Voice For Liberty

Tag: Economic development

  • Hawker Beechcraft to receive subsidy from Wichita City Council

    Tomorrow the Wichita City Council will very likely live up to its part in a deal to award $2.5 million in subsidy to aircraft manufacturer Hawker Beechcraft. Sedgwick County will also be called on to contribute the same amount, and the state has agreed to chip in $40 million.

    Undoubtedly the occasion will be used by Wichita Mayor Carl Brewer and others to crow about the city’s effort to retain Hawker Beechcraft in the face of an offer from the State of Louisiana. While our local governments got what they wanted in this instance, it nonetheless provides a lesson in the futility of corporate welfare as economic development policy: Someone is usually willing to pay more. We would be much better off if we start transforming Kansas to a state where all companies are nurtured, not by bureaucratic and political oversight and government handouts, but by a low taxing and spending environment, and a reasonable regulatory regime.

    I use “got what they wanted” rather than “success,” as there are important questions surrounding the wisdom of this deal. First, there is some evidence that Hawker may need to shrink substantially in order to survive, handouts notwithstanding. See The Teetering State of Hawker Beechcraft. Besides indicting Hawker for a “bloated and inefficient production process,” the report claims the company’s pension plan is underfunded by $296 million.

    Some have called into question the validity of the competing offer. Louisiana had purportedly offered up to $400 million to attract Hawker’s 4,000 jobs. This is a cost of $100,000 per job, a very costly number, but some states have paid even more. If genuine, Kansas got a deal at only $11,250 per job.

    But: These are retained jobs, not new jobs. H. Edward Flentje explained in his analysis Brinkmanship with jobs: “But the Hawker Beechcraft deal is different, focused on saving existing jobs, not creating new jobs, and the result diverts millions in limited taxpayer funds, primarily state income tax revenues, from state coffers to a company’s benefit, simply to have an existing business stay put.”

    Flentje went on to explain the new economic development policy in Kansas and the precedent the Hawker deal sets: “The barn door has been flung open as well over 500 Kansas businesses are now eligible for state assistance, a tenfold increase over the year 2000, thanks to lawmakers. The expanding game of brinkmanship with jobs leaves state and local officials more vulnerable and can be expected to divert millions more in state tax revenues from state government’s primary obligations in response to the demands of companies that choose to play.”

    The major problem, however, is that economic development policy in Wichita and Kansas is not moving in the right direction. We place large bets on old, established industry, when we should be looking to foster dynamism and young companies as the engine to propel the Kansas economy.

    Somewhere in Wichita or Kansas there is a small, new, unknown company that has half a dozen or so employees — maybe more, maybe less — that is working on some innovation. If we’re lucky, we have many such companies. These companies could be working on a new technology, manufacturing process, computer software, video game, internet site, food processing technology, retail concept, chemical process, restaurant idea, manufacturing methodology, agricultural process, airplane wing — we just don’t know. Many will fail. But some will succeed, and a few will, hopefully, succeed in a big way.

    But these small startup companies may not fit in to the economic development programs the city and state have. Being of entrepreneurial spirit, these people may not even think of looking to government for economic development assistance.

    Any of these new and now-small companies could become the next Microsoft, Google, Home Depot, or Pizza Hut. We just don’t know which — and it’s impossible for anyone, government bureaucrats included — to know. But these companies, when in startup phase, struggle to pay the taxes that large companies are able to escape. Being small, they may also be disproportionally impacted by regulation. They don’t qualify for the economic development programs that larger companies benefit from, and they probably couldn’t afford to devote the time and effort to apply.

    It’s not necessarily the case that a small startup aviation company is competing directly in aircraft sales with Hawker Beechcraft and is handicapped by the larger company’s government handouts. But these two companies could be competing for the same employees, for example, and that puts the smaller, unsubsidized company at a disadvantage.

    But having decided to pursue a policy of giving in to the demands of companies who threaten to leave or build elsewhere, we have a question to answer: How can we identify which companies are deserving of government subsidy? Which companies should have their tax burden softened, their treasury fattened, at the expense of others? Allocating resources and deciding what to do in the face of uncertainty is the crux of entrepreneurship. It’s something that government is not equipped to do, as its incentives and motivations are all wrong.

    For politicians, the prime motivation is to be reelected. It is rare that the time horizon of a politician extends beyond the next election. For bureaucrats, the motivation is to expand their sphere of influence and power. Neither of these motivations are compatible with entrepreneurship. Some are not compatible in any way with running a business. For example, a business firm looks at its employees as a cost that must be managed and controlled if a profit is to be made and the firm survive. But to government, spending on employees is a social benefit, and one that is paid for by someone else.

    The deal with Hawker continues and expands the same process that Kansas and other states have been using for economic development. Therein lies the problem: Kansas’ approach to economic development is piecemeal. We respond to problems, as in the case of Hawker. But the state’s response gives more companies the incentive to come up with their own “problems” that require state intervention.

    In order to succeed, Kansas needs to embrace dynamism in its approach to economic development. For more on this see Kansas economic growth policy should embrace dynamism and Embracing Dynamism: The Next Phase in Kansas Economic Development Policy.

    Deals like this with Hawker move Kansas towards towards more state-controlled economic development and away from creating a dynamic economy. We prop up the old and declining at the expense of the new and vibrant.

