Voice For Liberty

Tag: Economic development

  • Swamp refilling itself

    Swamp refilling itself

    Although there has been progress, cronyism and the swamp may be renewed in Washington.

    Right under the nose of a president who promised to drain the swamp, one of the government’s shadiest handouts to large banks and big companies looks like it will be renewed for another 25 years. It will not get adequate oversight and congressional review. All it will take is the approval of two out of three U.S. Export-Import Bank directors, who are political appointees.

    That entity is called the Private Export Funding Corporation, or PEFCO.

    Veronique de Rugy is a Senior Research Fellow at the Mercatus Center at George Mason University. She goes on to explain that PEFCO acquires Export-Import Bank loans from private lenders. (The Ex-Im Bank is its own universe of cronyism.) It gets complicated, but the upshot is that many people are earning fees and interest without assuming risk, as taxpayers assume all the risk.

    Many government programs guarantee loans. But as de Rugy notes: “The Export-Import Bank has been criticized for its cronyism, but PEFCO adds insult to injury because most of its shareholders are also its customers.”

    This is from her recent New York Times op-ed I Study Corporate Welfare. Even I Was Shocked by This Cronyism. A privately owned entity created by the Export-Import Bank allows its customers to also be its owners. A larger piece is her commentary Now Is the Time to Revisit the 50-Year Relationship Between the Ex-Im Bank and PEFCO.

    Click for larger
    PEFCO and the Export-Import Bank represent cronyism — the swamp — at its height. In her commentary, she notes: “Although PEFCO is ostensibly a private institution, its activities incur no risks for itself or its private shareholders.” In the nearby chart from PEFCO’s 2019 annual report, we can see that the country with the largest balance of loans is China. In other words, U.S. taxpayers are on the hook should China default on these loans.

    In the commentary, de Rugy closes with these recommendations:

    In light of the current economic crisis, some may feel that now is not the time to reconsider or even reform PEFCO. But not even the most pessimistic economic scenarios assume that the current crisis will last 25 years. Assuming that the liquidity argument holds, if the guarantee agreement between the Ex-Im Bank and PEFCO is renewed again, it should be renewed for only one year, at the end of which the need for, or appropriate role of, PEFCO should be revisited in light of prevailing economic conditions. In the meantime, the Ex-Im Bank should review the appropriateness of its exclusive relationship with PEFCO.

    In addition, PEFCO should under no circumstances be allowed to pay dividends to its shareholders, since they have zero capital at risk.

    Finally, to signal a ceiling on the level of support that US taxpayers will provide to PEFCO’s shareholders, the Ex-Im Bank should not expand its guarantee for the interest payments that PEFCO owes on its secured notes, as has been proposed.

  • Wichita economic development examined

    Wichita economic development examined

    “What may look like economic growth on the surface ends up being, upon closer scrutiny, an expensive exercise in the rearrangement of existing business activity.”

    Kansas Policy Institute has released a report examing economic development in Wichita. Titled “Perspectives on Economic Development Incentives and Economic Growth in Wichita,” it presents much information specific to Wichita, and specifically two STAR bond districts: Riverwalk and K-96/Greenwich Road. There is also material on economics and economic development in general.

    The main takeaway, according to KPI, is “… two of Wichita’s leading development projects, driven by economic development incentives, did not improve job creation.” Instead, the report concludes: “To summarize, and to reiterate, two prominent government-incentivized economic development projects do not show evidence of promoting net-new economic growth. At best, the projects redirected or redefined growth that would have happened without the subsidized intervention into the natural flow of commerce within the City of Wichita.”

    The report was written by Arthur P. Hall, Ph.D., who is the founding Director of the Brandmeyer Center for Applied Economics at the University of Kansas School of Business. A press release announcing the paper is at Wichita’s Key STAR Bonds Didn’t Create New Jobs. It holds a link to the full report.

    KPI president James Franko said, “The research aims to help the Wichita community understand the limits of incentive-driven development as we hope for a post-pandemic recovery and evaluate flagship development such as Century II.”

