Examining job creation in Wichita as compared to the state and the nation.
These charts show job changes in Wichita (Wichita MSA, the metropolitan statistical area, as that is the data that is provided monthly), Kansas, and the nation. Each chart shows the percentage, or relative, changes in nonfarm jobs on a common scale, using seasonally adjusted data. The source of data is Bureau of Labor Statistics, part of the United States Department of Labor. These charts are taken from an interactive visualization of this data, which is available here.
For the chart starting in May 2015, we can see the loss of jobs in Wichita during 2017. The situation improves after that year. Note also that the Wichita and Kansas lines, broadly speaking, show a similar trend, although the Wichita line has more variation. Also, while Wichita lost jobs in 2017, the national economy was strong and was creating jobs. (Click charts for larger versions.)
In the chart starting in January 2018, we see Wichita mostly keeping up with the pace set by the nation, and for most of the time, doing better than the state.
In the chart starting in January 2019, Wichita begins by closely tracking the nation, but stumbles behind in the summer. Kansas does better than the nation.
For the first nine months of 2019, Wichita jobs have grown from 301,600 in January to 302,600 in September. That’s an increase of 1,000 jobs, or 0.3 percent. If that rate stays unchanged through the end of the year, Wichita jobs will have grown by about 0.4 percent.
Not shown in these charts is that using not seasonally adjusted data, Wichita jobs have grown by 1.9 percent since January 2019. Using not seasonally adjusted data over a period of less than one year is problematic. For the past 12 months, using not seasonally adjusted data, jobs grew by 0.9 percent from September 2018 to September 2019.
Perhaps the most important chart is the following, which shows job changes starting in 1990. It’s easy to spot the recessions, and also to see that the Wichita economy has higher variability than the state or national economy. Since 1990, the Wichita and national economies were “equal” in terms of job creation as recently as 2009. Before then, if the Wichita economy fell behind, it was able to catch up with the nation. But that hasn’t been the case since the end of the Great Recession in 2009.
An ad from the Jeff Longwell for Mayor Committee contains a false claim.
An advertisement advocating the re-election of Wichita Mayor Jeff Longwell contains a claim about economic development that is false.
The ad appears in the October 20, 2019 print edition of the Wichita Eagle. Under the heading “Let’s Set the Record Straight,” we find this item: “Multiple large scale business development projects like the Cargill Downtown Headquarters which created 850+ jobs.”
Click for larger.
It’s the use of the word “create” that is false. It’s wrong because Cargill’s headquarters was located in downtown Wichita at the time it announced it would build a new headquarters in another part of downtown Wichita. 1 Whatever the number of jobs, they merely moved from North Main Street to East Douglas Avenue in the same zip code. 2
It’s possible that if Cargill’s threat to build a new headquarters in another city was genuine, we could say the city and state “retained” these jobs. But using the word “create” to describe these jobs is false. Regarding the retention of these Cargill jobs, voters can decide whether the cost was worthwhile.
Regarding the cost of retaining Cargill jobs, since Mayor Longwell raised the topic, here is a list of the known subsidies and incentives the city offered to retain the Cargill jobs. 3 As summarized in the agenda packet:
“In exchange for Cargill’s commitment, the City has negotiated the following:
Issue Industrial Revenue Bonds (Letter of Intent approved April 18, 2017) 100% property tax abatement; 5+5 year basis
Sales tax exemption
Acquisition of a 15 year parking easement for public access to the garage in the evenings and on weekends (estimated cost of $6,500,000)
Expedited plan review (50% reduction in time)
Reduced permitting fees (50%) (estimated savings of $85,000)
Assign a project manager/ombudsman for a single point of contact for the company”
The agenda packet for the city council meeting doesn’t mention this, but from the state of Kansas Cargill is likely to receive PEAK benefits. Under this program, the Kansas state withholding tax deducted from Cargill employees’ paychecks will be routed back to Cargill. 5 (Not all; only 95 percent.) Some very rough calculations show that PEAK benefits might be worth some $2 million annually to Cargill. 6
For the first year of the agreement, Cargill is expected to have 750 or more employees at an average salary of $66,814. That annual salary / 26 pay periods = $2,570 biweekly. For a family with two children (this is just a guess and could be way off), there are two withholding allowances, so $2,570 – ($86.54 x 2) = $2,397. Using the new withholding tables for married workers (another assumption), bi-weekly withholding is $48.17 + 5.7% x ($2,397 – $1,298) = $48.17 + $62.64 = $110.81. That means $2,881 annual withholding, so Cargill’s 95% share is $2,737. For 750 employees, this is an annual subsidy to Cargill of $2,052,750. ↩
The Wichita city council will consider expanding an existing TIF, or tax increment financing district.