    And, we don’t learn. At the same meeting the Wichita City Council is considering approval of its policies for awarding economic development subsidy in downtown — another example of the very type of government planning that stifles economic dynamism and replaces it with cronyism.

  • Kansas and Wichita quick takes: Monday May 16, 2011

    Wichita City Council this week. This week the Wichita City Council handles several important issues. One is approval of the policies regarding incentives for downtown development. Then, the council will consider approval of the city’s portion of the Hawker Beechcraft deal. In order to persuade Hawker to stay in Kansas rather than move to Louisiana, the State of Kansas offered $40,000 in various form of incentive and subsidy, and it was proposed at the time that the City of Wichita and Sedgwick County each add $2.5 million. Of note is the fact that Hawker’s campus in east Wichita … oops, wait a moment — their campus is not within the boundaries of the city. Like Eastborough, Hawker is surrounded on all four sides by Wichita, but is not part of the city itself. I don’t know if this should have any consideration as to whether the city should give Hawker this grant. … Then, there’s approval of the Industrial Revenue Bonds for the Fairfield Inn in downtown at WaterWalk. The agenda material says that the hotel is now complete, so the construction loan is being refinanced with the IRBs, “which will be initially purchased by the construction loan lender and then later redeemed with the proceeds of a permanent commercial loan insured by the Small Business Administration.” The benefit of the bonds is that the hotel escapes paying $328,945 in sales tax on its furnishings, etc. The city has already issued a letter of intent to do this, so it’s likely this item will pass and someone else will have to pay the sales tax this hotel is escaping. … The complete agenda packet is at Wichita City Council May 17, 2011.

    Wichita as art curator. The controversy over spending $350,000 on a large sculpture at WaterWalk promoted one reader to write and remind me of the city’s past experience as custodian of fine art. In 2004, the city mistakenly sold a sculpture by James Rosati as scrap metal. Realizing its mistake, the city refused to complete the transaction. The buyer sued, the city lost and appealed, losing again. Estimates of the sculpture’s worth ranged up to $30,000. Editorialized Randy Scholfield at the time in The Wichita Eagle: “That the sculpture ended up in an auction of surplus junk in the first place says something about how much the city valued it or exercised proper stewardship.”

    Legislature fails to confront KPERS. This year the Kansas Legislature failed to confront the looming problem of the Kansas Public Employees Retirement System, or KPERS. A small revision was made to the program, and a study commission was created. Neither action comes anywhere near to solving this very serious problem, as described in Economist: KPERS must undergo serious reform.

    Over 30 major news organizations linked to George Soros. Business and Media Institute: “When liberal investor George Soros gave $1.8 million to National Public Radio, it became part of the firestorm of controversy that jeopardized NPR’s federal funding. But that gift only hints at the widespread influence the controversial billionaire has on the mainstream media. Soros, who spent $27 million trying to defeat President Bush in 2004, has ties to more than 30 mainstream news outlets — including The New York Times, Washington Post, the Associated Press, NBC and ABC.” … This is from the first of a four part series.

    Romney seen as candidate of business, not capitalism. Timothy P. Carney in To Mitt Romney, big government is good for business: “Mitt Romney has the strongest business backing of any Republican presidential hopeful, and he carries himself as a technocratic problem solver. … Examine Romney’s dalliances with big government that have caused him such grief, and you’ll see a trend: They all are described as ‘pro-business,’ they all amount to corporate welfare, and they all reflect the technocratic mind-set you’d expect of a business consultant. Romney’s record and rhetoric show how managerialism veers away from the free market and into corporatism.” … Carney discusses Romney’s disastrous health care program in Massachusetts — which is seen as a prototype for Obamacare, his efforts to lure business to the state with subsidies, his support of ethanol subsidies, a national catastrophic insurance fund, and the Troubled Asset Relief Program.

    Programs for elderly must be cut. Robert Samuelson in The Washington Post: “When House Speaker John Boehner calls for trillions of dollars of spending cuts, the message is clear. Any deal to raise the federal debt ceiling must include significant savings in Social Security and Medicare benefits. Subsidizing the elderly is the biggest piece of federal spending (more than two-fifths of the total), but trimming benefits for well-off seniors isn’t just budget arithmetic. It’s also the right thing to do. I have been urging higher eligibility ages and more means-testing for Social Security and Medicare for so long that I forget that many Americans still accept the outdated and propagandistic notion that old age automatically impoverishes people.” … Samuelson goes on to show that many are doing quite well in old age and gets to the heart of the problem: “The blanket defense of existing Social Security and Medicare isn’t ‘liberal’ or ‘progressive.’ It’s simply a political expedient with ruinous consequences. It enlarges budget deficits and forces an unfair share of adjustment — higher taxes, lower spending — on workers and other government programs. This is the morality of the ballot box.” In other words, the elderly, which are a powerful voting bloc, have found they can vote themselves money. Concluding, he writes “Social Security was intended to prevent poverty, not finance recipients’ extra cable channels.”

    Social Security seen as unwise, financially. A video from LearnLiberty.org, a project of Institute for Humane Studies, explains that apart from the political issues, Social Security is a bad system from a purely financial view. Explained in the video is that 22 year-olds can expect to earn a 1.6 percent rate of return on their “investment” in Social Security contributions. Further, the “investment” is subject to a “100 percent estate tax.”