    One difficulty in performing this type of analysis is access to data. Franko noted, “The access to this data is in desperate need of reform. It’s troubling that a more thorough analysis of other incentives is all but impossible. We should be judging every taxpayer dollar spent on actual outcomes, not simply the aspirations of those asking for the money.”

    Of note, a conclusion made by Hall, the author, is consistent with his earlier findings, which is that new firms are the dominant driver of growth:

    Nevertheless, the “big take-away” still holds for the Wichita metro area (using the firm-level data). Without the birth of new firms, Wichita would lose jobs in many more years than it would gain jobs from older firms represented in the data: New firm entry (age-zero firms) plays a dominant role in the on-going process of job creation. In other words, economic development is inherently a trial-and-error process; a numbers game that occasionally produces a break-away business that drives regional economic growth.

    In other work, Hall has explained that new firms are distinct from small businesses.

    This is an important work. Over coming weeks I’ll explore the report, its data, and its recommendations in more detail.

  • Wichita jobs and employment, July 2020

    Wichita jobs and employment, July 2020

    For the Wichita metropolitan area in July 2020, the number of unemployed persons is up, the unemployment rate is up, and the number of people working is down, all by large amounts, when compared to the same month one year ago. The recent trend, however, is positive, and the effects of the pandemic have been less severe for Wichita than for the nation.

    Data released today by the Bureau of Labor Statistics, part of the United States Department of Labor, shows the effects of the response to the pandemic in the Wichita Metropolitan Statistical Area for July 2020.

    Click charts and tables for larger versions.

    Total nonfarm employment fell from 302,000 last July to 284,800 in July 2020, a loss of 17,200 jobs (5.7 percent). (This data is not seasonally adjusted, so month-to-month comparisons are not valid.) For the same period, employment in the nation fell by 7.7 percent. The unemployment rate in July 2020 was 10.9 percent, up from 3.9 percent one year ago.

    Considering seasonally adjusted data from the household survey, the labor force rose by 564 persons (0.2 percent) in July 2020 from June 2020, the number of unemployed persons fell by 289 (0.8 percent), and the unemployment rate was 10.8 percent, down from 10.9 percent in June. The number of employed persons not working on farms rose to 284,162 in July from 283,309 the prior month, an increase of 853 persons (0.3 percent).

    The following chart of the monthly change in the labor force and employment shows the magnitude of drop in April overwhelming other months, and then a positive change in employment for the following months. The rate of increase in employment has slowed since a large jump in May.

    The following chart of changes from the same month one year ago shows a similar same trend — fewer jobs, although the labor force grew.

    The following chart of changes in employment from the same month of the previous year shows many months when the Wichita MSA performed better than the nation. In all months affected by the pandemic, we see the decline in employment Wichita has not been as severe as the nation.

    The following two charts show changes in jobs for Wichita and the nation over longer periods. The change is calculated from the same month of the previous year. For times when the Wichita line was above the nation, Wichita was growing faster than the nation. This was often the case during the decades starting in 1990 and 2000. Since 2010, however, Wichita has rarely outperformed the nation and sometimes has been far below the nation.

    (For data on all metropolitan areas in the nation, see my interactive visualization Metro area employment and unemployment.)

  • Economic development incentive to be canceled

    Economic development incentive to be canceled

    The City of Wichita will consider canceling an economic development incentive for a firm that no longer meets policy requirements.

    Two years ago the Wichita City Council granted an economic development incentive for a freestanding emergency department in northeast Wichita. The incentive was in the form of property tax relief. The firm would be exempt from paying 88 percent of its property taxes for five years, with the possibility of renewal for another five years. 1

    At the time, the city estimated the first-year property tax savings to be $61,882, allocated this way: City of Wichita: $17,226. State of Kansas: $792. Sedgwick County: $5,520. USD 259 (Wichita public school district): $28,345.

