packet Friday afternoon, I emailed Wichita public information officer Van Williams with a few questions. By Monday afternoon I hadn’t received a response. I’m not criticizing Williams, as he might have had any number of valid reasons for not replying to my questions right away. But even if he had replied Monday afternoon, that’s just a few business hours away from the meeting. That is definitely not enough time to digest a project of this scope.

    Gray then asked Todd how much vetting does the public do on a project like this? The answer to this is: not enough, as the city has a recent history of problems with its development partners. In December 2008 the city was about to enter into an agreement with a developer when Dion Lefler of the Eagle uncovered very troubling facts about the developer’s past dealings. See Wichita city hall: more evidence of lax procedures for a summary.

    Then-city council member Sharon Fearey — now a candidate for the Sedgwick County Commission — was disappointed that the Eagle uncovered these facts and reported them. See Sharon Fearey doesn’t appreciate the Wichita Eagle for the story and video.

    Since then Wichita has a new city manager, and the city has said it has new procedures in place for investigation of the backgrounds of potential business partners. Other problems remain, however. Last month Wichita Eagle editorial writer Rhonda Holman wrote about missing or incorrect information provided to the city council:

    Worse, when the council approved the Big Dog deal on a 5-2 vote, its members reportedly were unaware that the company had hired an investment banker to explore a possible sale or merger. Plus, city documents about Big Dog listed its employment at 115 when the number actually has dwindled to 30 to 40 (from a 2005 high of 336).

    A policy meant to guide the use of tax abatements and other tools doesn’t work well if decisions are based on faulty information.

    Going back to 2004, we have evidence that city council members were not familiar with even the most basic facts about our economic development programs. The article “Tax break triggers call for reform” published in the Wichita Eagle on August 1, 2004 reported this:

    Public controversy over the Genesis bond has exposed some glaring flaws in the process used to review industrial revenue bonds and accompanying tax breaks.

    For example, on July 13, Mayans and council members Sharon Fearey, Carl Brewer, Bob Martz and Paul Gray voted in favor of granting Genesis $11.8 million in industrial revenue bond financing for its expansion, along with a 50 percent break on property taxes worth $1.7 million.

    They all said they didn’t know that, with that vote, they were also approving a sales tax exemption, estimated by Genesis to be worth about $375,000.

    It’s not like the sales tax exemption that accompanies industrial revenue bonds was a secret at the time. An easily accessible web page on the City of Wichita’s web site explains it.

    Regarding the present case, Schlapp said she would have liked to have known about the exclusivity period earlier. That’s just one example of something not contained in the agenda packet that is important for citizens and council members to know, and we didn’t know that before this meeting.

    Gray also noted the history of some of the people at the council meeting who opposed the project, adding that he didn’t see them changing their minds. That attitude represents a simplistic view of the way public policy ought to be formed.

    An issue like this has many facets. Some could possibly have merit, and some certainly are harmful. A discussion like what took place at this meeting can provide a forum for exploring these issues, and perhaps eliminating the bad in favor of the good. The fact that some might still be opposed to the project doesn’t negate this.

    In the end, the council voted unanimously to defer this matter until its February 2 meeting.

  • WaterWalk deal not good for city, public policy

    Remarks to be delivered at the January 12, 2010 meeting of the Wichita City Council.

    Mr. Mayor, members of the council:

    There are several aspects of the proposed hotel in the WaterWalk development that I find troubling.

    Perhaps most important to public policy, the city has now recognized that when it provides subsidy to one business, it may harm other businesses. As you may recall, I’ve spoken to the council several times on this topic over the past few years. I’ve been concerned about the effect on privately-owned businesses and the willingness of entrepreneurs to assume risk only to find themselves competing with a subsidized business. The city has shown little concern for this.

    But now that a city-owned business — the Hyatt Hotel — may be imperiled, the effects of city subsidy on competition is now a concern. It’s only now that city hall is measuring the harmful effects of its actions.