    Market development in Wichita. From Wichita downtown planning, not trash, is real threat: “While the downtown Wichita planners promote their plan as market-based development, the fact is that we already have market-based development happening all over Wichita. But because this development may not be taking place where some people want it to — downtown is where the visionaries say development should be — they declare a ‘market failure.’ But just because people make decisions that visionaries don’t approve of, that’s not market failure. And this is one of the most important reasons why Wichitans should oppose the downtown plan. It proposes to direct public investment away from where free people trading in free markets want public investment to be. The public investment component of the downtown plan says that people who decided not to live or work downtown are wrong, and they must now pay for others to be downtown. … We have market-based development in Wichita. We don’t need a government plan to have market-based development.”

  • Wichita forgivable loan action raises and illustrates issues

    Today the Wichita City Council decided to grant a forgivable loan of $48,000 to The Golf Warehouse. This subsidy was promoted by the city as necessary to properly incentivize the applicant company to expand its operations in Wichita rather than Indiana, where the company has other operations and had also received an offer of subsidy. For more information, see Forgivable loan a test for new Wichita City Council members.

    In presenting the item to the council, Allen Bell, Wichita’s Director of Urban Development said the forgivable loan was a “deal-closing” device intended to “win a competition with other locations.”

    Further discussion brought out the fact that companies often “test the waters,” asking for incentives from cities like Wichita as a location they might consider moving to, only to us that as leverage for getting more incentives back home. (Wichita has suffered at the hands of this ruse, most recently granting a large forgivable loan to a company when the city used as leverage says they did not have discussions with the company.)

    Council Member Michael O’Donnell asked if there was another form of economic development that The Golf Warehouse could have received. Bell said that in this case there wasn’t, that IRB financing with accompanying tax abatements wasn’t available for this project. As he has in the past, Bell pointed to the lack of tools in the toolbox, or “arrows in our quiver” he said today.

    When the CEO of the applicant company spoke to the council, it was easy to get the impression that this company — like the many other companies that plead for incentives and subsidy — feel that because of their past and pending investment in Wichita, they are entitled some form of incentive. When the company’s outside site selection consultant spoke, this sense of entitlement became explicit. She told how the company has made “significant investment and has employed a lot of people and kept a lot of families employed.” She said that instead of forgivable loan, this should be called an “act of goodwill.” She said the company has made a huge investment, never asking for incentives, and that the loan allows the company to continue making investment into the community.

    She also said that the offer made by Indiana amounted to twice Wichita’s offer, on a per-job basis.

    Citizens spoke against the forgivable loan. John Todd asked if this is the economic formula that has blessed our city and county with the wealth and prosperity we enjoy today.

    Clinton Coen told the council that these incentives are a bargaining tool, allowing cities to blackmail each other.

    Susan Estes asked a question that built on O’Donnell’s earlier remarks: Why would we see this forgivable loan as egregious? On the surface, we see jobs, which is good, she said. But the money to pay for this loan comes from other taxpayers, she said, and there are many companies that need help, citing the number of companies filing for bankruptcy and having tax liens filed against them. “Why I find it egregious is that we’re doing something that helps one company at a time. We really need to take an overall look at our tax policy and address the tax issue. We have one of the highest tax rates on the Plains, and that’s why we get in these situations where we have to compete. If we had a better competitive tax rate we could spare all of this.”

    Of interest for the political theater was the vote of three new council members, based on statements they made regarding forgivable loans on the campaign trail (see Forgivable loan a test for new Wichita City Council members). In making the motion to accept staff recommendation of the forgivable loan, council member Pete Meitzner said of the loan: “It is an investment, incentive, whatever you want to call it. It is not a give-away.”

    Meitzner and James Clendenin voted with all the veteran council members to approve the forgivable loan. Only O’Donnell voted consistent with how he campaigned.

    Analysis

    This item before the Wichita City Council today requires analysis from two levels.

    First, the economics and public policy aspects of granting the forgivable loan are this: It is impossible to tell whether The Golf Warehouse would not expand in Wichita if the forgivable loan was not granted. The companies that apply for these subsidies and that cite competitive offers from other states and cities have, in some cases, multi-million dollar motives to make Wichita think they will move away, or not invest any more in Wichita. Most politicians are scared to death of being labeled “anti-job,” and therefore will vote for any measure that has the appearance of creating or saving jobs.

    Particularly inappropriate is the attitude of many of these companies in that they deserve some sort of reward for investing in Wichita and creating jobs. First, companies that make investments do, in fact, deserve a reward. That reward is called profit, but it has to be earned in the marketplace, not granted by government fiat. When a company earns profits in free markets, we have convincing evidence that wealth is being created and capital has been wisely invested. Everyone — the investors certainly but also the customers and employees — is better off when companies profit through competition in free markets.

    But when government steps in with free capital, as was the case today, markets are no longer free. The benefits of capitalism are no longer available and working for us. The distortion that government introduces interferes with market processes, and we can’t be sure if the profit and loss system that is so important is working. Companies, as we saw today, increasingly revert to what economists call rent seeking — profiting through government rather than by pleasing customers in market competition.