    The facility closed earlier this year, and will be converted to a cardiology office. This change means the facility no longer meets the criteria in the city’s economic development policy in two ways. First, the city’s policy requires medical facilities to attract at least 30 percent of its patients from outside the Wichita MSA, and the city says the new use of the facility does not meet this requirement.

    Second, the new use of the facility is not the use that was approved by the council two years ago.

    The city’s office of economic development recommends canceling the tax incentive after this year. This item appears on the meeting’s consent agenda, which means there will be no discussion or individual vote on this matter unless a council member requests.

    I hope that a council member asks that this item receive discussion and perhaps an individual vote. This is a positive moment for the city. Not that a business failed to survive — that is unfortunate — but that the city is applying policy as designed.

    Freestanding emergency departments are controversial. The notes to this article hold references to news articles and academic studies looking at the costs and usage of these facilities. 2 3 4 5 6 7 8 9

    Researchers note that the emergency rooms are much more expensive than traditional doctor offices or urgent care facilities, yet many of the diagnoses made at the ERs are the same as made at non-emergency facilities.

    —
    Notes

    1. Weeks, Bob. Free standing emergency department about to open in Wichita. Available at https://wichitaliberty.org/wichita-government/free-standing-emergency-department-room-open-in-wichita/. ↩
    2. NBC News. You Thought It Was An Urgent Care Center, Until You Got the Bill. Available at https://www.nbcnews.com/health/health-care/you-thought-it-was-urgent-care-center-until-you-got-n750906. ↩
    3. Carolyn Y. Johnson. Free-standing ERs offer care without the wait. But patients can still pay $6,800 to treat a cut. Washington Post, May 7, 2017. Available at http://wapo.st/2pUCskD?tid=ss_tw&utm_term=.21bb76a447aa. ↩
    4. Rice, Sabriya.Texans overpaid for some medical services by thousands, study says. Dallas Morning News. Available at https://www.dallasnews.com/business/health-care/2017/03/23/texans-overpaid-medical-services-thousands-study-said. ↩
    5. Blue Cross Blue Shield of Texas. Rice U. Study: Freestanding Emergency Departments In Texas Deliver Costly Care, ‘Sticker Shock’. Available at https://www.bcbstx.com/company-info/news/news?lid=j0s5sm9d. ↩
    6. Alan A. Ayers, MBA, MAcc. Dissecting the Cost of a Freestanding Emergency Department Visit. Available at https://c.ymcdn.com/sites/ucaoa.site-ym.com/resource/resmgr/Alan_Ayers_Blog/UCAOA_Ayers_Blog_FSED_Pricin.pdf. ↩
    7. Michael L. Callaham. Editor in Chief Overview: A Controversy About Freestanding Emergency Departments. Annals of Emergency Medicine, Volume 70, Issue 6, 2017, pp. 843-845. Available at http://www.annemergmed.com/article/S0196-0644(17)31505-6/fulltext. ↩
    8. Ho, Vivian et al. Comparing Utilization and Costs of Care in Freestanding Emergency Departments, Hospital Emergency Departments, and Urgent Care Centers. Annals of Emergency Medicine, Volume 70 , Issue 6 , 846 – 857.e3. Available at http://www.annemergmed.com/article/S0196-0644(16)31522-0/fulltext. ↩
    9. Jeremiah D. Schuur, Donald M. Yealy, Michael L. Callaham. Comparing Freestanding Emergency Departments, Hospital-Based Emergency Departments, and Urgent Care in Texas: Apples, Oranges, or Lemons? Annals of Emergency Medicine, Volume 70, Issue 6, 2017, pp. 858-861. Available at http://www.annemergmed.com/article/S0196-0644(17)30473-0/fulltext. ↩
  • Wichita aerospace manufacturing concentration

    Wichita aerospace manufacturing concentration

    Wichita leaders want to diversify the area economy. Has there been progress?