    This is a slap in the face of all businesses in the city that have faced competition from a city-subsidized competitor. In particular, there is a Holiday Inn and Suites just three blocks away from the proposed hotel. Will the city survey to see if this hotel will be harmed by a subsidized competitor?

    Then, why are we settling for such a low rate of return on this project? Promoters of public investment in downtown Wichita like the Wichita Downtown Development Corporation are promising returns of up to 15 to one for future projects. The agenda report for this proposed public investment indicates a benefit to cost ratio of 1.77 to one for the City of Wichita.

    Are these two indicators measuring the same thing? If so, why are we about to make an investment with a return of less than two to one, when much higher returns are promised after the planning for downtown revitalization is complete?

    I’m also concerned about the economic viability of this project. If we want to have robust development that has deep roots, grounded in solid financials and free market capitalism instead of crony capitalism, we need to turn away from highly subsidized ventures like this proposal. Relying so extensively on public subsidy creates development with shallow roots.

    An example of this is the problem the city is currently experiencing with the Broadview Hotel. This hotel was scheduled to be renovated by its new owners. The purchase and renovation were to be made possible by large subsidies by the city. Tax credits from the state were to play a large part, too. But last year when the state realized that it couldn’t afford these tax credits, it placed a lid on them, and now the Broadview renovations are on hold.

    There are a few specific questions about this project that need answers. We need to see a development budget for this hotel. It appears that the cost will be around $100,000 per room. I’ve been told this cost is high for this type of hotel.

    We also need to have more information about how much of their own money the developers are putting into this deal. Also, I think citizens would like to see the details of the ground lease and the parking arrangements.

    Although the governor didn’t mention this last night, there’s movement in Topeka to limit or eliminate tax exemptions, including sales tax exemptions such as planned for this hotel. Is the city confident it can secure the planned sales tax exemption?

  • Waterwalk hotel deal breaks new ground for Wichita subsidies

    On Tuesday, the Wichita City Council will consider an agreement with a hotel developer that, besides awarding the usual subsidies to politically-favored developers, breaks new ground in the use of subsidy. Additionally, the deal contradicts recent promises made by a top city official.

    The proposed hotel, a Marriott Fairfield Inn and Suites Hotel, would be located immediately south of the WaterWalk Place condominium building, at the northwest corner of Dewey and Main Streets.

    Site of proposed hotel at Dewey and Main Streets, Wichita 2010-01-10 02
    Site of proposed hotel at Dewey and Main Streets. View is looking northeast. WaterWalk Place is the large building at the left. The Intust Bank Arena can be seen in the distance.

    Information from the city’s Office of Urban Development indicates these subsidies are proposed for the hotel developers:

    • The city will provide a cash contribution of up to $2.5 million to help pay for building the hotel.
    • The city will create a Community Improvement District to benefit the hotel. Community Improvement Districts, which are a creation of the Kansas Legislature last year, allow a district to charge up to an additional two percent in sales tax. The proceeds from the tax are used for the exclusive benefit of the developers.
    • The project will use Industrial Revenue Bonds. The usual benefit of these bonds is the accompanying property tax exemption. But since the location of the proposed hotel is within a TIF district, this benefit doesn’t apply. Instead, in this case the benefit of the IRBs is that the hotel will escape paying an estimated $328,945 in sales tax.
    • The city will lease the land under the hotel for $1.00 per year, for a term of 99 years. There is a provision that if the hotel performs very well financially, the city will be entitled to additional rent.
    • The hotel will be able to use the WaterWalk Place parking garage for its clients. There is a provision to install a gate so that some parking spaces will be available only to hotel guests and condominium owners. The value of this parking to the hotel developers is huge.

    There is a contingency. The city will conduct a study to determine the impact of the proposed hotel on the financial performance of the city-owned Hyatt Regency Hotel that is located nearby. If the study shows a negative impact on the Hyatt, the city “may rescind the Letter of Intent and halt development of the hotel.”

    Analysis

    This proposal is perhaps the most egregious example of corporate welfare to be proposed to the city council, and one that should be rejected. There are many areas of concern.