    Entrepreneurship, of which Wichita has a proud tradition, is replaced by a check from city hall.

    Wichita’s own Charles Koch explained the harm of government interventionism in his recent recent Wall Street Journal op-ed: “Government spending on business only aggravates the problem. Too many businesses have successfully lobbied for special favors and treatment by seeking mandates for their products, subsidies (in the form of cash payments from the government), and regulations or tariffs to keep more efficient competitors at bay. Crony capitalism is much easier than competing in an open market. But it erodes our overall standard of living and stifles entrepreneurs by rewarding the politically favored rather than those who provide what consumers want.”

    A forgivable loan — despite Council Member Meitzner’s claim to the contrary — is a cash payment to business, which Mr. Koch warns against.

    The focus on job creation is also a confounding factor that obscures the path to true wealth and prosperity for Wichita. When companies ask the city, county, and state for subsidy and incentive, they tout the number of jobs and the payroll that will be created. But jobs are a cost, not a benefit, to business and most firms do all they can to minimize their labor costs just as they seek to minimize all costs. For Wichita to prosper, we need to focus on productivity and wealth creation, not merely employment.

    The actions of the city council today keep Wichita on its path of piecemeal economic development and growth. Movement to a system that embraces economic dynamism, as advocated by Dr. Art Hall and as part of Governor Sam Brownback’s economic development plan for Kansas, is delayed. Economic development in Wichita keeps its present status as a sort of public utility, subject to policy review from time to time, as was mentioned today by the city manager.

    Politically, Wichitans learned today the value of promises or statements made by most candidates while campaigning. Most candidates’ promises along with $3.75 will get you a small cappuccino at Starbucks — if you don’t ask for whipped cream.

    Particularly interesting is the inability of politicians to admit they were wrong, or that they made a mistake, or that they were simply uninformed or misinformed when they made a campaign promise or statement. It was refreshing to hear Republican presidential candidate Tim Pawlenty, when he was in Wichita a few weeks ago, forthrightly admit that he was wrong about his initial position on cap-and-trade energy policies. City council members Clendenin and Meitzner could not bring themselves to admit that their votes today were at odds with their statements made while campaigning. This lack of honesty is one of the reasons that citizens tune out politics, why they have such a cynical attitude towards politicians, and perhaps why voter turnout in city elections is so low.

    As one young Wichitan said on her Facebook page after sharing video of the three new council members today, obviously referring to city council district 2’s Pete Meitzner: “How to use your mouth: 1. Campaign under the guise that you are a fiscal conservative. 2. Insert foot.”

  • Forgivable loan a test for new Wichita City Council members

    This week the Wichita City Council will consider a request for a forgivable loan that will put the campaign rhetoric of three newly-elected council members to test.

    At issue is The Golf Warehouse in northeast Wichita. The company proposes to expand its existing facility in Wichita rather than in Indiana, where the company has existing facilities with excess capacity. To lure the company to expand in Wichita, the state of Kansas is offering grants totaling $275,000. The company also seeks a forgivable loan from the City of Wichita for $48,000, and another forgivable loan of the same amount from Sedgwick County for a total package worth $371,000. If the company meets employment and wage goals, the forgivable loans do not need to be repaid. Details of the proposal may be seen at Wichita City Council agenda packet, May 10, 2011, starting on page 40.

    While campaigning for their offices, each of the three candidates — now council members — spoke negatively of forgivable loans. At a campaign event in February (transcripts below), James Clendenin (district 3, south and southeast Wichita) spoke of how the need for a loan to be forgiven reflects poorly on a company’s financial performance. His remarks look more to the past history of a company rather than to the future, and that’s not the focus of the city’s forgivable loan program. It does not forgive loans that were made in the past. Instead, it makes new loans that will not need to be repaid if performance goals are met — in effect, grants of money.

    District 4’s (south and southwest Wichita) new council member Michael O’Donnell spoke plainly against this form of incentive, saying “I do not believe in forgivable loans.” He exhibited insight regarding the spiraling nature of economic development incentives, saying that because the city gives out subsidies and incentives, everyone wants them. It sets a “terrible precedent,” he said, adding that it is “completely irrational.”

    Pete Meitzner, who represents district 2 (east Wichita), said “I am not for forgivable loans.” He noted the contradiction inherent in the terms “forgivable” and “loan,” calling them “conflicting terms.”

    If Meitzner sticks by his campaign rhetoric against forgivable loans, it may make for an awkward moment at Tuesday’s council meeting. That’s because the applicant company is located in Meitzner’s district, and custom dictates that he, as representative for the district the company is located in, make the motion in favor of granting the loan — a forgivable loan that he has said he is “not for.” If Meitzner acts in office as he campaigned, he will make a motion denying the applicant’s request.

    The other four members of the council usually have a favorable attitude toward these forgivable loans and other economic development subsidies and incentives. My suspicion is that at least two of the new members will be persuaded that this loan is necessary, and they will abandon their campaign musings. O’Donnell’s insight will be shown to be true, and more companies will ask for subsidy and incentive from the city, county, and state. Rent seeking — again — will be the economic development policy of the City of Wichita.