Tomorrow the Wichita City Council will consider expanding the boundaries of an existing tax increment financing district in downtown Wichita. 1
According to city documents for this agenda item,
Expanding the District would allow the Developer to capture the additional increment generated by the increased value of the Ice House building for pay-as-you-go reimbursement of eligible TIF expenses within the TIF district. The Developer would also be reimbursed for the TIF eligible costs related to redevelopment of the Ice House building.
Further:
The project includes up to $317,170 in infrastructure improvements that would be TIF eligible. The Developer proposes that tax increment financing be used to pay for eligible redevelopment project costs on a “pay-as-you-go” basis, for site preparation and infrastructure improvements.
This may be confusing, so here it is in a nutshell: The city will be diverting up to $317,170 in future property tax paid by the developer. Instead of these taxes going to pay for operations of the city, county, and school district, these taxes will be given back to the developer.
Usually, economic development incentives such as tax increment financing, or TIF, are justified because they create jobs. For this building, according to Wichita Eagle reporting from August, the two tenants that will occupy most of the space are existing companies that are moving from other parts of Wichita.
In addition, Gary Oborney, Manager of Union Station, LLC and Ice House, LLC, the company that is receiving the benefit of tax increment financing, has made these recent campaign contributions, according to campaign finance reports filed in July:
Of note, all three are seeking reelection this year.
There is nothing illegal regarding these campaign contributions based on Wichita and Kansas law. Some jurisdictions, however, have laws known as pay-to-play. These laws may prohibit political campaign contributions by those who seek government contracts, prohibit officeholders from voting on laws that will benefit their campaign donors, or the laws may impose special disclosure requirements.
In general, these laws prohibit government officials from enriching their campaign contributors. That seems like a simple concept that makes sense.
While there is no such law in Wichita, wouldn’t citizens appreciate officials acknowledging the campaign support they have received from people with business before the council?
City of Wichita City Council Agenda for October 8, 2019. Agenda Item No. V-1, Public Hearings Considering an Expansion of the Union Station Tax Increment Financing District and Considering a Development Agreement for the Union Station Project Area 3 Plan (District I) ↩
The amending of a retail lease tells us a lot about the economics of downtown Wichita.
This week the Wichita City Council amended a lease for some retail space at 360 East William in downtown Wichita. This is the retail space on the ground floor of the Block 1 parking garage at the northwest corner of Topeka and William.
Block One retail space sits half empty. Click for larger.
The first lease, passed by the council in 2011, refers to “ground level of the Parking Structure retail space containing approximately 8,400 square feet of surface floor area.” 1 The lease was between the city and a master tenant, which was Douglas Place, LLC. The master tenant, it was thought, would find retail tenants and earn profits based on the difference between the rent it collects from them and the rent it pays to the city.
Earning profits seemed virtually guaranteed for the master tenant, because the rent it paid to the city for the entire 8,400 square feet was to be according to this schedule (along with my computations of rent per square foot, the common way commercial rents are quoted):
First five years: $1 per year
Years 6 through 15: $21,000 per year, or $2.44 per square foot
Years 16 through 20: $63,000 per year, or $7.33 per square foot
So for the first five years of the lease, the master tenant faced virtually no cost in obtaining and controlling rentable space. Other commercial landlords must pay to build structures in order to collect rent, but not this master tenant.
The deal was even better than that for the master tenant, as the city would pay for tenant build-out. This is the cost of making space ready for tenants by building things like walls, floors, ceilings, restrooms, heating, air conditioning, etc.