    In the wake of layoffs at Textron Aviation and Spirit Aerosystems, Wichita’s leaders shifted their attention to the need to diversify the Wichita metropolitan area economy. This has been a recognized need for a long time. 1

    Recently the Wichita Eagle published an article addressing this matter. 2 It did not, however, cite any statistics that measure the diversity — or lack of — in the Wichita economy.

    One way to measure the concentration of an industry in a location is by the proportion of employment in that industry. The Bureau of Labor Statistics provides the number of employees by industry for metropolitan areas. I’ve gathered the data for the Wichita MSA for two industries: Aerospace Product and Parts Manufacturing (NAICS code 3364) and all manufacturing. I compare it to total private sector employment. This data is not adjusted for seasonality, as some are available only in that manner. Data is through June 2020.

    First, note the effects on employment due to the response to the pandemic.

    Here are the employment ratios.


    As the charts illustrate, there was a large downward shift in the two industry’s share of employment around the time of the Great Recession. Since then, the ratios have been more stable, with a slow decline until a small reversal of that trend over the last two years until the effects of the pandemic. That caused the ratios of employment in manufacturing to fall.

    The charts of employment ratio changes from the same month one year ago confirms: Manufacturing and aerospace employment has grown faster than total private employment for the last two years or so, until the pandemic.


    Another way to measure the concentration of industry is through location quotients. The Bureau of Labor Statistics provides these, most notably for counties as part of the Quarterly of Census and Wages. 3 As described by BLS, “Location quotients are useful for studying the composition of jobs in an area relative to the average, or for finding areas that have high concentrations of jobs in certain occupations. As measured here, a location quotient shows the occupation’s share of an area’s employment relative to the national average.” 4

    Further: “For example, a location quotient of 2.0 indicates that an occupation accounts for twice the share of employment in the area than it does nationally, and a location quotient of 0.5 indicates the area’s share of employment in the occupation is half the national share.”

    This data is available by industry. I’ve gathered data for Aerospace Product and Parts Manufacturing (NAICS code 3364) for Sedgwick County and present it in a nearby chart. Data is through the end of 2019, and so does not reflect the pandemic.

    First, note that the location quotient is large, averaging around 32 in recent years. This means the concentration of workers in this industry in Sedgwick County is 32 times the concentration nationwide.

    Second, the location quotient fell from 2007 through 2014. Since then, it has been steady.

    Has the Wichita area diversified its economy? Based on these two measures, the answer is yes. That increase in diversity coincided with a large decline in aviation-related employment, with that decline being larger than the decline in all Wichita-area private-sector employment. That was not planned or desired. It was a result of worldwide trends, most notably the Great Recession.

    But since 2014, concentration in aviation-related employment has changed little, meaning no progress in diversification.

    —
    Notes

    1. See, for example: Roe, John. Where To From Here? Surviving The Coming Bad Times Will Require A Direction, Wichita Eagle, February 7, 1993. ↩
    2. Stringer, Megan. Aviation is key to Wichita. For workers, what does a diversified economy mean? Wichita Eagle, July 26, 2020. Available at https://web.archive.org/web/20200728163347/https://www.kansas.com/news/business/aviation/article244420152.html. ↩
    3. Bureau of Labor Statistics. Quarterly Census of Employment and Wages. Available at https://www.bls.gov/cew/datatoc.htm. ↩
    4. Bureau of Labor Statistics. Using Location Quotients to Analyze Occupational Data. Available at https://www.bls.gov/oes/highlight_location_quotients.htm. ↩
  • Wichita jobs and employment, May 2020

    Wichita jobs and employment, May 2020

    For the Wichita metropolitan area in May 2020, the number of unemployed persons is up, the unemployment rate is up, and the number of people working is down, all by large amounts, when compared to the same month one year ago, but improving from April.

    Data released yesterday by the Bureau of Labor Statistics, part of the United States Department of Labor, shows the effects of the response to the pandemic in the Wichita Metropolitan Statistical Area for May 2020.

    Click charts and tables for larger versions.