    From a meeting of Republican Women United on February 12, 2011, in response to a question about the City of Wichita and forgivable loans:

    James Clendenin: “If a company is not doing well, and they need a loan forgiven, we need to find out why they want this loan forgiven. If we’re gonna forgive a loan, are they going to continue their bad habits, the things that got them in this situation? So we need to examine those things when we’re considering that.”

    Michael O’Donnell: “I do not believe in forgivable loans. I feel that if it wouldn’t pass muster with a financial institution, then the City of Wichita should not take the taxpayers money to give to these companies. That sets a terrible precedent. And once you start, it’s a slippery slope, because everybody’s going to be attracted to it. Because they should. Any businessman should be going to the City of Wichita and asking for loans, because they continue to give it out. It’s completely irrational.”

    Pete Meitzner: “Forgivable loans is kind of a … I’m surprised that’s even a word, it’s kind of a conflicting term anyway. I am not for forgivable loans. I think the city and businesses have a number of tools when they’re challenged. Our city was founded — it’s a great city — based on aircraft manufacturing, oil and energy industries, entrepreneurial spirit that went nationwide and worldwide, and small businesses. If we as a city need to use our tools, but we need to embrace those people to feel accepted, and a freedom to grow their businesses. And if they’re struggling, and struggling with their bank, I don’t mind helping being an advocate to help these businesses do whatever they can to continue to flourish. Some of that might be us getting out of the way. Rewriting regulations, less stringent. It’s okay for us to get out of the way and allow them to flourish. I think we need to use any of the tools that we possibly can have beside a term forgivable loan.”

  • Kansas and Wichita quick takes: Friday May 6, 2011

    Wichita downtown sites draw little interest. Wichita Business Journal: “Interest from developers in eight city-owned “catalyst” sites in downtown Wichita was minimal — unexpectedly so. ‘I was a little bit surprised how light the response was,’ says Scott Knebel, downtown revitalization manager for the city of Wichita.” With the city soliciting informal proposals for eight sites, only two proposals were received.

    KPERS. It appears that the Kansas Legislature will pass a pension “reform” bill that does not include a shift to a defined-contribution plan for new employees. Instead, the tough decisions that need to be made about the Kansas Public Employees Retirement System have been placed in the hands of a study committee. More information about the seriousness of the KPERS problem is at Economist: KPERS must undergo serious reform and KPERS problems must be confronted. Video is here, with two parts following.

    More flexibility for school funds. Kansas Watchdog reports that Kansas schools will now have more flexibility to spend funds that are presently stashed away in various funds. Of interest in the article is a chart showing the growth in these fund balances. School spending advocates protest that these funds are needed to because revenue doesn’t arrvie at the same time bills do, which is true. But these fund balances have been growing, because schools have not been spending all the money they’ve been given. While this bill is a good idea, schools have always been able to tap into these funds by simply contributing less to them, thereby spending down the balances. But schools have not wanted to to do this.

    Growth in Kansas spendingGrowth in Kansas spending. Click for a larger view.

    Despite “cuts,” spending grows. For all the talk in Kansas of budget cuts, state spending still manages to grow year after year. Kansas Watchdog is again on top of this topic, noting “Each year various adjustments push state spending above the approved budget, but in 2010 that extra spending took a big jump that will require even more spending in the future.” Of particular interest is the chart showing spending rising every year.

    Sandy Springs a model. Common Sense with Paul Jacob: “Local governments suffer from a big problem: bigness. Too often they expand their scope of services, and, in so doing, progressively fail to cover even the old, core set of services. You know, like fire and police and roads and such. The solution is obvious. Mimic Sandy Springs. This suburban community north of Atlanta, Georgia, had been ill-served by Fulton County. So a few years ago the area incorporated. And, to fend off all the problems associated with the ‘do-it-all-ourselves’ mentality, the city didn’t hire on a huge staff of civil servants. Instead, it contracted out the bulk of those services in chunks. Now, the roads get paved and the streets are cleaned and the waste is removed better as well as cheaper than ever. Reason Foundation, a think tank known for its privatization emphasis, has been on the story from the beginning. A 2005 appraisal predicted that the town would become a ‘model city.’ That prophecy seems to have been on the money, and a Reason TV video emphasizes this with the shocking fact that the town ‘has no long-term liabilities.’ As the rest of the nation’s cities, counties and states lurch into insolvency, Sandy Springs shows a way out.” … The City of Wichita has had success in outsourcing the mowing of parks. Currently, the city has several dozen pieces of commercial mowing equipment at auction.