According to the lease, at the end of 20 years, the master tenant could either continue to manage the property for the city for a fee, or purchase the property for $1,120,000, or do nothing.
The amended lease the council passed this week holds these terms for rent: 2
First four years: $1 per year
2024 through 2035: $10,000 per year, or $1.16 per square foot
2036 through 2043: $20,000 per year, or $2.33 per square foot
At the end of this term, the tenant has the option to purchase the property for $400,000. That’s a reduction of $720,000, or 64 percent, from the option price in the 2011 lease. As part of the amended lease, the city will not pay for tenant build-in.
City documents now state the amount of retail space as 8,600 square feet, up from 8,400 in 2011.
City real estate administrator John Philbrick told the council that half of the space was built out. (Video is at the end of this article.) Real estate experts told me that build-out costs for space like this could be around $50 per square foot, although there is a wide variation. With 4,300 square feet remaining, this amounts to something like $215,000 in savings for the city.
In summary, with the amended lease the period of nearly free rent ($1 per year for the entire space) starts again, this time for four years. The step-ups in rent to the city have been discounted. Instead of some years when the city would collect $2.44 per square foot, it now stands to collect $1.16. For the next step-up, the city will collect $2.33 per square foot instead of $7.33. The step-up schedule in the amended lease doesn’t precisely align with the original lease, but the step-up rates are much lower.
Besides these aspects, there is a political angle to this matter. See here.
Block One, the origin point for future growth
Click for larger.
Block One, or Block 1, is the downtown Wichita block bounded by Douglas on the north, William on the south, Broadway on the west, and Topeka on the east. The downtown Wichita development agency (formerly the Wichita Downtown Development Corporation, now called simply Downtown Wichita) once billed this block as “the first complete city block of development along the core of Douglas Avenue.”
In promotional material, the agency promoted the area’s bright future: “Block One is the origin point for future growth.”
Block One ribbon cutting, March 2013.
That was in 2013, six years ago. There has been progress. The Ambassador Hotel and its restaurant are still open. The Kansas Leadership Center is complete. But the former Henry’s building languished until this year. Plans call for it to become a culinary school instead of the retail, restaurant, and office center that was originally promoted.
But the retail space on William Street has not been successful. In this week’s city council meeting administrator Philbrick told the council that about half of the space was leased, with the two existing leases at the rates of $4 and $6 per square foot.
Block One promotional material. Click for larger.
How do these rates compare with other downtown retail space? In the Weigand Commercial Retail Forecast for 2012, for total retail space in the central business district, the quoted rent was $9.84 per square foot. For 2015 it was $10.54, with class A space at $14.00. (No quote for class A was given for 2012.) For 2019 it was $10.65, with no quote for class A space, $11.59 for class B, and $5.35 for class C.
For the entire city, the Weigand forecast reports that class A retail space rents for $19.81.
Why has this retail space been difficult to lease? Philbrick told the council, “[The] market at the time was not strong and it continued to weaken.”
With the city proposing to rent the space for $1 per year for four years, then increasing according to the schedule shown above, Council Member Jeff Blubaugh (district 4, south and southwest Wichita) asked Philbrick if this is a market rent, saying if the value of the building is $400,000, the monthly rent should be about one percent of that.
Blubaugh’s valuation of $400,000 may be reasonable. (Or maybe not, as it is the option price to purchase the property after the lease expires in 2043. Currently, Sedgwick County appraises the property at $620,600.) If it is, a landlord should be able to collect $4,000 rent per month, or $48,000 per year. With 8,600 square feet of available space, that implies rent of $5.58 per square foot.
Philbrick replied: “The two current leases are at very low rates. I mean, the two current leases are at, I think, four dollars per square foot triple net and six dollars per square foot.”
Blubaugh followed up: “So there’s just not … it’s just not competitive down there, then?”
Philbrick: “There’s very, very little demand.”
That is the most sobering realization, that after years of subsidy, investment, and promotion, downtown Wichita is not doing well. That’s about the only conclusion we can make when we see the city renting nice retail space for nearly zero rent, and doing this not just once, but twice.