    Total nonfarm employment fell from 307,500 last May to 285,000 in May 2020, a loss of 22,500 jobs (7.3 percent). (This data is not seasonally adjusted, so month-to-month comparisons are not valid.) For the same period, employment in the nation fell by 11.7 percent. The unemployment rate in May 2020 was 13.9 percent, up from 3.2 percent one year ago.

    Considering seasonally adjusted data from the household survey, the labor force rose by 4,407 persons (1.3 percent) in May 2020 from April 2020, the number of unemployed persons fell by 14,143 (23.2 percent), and the unemployment rate was 14.2 percent, down from 18.2 percent in April. The number of employed persons not working on farms rose to 283,562 in May from 273,826 the prior month, an increase of 9,736 persons (3.6 percent).

    The following chart of the monthly change in the labor force and employment shows the magnitude of the drop in April overwhelming other months, and then a positive change in May.

    The following chart of changes from the same month one year ago shows a similar same trend — fewer jobs, although the labor force grew.

    The following chart of changes in employment from the same month of the previous year shows months when the Wichita MSA performed better than the nation. For April and May 2020, the two full months first affected by the pandemic, we see the decline in employment Wichita has not been as severe as the nation..

    The following two charts show changes in jobs for Wichita and the nation over longer periods. The change is calculated from the same month of the previous year. For times when the Wichita line was above the nation, Wichita was growing faster than the nation. This was often the case during the decades starting in 1990 and 2000. Since 2010, however, Wichita has rarely outperformed the nation and sometimes has been far below the nation.

  • Employment in the states

    Employment in the states

    An interactive visualization of monthly employment in the states by major industry category.

    The Bureau of Labor Statistics, part of the United States Department of Labor, gathers data about people and jobs. I’ve gathered some of its data on monthly employment levels in the states and present it in an interactive visualization.

    The data in this visualization is from the Current Employment Statistics (CES) program. BLS describes it as “a monthly survey conducted by the Bureau of Labor Statistics. It is a federal and state cooperative program that provides employment, hours, and earnings estimates for states and metropolitan areas based on payroll records of business establishments.” 1 For more information about this data and to access the visualization, click on Visualization: Employment in the states.

    The visualization has a table of figures and several charts that show the relative growth of jobs over time. For most charts, you may select the time span, industry category, and states.

    One chart, titled “Single State Comparison,” lets you select one state. It then plots that state as one line, and all other states as another line. The nearby example shows this chart with Kansas as the selected state, with data starting in 2010 and ending this February, the last month before the response to the pandemic significantly affected jobs in the United States.

    In this chart, you can see Kansas lagging far behind the nation in nonfarm and private-sector employment growth. For state government employees, the trend was downward in the first portion of the last decade, but the trend is rising. Local government employment changed very little.

    Example from the visualization. Click for larger.

    In another chart showing the growth of nonfarm employment over time, Kansas lags behind in comparison to some nearby states.

    Example from the visualization. Click for larger.

    For more information about this data and to use the visualization, click on Visualization: Employment in the states.

    —
    Notes

    1. Bureau of Labor Statistics. State & Area Current Employment Statistics Overview. Available at https://www.bls.gov/sae/overview.htm. ↩
  • Wichita jobs and employment, April 2020

    Wichita jobs and employment, April 2020

    For the Wichita metropolitan area in April 2020, the number of unemployed persons is up, the unemployment rate is up, and the number of people working is down, all by large amounts, when compared to the same month one year ago. Seasonal data shows the same trend.

    Data released today by the Bureau of Labor Statistics, part of the United States Department of Labor, shows the effects of the response to the pandemic in the Wichita Metropolitan Statistical Area for April 2020.

    Click charts and tables for larger versions.

    Total nonfarm employment fell from 306,700 last April to 274,400 in April 2020, a loss of 32,300 jobs (10.5 percent). (This data is not seasonally adjusted, so month-to-month comparisons are not valid.) For the same period, employment in the nation fell by 12.9 percent. The unemployment rate in April 2020 was 17.8 percent, up from 3.0 percent one year ago.