    States’ war for jobs. Bloomberg Businesweek: “State and local governments eager to recover some of the more than 8 million jobs lost during the recession are giving away $70 billion in annual subsidies to companies, according to calculations by Kenneth Thomas, a political scientist at the University of Missouri-St. Louis. States have long relied on fiscal incentives to lure businesses, or keep existing employers from decamping to other locales. Such largesse is coming under renewed scrutiny during this time of strapped budgets. State deficits could reach a combined $112 billion in the fiscal year starting July 1. ‘The tragic irony of it is that in order to pay for these things, they’re cutting other areas that really are the building blocks of jobs and economic growth,’ says Jon Shure, director of state fiscal strategies for the Washington-based Center on Budget and Policy Priorities. … With the national unemployment rate at 8.8 percent, the threat of a company pulling up stakes is enough to open states’ wallets. ‘States and communities are afraid to play chicken,’ says Jeff Finkle, who heads the International Economic Development Council. … Kansas has offered movie theater chain AMC Entertainment a generous incentives package to move away from Kansas City, Mo., The New York Times reported in April. Officials in Missouri are considering making a counteroffer. Neither the company nor state officials would comment. The bidding war helped prompt an Apr. 5 letter signed by 17 corporate executives asking the governors of the two states to quit offering inducements to lure businesses across state lines. ‘At a time of severe fiscal constraint the effect to the states is that one state loses tax revenue, while the other forgives it,’ the letter said. ‘The only real winner is the business who is ‘incentive shopping’ to reduce costs.’” … Governor Brownback’s economic development plan speaks of “A more uniform business tax policy that treats all businesses equally rather than the current set of rules and laws that give great benefit to a few (through heavily bureaucratic programs) and zero benefit to many.” It will be a while before we know if the state is able to stick to this plan.

    Shale gas to be topic in Wichita. This Friday (may 6) the Wichita Pachyderm Club features Malcolm C. Harris, Sr., Ph.D., Professor of Finance, Division of Business and Information Technology, Friends University, speaking on the topic: “Shale gas: Our energy future?” Harris also blogs at Mammon Among Friends. … “Shale gas” refers to a relatively new method of extracting natural gas, as reported in the Wall Street Journal: “We’ve always known the potential of shale; we just didn’t have the technology to get to it at a low enough cost. Now new techniques have driven down the price tag — and set the stage for shale gas to become what will be the game-changing resource of the decade. I have been studying the energy markets for 30 years, and I am convinced that shale gas will revolutionize the industry — and change the world — in the coming decades. It will prevent the rise of any new cartels. It will alter geopolitics. And it will slow the transition to renewable energy.” … Critics like the Center for American Progress warn of the dangers: “The process, which involves injecting huge volumes of water mixed with sand and chemicals deep underground to fracture rock formations and release trapped gas, is becoming increasingly controversial, with concerns about possible contamination of underground drinking water supplies alongside revelations of surface water contamination by the wastewater that is a byproduct of drilling.”

    Economics in one lesson this Monday. On Monday (May 9), four videos based on Henry Hazlitt’s classic work Economics in One Lesson will be shown in Wichita. The four topics included in Monday’s presentation will be The Curse of Machinery, Disbanding Troops & Bureaucrats, Who’s “Protected” by Tariffs?, and “Parity” Prices. The event is Monday (May 9) at 7:00 pm to 8:30 pm at the Lionel D. Alford Library located at 3447 S. Meridian in Wichita. The library is just north of the I-235 exit on Meridian. The event’s sponsor is Americans for Prosperity, Kansas. For more information on this event contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415.

    Voters favor cuts, not tax increases to balance budget. “A survey of Kansas voters conducted on behalf of the Kansas Chamber of Commerce found widespread support for cutting spending rather than raising taxes as the way to balance the Kansas budget. Support was also found for cutting state worker salaries, or reducing the number of state employees.” More at Kansas Chamber finds voters favor cuts, not tax increases to balance budget.

    Here’s the Kansas data. “KansasOpenGov.org provides a repository of data about Kansas state and local governments, giving citizens the data they need to hold officials accountable.” More at Kansas OpenGov: Here’s the Kansas data.

  • Leading index for Kansas economy improves, but lags behind peers

    For the second month in a row, an indicator of future economic growth in Kansas has improved, but the index is below the national value and values for surrounding states.

    Kansas leading economic indicatorKansas leading economic index.

    KSSLIND is the leading index for Kansas, which predicts the six-month growth rate of the state’s coincident index. According to its creator, the Federal Reserve Bank of Philadelphia, in addition to the coincident index, “the models include other variables that lead the economy: state-level housing permits (1 to 4 units), state initial unemployment insurance claims, delivery times from the Institute for Supply Management (ISM) manufacturing survey, and the interest rate spread between the 10-year Treasury bond and the 3-month Treasury bill.”

    This index, which is again a leading indicator with a six-month time lag, has lately hovered around zero. The average value for the index for the last six months is 0.04. Positive values mean the coincident index is expected to rise, while negative values mean it is expected to fall.

    The coincident index includes four indicators, according to its creators: nonfarm payroll employment, the unemployment rate, average hours worked in manufacturing, and wages and salaries.

    Kansas compared to others

    Comparing the value for Kansas to that for the nation as a whole and surrounding states plus Iowa, we see a troubling trend emerge. The value for Kansas, shown in the bold black line, had been right in the middle of the values for these other entities. But about a year ago the value for Kansas began to be lower than these peer values. While generally following the same trend, the fact that Kansas’ value is lower than the others means that the near-term economic outlook for our state — while improving — is not as good as for the other states that appear on the chart, and for the nation as a whole.

    Kansas leading economic indicator compared to othersKansas leading economic index compared to others.