    Holiday Inn and Suites, Wichita 2010-01-10 07The Holiday Inn and Suites near the proposed hotel. Will the city conduct a survey to see if this hotel will be harmed?

    Perhaps most important to public policy, the city has now recognized that when it provides subsidy to one business, it may harm other businesses. This is something on which I’ve written extensively, and I’ve spoken to the council several times on this topic. I’ve been concerned about the effect on privately-owned businesses. The city has shown little concern for this.

    But now that a city-owned business — the Hyatt Hotel — may be imperiled, all of the sudden the effects of city subsidy on competition is a concern. This is a slap in the face of all businesses in the city that have faced competition from a city-subsidized competitor. In particular, there is a Holiday Inn and Suites just three blocks away from the proposed hotel. Will the city survey to see if this hotel will be harmed by a subsidized competitor?

    There’s also the credibility of the people involved in this deal. The new owner of the WaterWalk development, Jack DeBoer, was quoted in a Wichita Business Journal article in November saying “I don’t want any more money from the city.”

    In the same month the Wichita Eagle quoted him saying “I’m not going down to City Hall with my hand out. I can’t. The city has put their money in it, and I’m happy with that. We’ve put a lot of our own money in and that’s OK. Now, time to deliver.”

    DeBoer isn’t going to own the proposed hotel. But it’s part of the WaterWalk development that he owns.

    More troubling is the turnaround by Wichita City Manager Robert Layton.

    In October the Wichita Eagle reported: “Layton was clear earlier this week: No more city money is available for WaterWalk.” Other Eagle articles quoted Layton stating “We don’t have any other resources to put in.”

    Now the city is proposing huge and unprecedented subsidies for this hotel.

    The cost of this hotel needs to be questioned, too. The projected cost divided by the number of rooms comes out to around $100,000 per room. I’ve been told that this is very expensive for a hotel of this type. While not a cut-rate budget hotel, this Fairfield Inn won’t have a restaurant. In my experience, they don’t have bars or comfortable lobbies.

    If we want to have robust development that has deep roots, grounded in solid finances and the discipline of free markets instead of crony capitalism, we need to turn away from highly subsidized ventures like this proposed hotel. Relying so extensively on public subsidy results in development with shallow roots. As an example, the city is currently facing a huge problem with the Broadview Hotel. This hotel was scheduled to be renovated by its new owners, the purchase and renovation made possible by large subsidies by the city. Tax credits from the state were to play a large part, too. But last year when the state realized that it couldn’t afford to be so lavish with tax credits and placed a cap on them, the Broadview renovations were put on hold.

    There are many questions about this project that need answers, and I’ve submitted a few to the city. From a public policy standpoint, the problem is that citizens have a very short time in which to ask questions and receive answers. The document that details the proposal appears to have been created at around 5:00 pm on Thursday January 7. The city council meeting is on the next Tuesday morning. There just isn’t time for citizens and journalists to submit questions and get answers. Performing any independent investigation in such a short time is nearly impossible.

    The developers who are in line to receive millions in subsidy, however, have been working with the city on this matter for much longer. There’s a reason why this work is done in secret: Citizens ought to be outraged at this deal. Better to give them little time to object.

    Letter of Intent Relating to Development of WaterWalk Hotel 2010-01-12

  • Wichita’s economic development strategy: rent seeking

    As Wichita embarks on our planning for the revitalization of downtown Wichita — or as we look back at actions the Wichita city council takes almost every week — we ought to take a look to see if these actions produce an increase in wealth for our community.

    It is wealth, after all, that defines prosperity. Our goal ought to be to create an environment where everyone lives in an environment conducive to creating prosperity and wealth. But in a misguided effort, our city leaders, week after week, take actions that produce just the opposite.

    The revitalization of downtown Wichita is likely to further harm the economic environment in Wichita. That’s because counterproductive measures such as tax increment financing districts and a sales tax are likely to be necessary to implement the plan.

    What’s wrong with these actions? Simple: They’re rent seeking activities. They don’t produce wealth.