Other indicators
For downtown population, Wichita economic development officials use a convoluted method of estimating the population of downtown Wichita, producing a number much higher than Census Bureau estimates. See Downtown Wichita population.
The assessed value of property in downtown is not growing very rapidly. According to data compiled by Downtown Wichita, assessed value hit a recent low of $78,573,959 in 2012 – 2013. 3 For 2018 – 2019 the value is reported as $85,766,869, an increase of 9.15 percent in six years, barely more than one percent per year. Assessed value is the property tax base, the building of which officials tell us is an important goal. It’s how the city pays for services, they say.
But assessed value has barely grown in downtown Wichita despite hundreds of millions in investment, both public and private. And some of the assessed value is captured by tax increment financing districts and diverted away from paying for the cost of government services.
View video of the council meeting with added commentary below, or click here to view at YouTube.
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Notes
Wichita City Council Agenda Packet for September 13, 2011. Exhibit 1, Parking Structure Retail Lease, page 205. ↩
Wichita City Council Agenda Packet for October 1, 2019. Agenda Item No. V-4, Assignment and Amendment of Lease of Retail Space at Block 1 Garage, 360 East William (District I). ↩
For the Wichita metropolitan area in August 2019, the labor force is up, the number of unemployed persons is down, the unemployment rate is down, and the number of people working is up, all by small amounts, when compared to the same month one year ago. Seasonal data shows small increases in labor force and jobs from July.
Total nonfarm employment rose from 298,400 last August to 300,500 this August. That’s an increase of 2,100 jobs, or 0.7 percent. (This data is not seasonally adjusted, so month-to-month comparisons are not valid.) For the same period, employment in the nation grew by 1.4 percent. The unemployment rate in August 2019 was 3.7 percent, down from 3.78 percent one year ago.
Considering seasonally adjusted data from the household survey, the labor force rose by 65 persons (0.0 percent) in August 2019 from August 2019, the number of unemployed persons fell by 109 (1.0 percent), and the unemployment rate was 3.5 percent, down from 3.6 percent from July. The number of employed persons not working on farms rose to 299,705 in August from 299,531 the prior month, an increase of 174 persons, or 0.1 percent.
The following chart of the monthly change in labor force and employment shows the rise in employment and labor force after several months of decline for both measures.
The following chart of changes from the same month one year ago shows nine consecutive months of decline in the rate of growth of both employment and labor force. The values are growing, but at a slower pace each month since November.
The following chart of changes in employment from the same month of the previous year shows some months when the Wichita MSA performed better than the nation. Over the past 12 months, the average monthly job growth for the nation was 1.67 percent, and for the Wichita MSA, 1.57 percent.
In a report looking at the economics of the 100 largest metropolitan areas, Wichita often ranks near the bottom.
Each year Brookings Institution creates an index of major metropolitan areas called Metro Monitor. The report, says Brookings, “explores the local realities of America’s economic progress, illuminating how metropolitan economies are performing today and over the past decade.” The report for 2019 is available here.
The report examines the 100 largest metropolitan areas. For 2018, the Wichita MSA ranked as the 89th largest, falling from rank 82 as recently as 2011. 1
Growth
To examine growth of a metro, Brookings considered percentage change in jobs, percentage change in gross metropolitan product, and percentage change in jobs at young firms. The nearby charts shows the results. (Some data is not available for all metro areas.)
Click charts for larger versions.
Prosperity
Prosperity looks at percentage changes in productivity, standard of living, and average wage.
Inclusion
Inclusion looks at percentage changes in median earnings, relative poverty, and employment rate.
Racial inclusion
Racial inclusion looks at change in white/people of color median earnings gap, relative poverty gap, and employment rate gap.
Looking forward
As the Brookings analysis ends with 2017, what might we find if the analysis was based on 2018 and 2019 data? Some of the data Brookings uses is not available until after a lengthy delay, such GDP for metropolitan areas. That data, which is an important indicator of a region’s economic health, is not yet available for 2018 for metropolitan areas.