  • Kansas and Wichita quick takes: Thursday April 21, 2011

    Can anything Think Progress says about the Kochs be believed? Mark Tapscott, Washington Examiner Beltway Confidential: “Almost certainly not, to answer the question posed by the headline above. Here’s the latest example of why. Think Progress is all atwitter about a Nation magazine report concerning the Koch Industries 2010 Election Packet. This dastardly document, according to Think Progress, was “mailed to 50,000 employees instructing them on who to vote for in the 2010 midterm elections.” Curious, I clicked over to the Nation and read the cover letter in the packet. Here’s what it said about how Koch employees should decide for whom to vote: “For most of you, we’ve also enclosed a listing of candidates supported by Koch companies and KOCHPAC, the political action committee for Koch companies. Of course, deciding who to vote for is a decision that is yours and yours alone, based on factors important to you. (emphasis added)” … At RedState, Erick Erickson contrasts the behavior of unions: “Think Progress and Lee Fang love them some unions. And what do unions do? Unions send out fliers encouraging union members to vote for union backed candidates. Hell, unions even get union members to go door to door for candidates and give union dues to candidates — something KOCHPAC cannot do with all employees, just executives. Additionally, unions will often bus employees to the polls and have a poll monitor watch to make sure the union members have voted. Koch Industries does not do that. But here’s where the real intellectual dishonesty or stupidity come in. Lee Fang and Think Progress support card check. They want unions to be able to stand over a business’s employees and find out whether or not the employee has signed a card to unionize and, if not, intimidate and cajole the employee until he does (not that Think Progress or Lee Fang are on record supporting that last bit).” … Lee Fang is apparently assigned full time to digging up dirt on Charles and David Koch, and Fang’s reporting has been found to be unreliable and misinformed.

    Kansas governor on first 100 days. In a press release, Kansas Governor Sam Brownback listed some accomplishments of the first 100 days of his administration. Highlights mentioned were: “First Month Commitments” in the Governor’s Road Map for Kansas accomplished, including releasing a Strategic Economic Development Plan and establishing the Office of the Repealer. … Six Executive Reorganization Orders designed to restructure state government to become law on July 1, 2011 to increase efficiency, restructure government, and cut overhead costs. … Numerous Road Map for Kansas goals achieved through bi-partisan-supported legislation signed into law including the “Rural Opportunity Zones” bill, several deregulation bills, two pro-life bills, a voter ID bill, and a workers compensation reform bill. … On challenges ahead, the Governor said: “I am pleased with what we have accomplished in our first 100 days but our state continues to face a multitude of fiscal challenges that need to be addressed. More than 100,000 Kansans are still out of work. This administration will continue to focus on building a pro-growth environment that includes allowing businesses of all sizes to expense their investments and abolishing burdensome regulations to protect Kansans and encourage job creation.”

    Freeloaders come in all types. Recently John Stossel had an hour-long special show that focused on freeloaders. The show is now available on the free hulu service by clicking on Stossel: Freeloaders. The freeloaders Stossel profiles are not just panhandlers, although Stossel did work in disguise as a panhandler and discovered he could make over $90 a day — tax free, he added. One segment of the show uncovered farmers who received $50,000 because they were discriminated against by lenders. But — some of these farmers merely grew potted plants or fertilized their lawn to qualify as a farmer. Another reported on homeowners who stopped paying their mortgages on advice of a website. The homeowners and the website operator said there is no moral obligation to pay their mortgage loans. Corporate freeloaders didn’t escape, as General Electric was mentioned as a large recipient of government handouts. And, they won’t pay taxes: “Despite billions in profit, they’ll pay no taxes this year,” reported Stossel. … The severe poverty of American Indian tribes that live on government-managed reservations and living on government handouts is contrasted with a tribe that accepts no handouts and has no casinos. … Stossel covered his own beach house, which was covered by low-cost subsidized federal fund insurance. It suffered losses twice. … Standing in front of the U.S. Capitol, Stossel said “We rich people freeload off you taxpayers all the time, because the over-promisers in there keep churning out special deals for politically-favored groups. And they tend to be rich people, because the rich can afford lobbyists. … Think about how much money we could save if these guys just didn’t pass so many laws that encourage freeloading. But they do, year after year. They micromanage life with subsidies. And the winners are not so much the needy, but people like Bon Jovi, Ted Turner, Maurice Wilder, and — me. So let’s hope for an end to all this freeloading.”

    Are taxes the solution? From Bankrupting America: “It’s Tax Day 2011! And while it isn’t the most pleasant thing to think about, it doesn’t sting as bad as when you consider we’re $14 trillion in debt and face a $1.6 trillion deficit. So what got us into this mess? We’ve had an unfortunate habit of spending far more than we can afford — and have been doing it for years. The logical solution is to … well … stop doing that. But some have suggested we should tax our way out of the hole. Beyond the question of whether we should, there’s a more important question: can we?” … The site has an interesting infographic relating to taxes.