    The term rent, or more precisely, economic rent is somewhat unfortunate, as the common usage of the term — paying someone money for the use of an asset for a period of time — contains no sinister connotation. But economic rent does carry baggage.

    So what is rent seeking? Wikipedia defines it like this: “In economics, rent seeking occurs when an individual, organization or firm seeks to earn income by capturing economic rent through manipulation or exploitation of the economic environment, rather than by earning profits through economic transactions and the production of added wealth.”

    This explanation doesn’t do full justice to the term, because it doesn’t mention the role that government and politics usually play. The Concise Encyclopedia of Economics adds this: “The idea is simple but powerful. People are said to seek rents when they try to obtain benefits for themselves through the political arena. They typically do so by getting a subsidy for a good they produce or for being in a particular class of people, by getting a tariff on a good they produce, or by getting a special regulation that hampers their competitors.”

    It’s thought that Wichita needs to dish out economic development subsidies so that we can attract new companies to our town, or, as is often the case, retain existing companies. So we grant special tax treatment — usually through industrial revenue bonds, but also in other ways — to these companies. Or sometimes we may dispense with the cumbersome IRB process and simply give companies money, or make loans that don’t need to be repaid.

    These benefits — representing economic rent and rent seeking behavior — are great for the lucky companies that received them. But what about considering the city or region as a whole? In that case, something different emerges. Here’s an excerpt from “Rent Seeking and Economic Growth: Evidence From the States,” Harold J. Brumm, Cato Journal, Vol. 19, No. 1 (Spring/Summer 1999):

    The present study finds the growth rate of real gross state product (GSP) per capita to be negatively correlated with the initial level of real GSP per capita, the burden of state tax structure, and — most notably — the level of rent-seeking activity in the state. On the basis of the estimates obtained for the standardized coefficients of the explanatory variables in the growth rate equation, the conclusion reached here is that rent-seeking activity has a relatively large negative effect on the rate of state economic growth. An implication of this finding is that a state government which promulgates policies that foster sustained artificial rent seeking does so at considerable expense to its economic growth.

    In simple terms, rent seeking activity harms economic growth.

    This study also states: “The private returns of rent seekers come from the redistribution of wealth, not from wealth creation. The tax that rent seeking imposes on the productive sector reduces the output growth rate by reducing the incentives of entrepreneurs to produce and innovate.”

    This study looked at state governments and their activities, but there’s reason to suspect that the findings apply to cities and counties, too.

    So should we simply give up and not grant preferential tax treatment and other subsidies to companies to induce them to locate in Wichita? No. Instead, as I’ve outlined in Wichita universal tax exemption could propel growth, we should offer preferential tax treatment to all new investment in Wichita.

    A broad policy like this, where everyone benefits, eliminates the harmful effects of rent seeking. All companies can benefit, not only those that fit into certain categories or make special pleadings to politicians or bureaucrats. All companies can plan with certainty on receiving the benefit — there won’t be the risk whether the city council and bureaucrats will approve the benefit.

    This is the type of policy we should follow to increase economic growth in Wichita.

  • Oklahoma City sales tax passes; model for Wichita

    On Tuesday, voters in Oklahoma City passed a new sales tax to fund downtown improvements. It passed by a vote of 54 percent to 46 percent.

    The tax will be used to fund improvements such as a 70-acre downtown park ($130 million), a new convention center ($280 million), mass transit initiatives ($130 million), health and wellness aquatic centers for senior citizens ($50 million), and other things.

    The tax was promoted as not really a “new” tax, as it is timed to replace an existing tax of the same amount that is expiring.

    Wichita’s plans for downtown revitalization will need some sort of funding, and the Oklahoma City tax — its name is MAPS 3 — has been promoted by John Rolfe, President and CEO of Go Wichita Convention & Visitors Bureau, as “interesting.” Other downtown leaders have spoken favorably of a sales tax for funding downtown improvements.

    Wichitans can count on a similar sales tax being proposed for whatever projects the year-long downtown planning process calls for. Oklahoma City’s experience will surely be used to promote a similar tax in Wichita.