Employment data is available quickly, however. The nearby chart, displaying data from the Bureau of Labor Statistics, shows changes in the number of jobs for Wichita and the nation, displaying the percentage change from the same month of the prior year. 2 It’s easy to see the slump in Wichita in 2017. Since then Wichita has improved, with some months showing greater job growth than the nation. From January 2018 to August 2019, national jobs grew by 2.6 percent, and in the Wichita MSA, by 2.2 percent. 3
FRED, from the Federal Reserve Bank of St. Louis, is a resource for examining economic data and creating charts and tables. Most of the available data is data gathered from other sources, in this case the Bureau of Labor Statistics. FRED provides a consistent interactive interface to the data, and provides several ways to share the data. Start at https://fred.stlouisfed.org/. ↩
Wichita economic development officials use a convoluted method of estimating the population of downtown Wichita, producing a number much higher than Census Bureau estimates.
How many people live in downtown Wichita? The answer, according to Downtown Wichita, is 2,749.
This value comes from the 2019 State of Downtown Report, published by Downtown Wichita. 1 It is for zip code 67202, which is commonly recognized as greater downtown Wichita. While this report highlights the number of people living in downtown Wichita, it no longer reports the number of people working in downtown. 2
How does Downtown Wichita arrive at the number of residents in downtown? An endnote from the report gives the details:
The 2010 U.S. Census states the population in the 67202 area code [sic] is 1,393. Per Downtown Wichita records, 1,228 units rental units have opened in the Downtown SSMID district since 2010 when the Census was taken. Per data provided directly from the Downtown residential rental properties, the absorption rates of the market rate units has an average of 85%. Per the U.S. Census Bureau, 2013-2017 American Community Survey 5-Year Estimates, the average size of renter-occupied units is 1.3 persons. Therefore, an estimate for the current population is 2,749. 3
What Downtown Wichita has done is to take a reliable figure (the 2010 decennial census) and extrapolate forward to 2018. (Presumably 2018, as the report doesn’t say.)
There is a problem with this approach. The DW calculation makes use of two estimates, absorption rate 4 and size of renter-occupied units. Each of these is an estimate that has its own error probabilities, and those errors compound when multiplied.
There is no need to go through this roundabout calculation, as the Census Bureau has provided an estimate for the population of downtown in 2017. Data from the American Community Survey 5 estimates that the population in downtown Wichita for 2017 was 1,587, with a 90 percent confidence interval of plus or minus 221. 6 This means the Census Bureau is confident the population of downtown Wichita in 2017 was in the range of 1,366 to 1,808, that confidence factor being 90 percent. (2018 values should be available soon.)
But Downtown Wichita says the population of downtown is 2,319, which is far — really far — outside the range the Census Bureau gives for the 2017 population. While Downtown Wichita’s population estimate is probably for 2018, it still lies far outside the range of probability, based on Census Bureau estimates.
A nearby chart plots the Census Bureau’s population estimates (labeled ACS, for American Community Survey) with the lower and upper bounds of 90 percent confidence levels. This is compared with Downtown Wichita’s population estimate. From 2015 to 2017, Downtown Wichita’s population estimates are far above the Census Bureau’s estimates. The probability that Downtown Wichita’s figures are correct is vanishingly small.
It’s curious that Downtown Wichita, if it wants to know how many people live in downtown, doesn’t simply use the Census Bureau estimate of population. That estimate is available annually in the Bureau’s American Community Survey. Downtown Wichita didn’t use that number, but it relied on the same body of data to get “average size of renter-occupied units.”
Why would Downtown Wichita use the Census Bureau for one datum but not another, especially when the Census Bureau data reports the statistic Downtown Wichita is trying to estimate in a roundabout manner?
It’s simple. DW’s calculations produce 2,319 people living in downtown. The Census Bureau estimate is a much smaller number: 1,587.