    The spontaneous society — centralized planning not required. In the following excerpt from Austrian Economics — A Primer Eamonn Butler explains that we don’t need centralized government planning in order to have great human accomplishment. Also, markets process far more information than any central planner could: Many people find it hard to believe that a society or an economy could survive — much less create and distribute wealth in any organised and rational way — without central planning and authority. Hayek has provided the explanation, however: the liberal human society and economy is, he says, an example of a spontaneous order. Just because something is not planned from the centre does not mean that it is wild, unkempt, random and disorderly, he points out. Societies of bees and termites are very orderly, but they are hardly planned. Human language, similarly, was never “invented”, but evolved, and grew and survived because it is useful. … The market and the price system, similarly, was never planned, but evolved as people exchanged different goods. Nor do they need any central command structure to maintain them: they have survived and expanded because they deliver such enormous benefit to us. In other words, there is a great deal of wisdom in these institutions, despite the fact that they have never been consciously designed and planned. The price system, for example, quickly and efficiently steers resources to their highest value uses, without anyone ever having deliberately invented it. The fact that there is no central planning does not mean that it is “unplanned” and irrational. We are all planners, says Hayek, in that we consciously act in order to satisfy our ambitions with the materials and information that are available to us. In the market order there is in fact far more planning taking place, and far more information being used and acted upon, than could ever be achieved by the single mind of any central authority. … In the case of the liberal market order, the rules are principles like the respect for private property and the right to hold or dispose of it, the rejection of violence and coercion, the freedom of people to enter into voluntary contracts, and the honouring of such contractual promises. Astonishingly, a few simple liberal rules such as these are sufficient to create what Rothbard calls an “awe-inspiring” harmony and co-ordination between individuals, and a precise, swift arrangement to guide resources to the greatest possible satisfaction of consumers’ desires.

  • Wichitans mislead on Warren IMAX incentives

    Wichita theater operator Bill Warren may build an IMAX theater in Oklahoma using economic development incentives. The Wichita Business Journal reports that Warren has been offered a sales tax rebate program there as an incentive.

    This is newsworthy because last year Warren received economic development incentives from the City of Wichita based partly on the uniqueness of the proposed theater in the region. At that time Wichita city officials said the Wichita theater would be a “major tourism attraction,” drawing from as far away as Texas. But with another Warren IMAX possibly being built near Oklahoma City, I think we can now acknowledge that we were mislead.

    When Warren applied to the Wichita City Council for favored tax treatment for this theater, he implied that without the city’s largesse, he’d take his IMAX theater elsewhere. In his remarks at the council meeting where the tax favoritism was approved, Wichita Mayor Carl Brewer bought into the myth that there can be only one Warren IMAX theater when he said: “A lot of other cities want this IMAX … they’re on the internet watching this city council meeting to see what we’re going to do because they’re going to make a bid for this IMAX.”

    Evidently Mayor Brewer didn’t consider that there could be more than one IMAX theater in the region.

    This entire episode is more evidence that the Wichita City Council will believe almost anything told to them, as long as it involves the possibility of economic development and jobs.

  • Kansas Bioscience Authority, protected

    This year the Kansas Bioscience Authority has come under scrutiny for a variety of reasons, including salaries, bonuses, and expenses paid by the authority. Especially troubling is revelation that money we all thought would be invested in Kansas businesses had no such requirement, as can be seen in this video of CEO Tom Thornton. Dion Lefler of the Wichita Eagle has other reporting on the KBA.

    The problem with public-private partnerships like the KBA is that they are, in one sense, expected to operate like a private business, but they don’t have the freedom to operate as such. They also don’t have the same motivations and incentives that guide true private enterprise, namely profit and loss. Instead, we see agencies like KBA reporting their impact in terms of “return on investment.” For example, KBA claims: “Including estimated wages of jobs, that represents a $9.41 return to the state’s economy for each $1 invested by the KBA!” This “investment” by the KBA is nothing like the investments that business and individuals make.

    There’s also the issue of covering for the KBA by leadership of the Kansas Senate, specifically Steve Morris and John Vratil, as Alan Cobb details below.

    Kansas Senate Leadership needs to answer for KBA protection

    By Alan Cobb, Americans for Prosperity

    First the good news.

    Kansas Bioscience Authority (KBA) CEO Tom Thornton resigned under pressure today.

    Much credit goes to Gov. Sam Brownback and especially Sen. Susan Wagle who brought to public attention a slew of conflict of interest and other inappropriate behavior by Thornton and others at the KBA.

    It is of little surprise the Johnson County District Attorney’s office is investigating the KBA. Wagle is totally vindicated and Kansas taxpayers owe her a big debt of gratitude.

    Now the bad news.

    From what we know so far, what’s happened at the KBA is a textbook case of what not to do at a public agency.

    Thornton’s wife was receiving a $107,000 salary as an administrative assistant. The state of Kansas paid for a $1 million life insurance policy for Thornton’s ex-wife. The KBA invested $50 million to venture firms out of state with little oversight. The KBA invested in companies whose executives couldn’t be located by state officials. Many people in the know said an investigation of KBA and Thornton was “long overdue” and the KBA offices in Olathe were a “shrine” to Thornton.

    And this is someone being praised and protected key members of Senate Leadership, President Steve Morris and John Vratil? Just last month Morris said he was 100 percent behind the ousted KBA leader. Morris recently said that the KBA was an “icon for the state.”

    What planet do these guys live on?

    Vratil and Morris sat in the hearings conducted by Wagle, certainly as a show of support for Thornton and for disdain for Wagle and much-needed oversight of KBA.

    The protection given Thornton by Senate leadership even after his resignation today is astonishing.

    The question is what else is being hidden and why are Morris and Vratil so willing to fall on their swords for Thornton and his corrupt behavior?

    That’s the 800-pound rat in the middle of the room that’s eaten some bad Danish cheese.

    Kansans are waiting are waiting for answers.