    Considering seasonally adjusted data from the household survey, the labor force rose by 15,214 persons (4.8 percent) in April 2020 from March 2020, the number of unemployed persons rose by 50,106 (460.8 percent), and the unemployment rate was 18.3 percent, up from 3.4 percent in March. The number of employed persons not working on farms fell to 272,446 in April from 307,338 the prior month, a decline of 34,892 persons (11.4 percent).

    The following chart of the monthly change in the labor force and employment shows the magnitude of change in April overwhelming other months. Note that the labor force rose.

    The following chart of changes from the same month one year ago shows the same trend.

    The following chart of changes in employment from the same month of the previous year shows months when the Wichita MSA performed better than the nation. Over the past 12 months, the average monthly job growth for the nation was 0.23 percent, and for the Wichita MSA, 0.69 percent.

    The following two charts show changes in jobs for Wichita and the nation over longer periods. The change is calculated from the same month of the previous year. For times when the Wichita line was above the nation, Wichita was growing faster than the nation. This was often the case during the decades starting in 1990 and 2000. Since 2010, however, Wichita has rarely outperformed the nation and sometimes has been far below the nation.

  • Wichita presents industrial revenue bonds

    Wichita presents industrial revenue bonds

    A presentation by the City of Wichita regarding IRBs is good as far as it goes, which is not far enough.

    Recently the City of Wichita prepared a short video explaining the city’s industrial revenue bonds (IRB) program. The video may be viewed on YouTube by clicking here.

    Several times the presenters emphasized that in the IRB program, the city does not lend money. They properly identify the true purpose of the program, which is to subsidize companies by allowing them to avoid paying property taxes and possibly sales taxes.

    Several times the presenters emphasized that the IRB program has no cost to the city. But that isn’t true. Part of the rationale for taxes, especially the property taxes that cities, counties, and school districts collect, is to pay for services that people and business firms demand. Well, don’t new businesses firms demand or require services from the government? And if a business is not paying its share of taxes, who is paying for the services it consumes?

    If we don’t think that a new or expanded business spurs demand for services, then we need to rethink the basis of taxation.

    The presenters mentioned the benefit-cost analysis produced for the city by Center for Economic Development and Business Research at Wichita State University and concluded that the city profits from the IRB program. This analysis purports that if the city incurs costs — either by spending one dollar or giving up one dollar of tax revenue — it will receive a certain amount in return. City policy requires that the city receive $1.30 or more in benefits for each dollar of cost. But there are issues:

    • The city says IRBs have no cost, but the benefit-cost ratio identifies costs. The city hopes the benefits outweigh these costs.
    • There is no guarantee that the city will receive any benefits, or that the benefits will be close to what the CEDBR model estimates.
    • The CEDBR model asks companies to make projections of economic activity for up to ten years in the future. Especially in the out-years, these estimates are subject to large errors.
    • No effort is made to scrutinize these projections. They are taken at face value, as supplied by the applicant company.
    • The benefits to the city are in the form of taxes paid. Taxes are a burden to those who must pay them.
    • Applicant companies do not have to demonstrate economic necessity.
    • The policy of requiring a benefit of $1.30 for each dollar of cost has many loopholes.

    Perhaps the most important policy issue is that the city realizes the benefits of increased economic activity whether or not the activity is subsidized with IRB tax breaks. The benefit-cost ratio for unsubsidized projects is infinite: All benefit, no cost. Therefore, the benefit-cost ratio is meaningful only for those projects which could not proceed without the subsidy.

    Some incentive programs require the demonstration of economic necessity. That is not the case with IRBs.

    Additionally, when the city issues IRBs and grants tax abatements, other jurisdictions are affected. Both the overlapping county and school district have their property tax collections eliminated. If a sales tax exemption is granted, the state is most prominently affected, as nearly all sales tax paid goes to the state. (For sales tax paid in Sedgwick county, the state’s share is 86.7 percent.) None of these overlapping jurisdictions can opt-out of the tax abatement that the city imposes.