By the way, DW’s calculations start with the 2010 Census Bureau population for downtown. Of the downtown population of 1,393 that year, 253 were men living in institutions like the Kansas Department of Corrections Wichita Work Release facility at Emporia and Waterman Streets. It has a capacity of 250. 7
“Absorption is the amount of space or units leased within a market or submarket over a given period of time (usually one year). Absorption considers both construction of new space and demolition or removal from the market of existing space.” Institute of Real Estate Management. Calculating Absorption. Available at https://www.irem.org/education/learning-toolbox/calculating-absorption. ↩
U.S. Census Bureau, 2013-2017 American Community Survey 5-Year Estimates ↩
An interactive visualization of Wichita-area employment by industry.
The Bureau of Labor Statistics, part of the United States Department of Labor, makes monthly employment statistics available. I’ve gathered them for the Wichita metropolitan statistical area and present them in an interactive visualization.
This visualization is updated with data through July 2019.
To learn more about the data and access the visualization, click here.
Despite heavy promotion and investment in downtown Wichita, the number of jobs continues to decline.
The United States Census Bureau has a program known as LEHD Origin-Destination Employment Statistics, or LODES. According to the Bureau, “The LEHD program produces new, cost effective, public-use information combining federal, state and Census Bureau data on employers and employees under the Local Employment Dynamics (LED) Partnership. State and local authorities increasingly need detailed local information about their economies to make informed decisions. The LED Partnership works to fill critical data gaps and provide indicators needed by state and local authorities.”
Data is available by zipcode. This allows isolation of downtown Wichita, which usually recognized as zip code 67202. Data was released at the end of August for calendar year 2017.
What does the data tell us about downtown Wichita? As can be seen in the nearby chart, the trend in jobs is down, and down almost every year. Most notably, the number of private sector jobs has declined by 28.6 percent since 2002. (Click charts for larger versions.)
Since 2010, about the time Wichita started more aggressive promotion of downtown, the number of private sector jobs has fallen by 9.4 percent.
Of note, for the three age groups this data tracks, the jobs in group “age 55 or over” is growing, although it is numerically the smallest group.
The City of Wichita and the Wichita Metropolitan Statistical Area are not doing well. According to the same data set, the rate of job growth has been declining since 2012, and was near zero or negative for 2016 and 2017.
Because of the public policy aspect of this data, I asked both candidates for Wichita Mayor for a response. Wichita Mayor Jeff Longwell did not respond to repeated requests. Challenger Brandon Whipple provided this by email:
Under current city leadership, our sister cities are all growing at a higher rate economically than Wichita. Wichita’s recent job growth is at .5%, compared to Oklahoma City at 3.4%, Omaha, NE at 1.9% and the national average at 1.6%. The current Mayor brags that our unemployment rate is at 3.9%, but that’s the same as the national average, which means it’s nothing to brag about. Omaha, Tulsa, Oklahoma City and Des Moines all have lower unemployment than Wichita and the national average.
Wichita has competed and beat our sister cities in the past economically. We need leaders who are not afraid to compare Wichita not only to our past, but also to other mid-size cities and have the vision to again become an economic leader among them. There is no silver bullet but the first step towards economic growth is recognizing we have room to grow.
Also we’re not gaining jobs, we’re losing people. That’s nothing to brag about.
For the two institutions planning and developing policy for downtown, the city’s public information office did not respond. Jaimie Garnett, Executive Vice President of Strategic Communications, Greater Wichita Partnership provided this:
Based on how the Census Bureau collects LEHD data it can be difficult to get a true comparison of year-to-year numbers especially in smaller geographic areas. Our understanding is that how a company reports its workers can vary and that the Census Bureau gives data in each category what they call a “noise infusion” to protect individual firms’ confidentiality. When we have talked with economic groups such as WSU’s CEDBR, they consider the LEHD data the best data available while also recognizing these issues.
We’re excited about many recent Wichita area announcements from downtown to the region. For downtown Wichita, we’re pleased by the fact that the private sector made 90 percent of the investment in 2018 and over the past 10 years, the private sector made 77 percent of the investment. In addition, downtown is experiencing corporate investment and there are companies relocating to the core.
While these concerns about LEHD data are valid, I don’t believe they explain the long-term trend. Additionally, both the city, its agencies, and WSU’s CEBDR have made gross errors in using LEHD data. 12
