Voice For Liberty

Tag: Economic development

  • Kansas and Wichita quick takes: Tuesday October 12, 2010

    Wichita Visioneers in Louisville. The Wichita Business Journal’s Emily Behlmann reports on a trip by Wichitans to Louisville to get ideas on transforming Wichita’s downtown. Hopefully they won’t get this idea, as reported yesterday by the Louisville Courier-Journal: “The heavily subsidized 4th Street Live entertainment district has come under criticism from locally owned businesses for receiving millions of dollars in tax breaks and government subsidies — including a controversial, $950,000 city loan that won’t necessarily have to be repaid.” According to Wichita planner Goody Clancy, heavy subsidy isn’t supposed to be necessary in Wichita. And, I hope all the planners read Jack Cashill’s take on Louisville’s planning: Good intentions, and planners, can sap a city’s soul.

    Lynn Jenkins: Don’t try to make Koch Industries a scapegoat. From today’s Wichita Eagle: “Koch management is dedicated to keeping the company growing. It reinvests 90 percent of company profits back into the businesses, allowing them to expand product lines and hire more employees. That is good for consumers and for workers. However, the company has come under fire because its owners support free-market principles inconsistent with the current Democrat leadership.”

    Should candidates bother to debate? Rasmussen finds that nearly half of likely voters have watched at least one debate, and about half find them informative.

    Costly approach to Kansas economic development — or defense. “Insiders were still not talking Wednesday about the potential cost of saving 6,000 aircraft workers’ jobs in Wichita. Outsiders say that some circumstances at their employer, Hawker Beechcraft, are so different from other companies Kansas has fought to keep that it may be impossible to gauge what it might cost to help prevent the 80-year-old Wichita firm from moving lock, stock and avionics to Baton Rouge, La., and cashing in on Louisiana incentive packages rumored to be worth as much as $400 million.” From Kansas Reporter.

    FiveThirtyEight. More about the political site FiveThirtyEight, which I took a look at on Sunday, especially its coverage of Kansas races. Here, James Taranto discusses FiveThirtyEight, concluding: “The recent acquisition of Nate Silver’s FiveThirtyEight.com makes for a striking contrast with the paper’s uneven news reporting and dreadful op-ed columnists.”

    No Wichita city council today. It’s the League of Kansas Municipalities conference in Overland Park this week. LKM is a special interest group working in favor not of the citizens who live in Kansas towns and cities, but the politicians and bureaucrats that run them — and their cronies — who benefit from the LKM’s advocacy of things like TIF districts, STAR bonds, tax abatements, and eminent domain for economic development.

    County commissioner forum tonight. Tonight at 7:00 pm at Gloria dei Lutheran Church, 1101 N. River Blvd. Oletha Faust-Goudeau and Richard Ranzau will appear.

    Parkinson is moderate — he says again. Kansas Governor Mark Parkinson — yet again — engages in self-congratulation over “how Kansas has weathered the economic recession by setting politics aside and working together to find moderate, common-sense solutions.” He’s done this several times since the legislative session was over — so many times that I’ve lost count. Evidence of a guilty conscience, perhaps? Parkinson’s abandonment of the Kansas Democratic Party by not choosing to run for reelection has put that party at a tremendous disadvantage in this year’s elections.

    Bureaucracy vs. Bureaucracy? “Andrew Gray, Libertarian Candidate for Kansas Governor, says that simplifying or repealing unnecessary statutes and regulations is a key part of his administration’s plan to empower the private sector to create jobs and prosperity in Kansas. He also says he’s pleased that Senator Brownback is at least talking about similar actions. However, Gray finds it ridiculous that Senator Brownback is actually planning to create more bureaucracy in order to cut bureaucracy.” I think he’s got a point. But anything that is necessary to reduce the size of government is what we need to do.

    The impossibility of an informed electorate. D.W. MacKenzie writing for Mises Daily, reacting to a John Stossel suggestion that uninformed people have a duty not to vote: “The problem with voting in modern America is that we have a politicized society, and modern society is extraordinarily complex. Stossel suggests that only people who follow politics should vote. However, even those who follow politics very closely do not understand the implications of changes in public policy. The lesson here is that efforts to incrementally reform government policies and programs through the democratic process are futile. To the extent that we vote at all, rational people should vote to depoliticize the economy. … What this means is that we need to reintroduce the price system as the primary method of economic communication, and the profit-and-loss sorting mechanism as the primary method of social reform.”

    Gallup: Americans negative towards federal government. “More than 7 in 10 Americans use a word or phrase that is clearly negative when providing a top-of-mind reaction to the federal government.” Details here: Americans’ Image of “Federal Government” Mostly Negative.

    A minority opinion, or a delusion? Paul Krugman in the New York Times: “Here’s the narrative you hear everywhere: President Obama has presided over a huge expansion of government, but unemployment has remained high. And this proves that government spending can’t create jobs. Here’s what you need to know: The whole story is a myth. There never was a big expansion of government spending. In fact, that has been the key problem with economic policy in the Obama years: we never had the kind of fiscal expansion that might have created the millions of jobs we need.”

  • In Wichita Planeview neighborhood: Yes, we have!

    Developers of a proposed Save-A-Lot grocery store in Wichita’s Planeview neighborhood have made the case that without two forms of subsidy, the store won’t be profitable and won’t be built.

    There is a counterexample, however. On Hillside, just south of Pawnee and just across the street from Planeview, sit two grocery stores that together occupy 13,000 square feet of space. This is close in size to the proposed Save-A-Lot store’s 16,500 square feet.

    While the developer says the Save-A-Lot store can’t be profitable without over $800,000 of taxpayer subsidy, the existence of these grocers proves that it can be done. They are in business, earning a profit, and doing so without government subsidy. The City of Wichita, apparently, is not aware of these success stories, or doesn’t care.

    Reviewing the September 14th meeting of the Wichita City Council gives us an idea of how little the city cares how its actions affect existing business.

    At that meeting, Rob Snyder, developer of the proposed Save-A-Lot store, said he has “researched every possible way” to make the project work. Without the subsidy, he said, there won’t be a grocery store. But the existence of several grocery stores in or near Planeview, operating profitably without government subsidy, shows that Snyder’s claims are false.

    I’m not claiming that Snyder intentionally lied to the city council about the necessity of subsidy for his store. But he has an $800,000 motive to get the council to approve his subsidy. And there’s evidence that corporate welfare like what Snyder requests is not necessary to open and operate a successful grocery store in this part of Wichita.

    During his talk to the council, it became apparent that Snyder thinks corporate welfare is a wise business and political strategy. Snyder lamented the fact that earmarks are now unpopular with the American public and not available to finance his proposed grocery store. An earmark — that is to say, a grant of money paid for by U.S. taxpayers — was used as a large part of the financing for the other Save-A-Lot in Wichita at 13th and Grove. An article by James Arbertha tells of the roll earmarks played in the opening of that store.

    While it may be necessary for Snyder’s store to be propped up by taxpayer subsidy, citizen Wendy Aylworth told council members of the several grocery stores already operating in the Planeview area. Mayor Carl Brewer appeared surprised to learn of these stores and asked Aylworth for their locations.

    The mayor’s surprise is evidence that the city simply does not care about the impact of its corporate welfare policies on existing business. Several people have pointed out to me that these existing stores — with the exception of one large supermarket — are ethnic grocers, although most carry a wide variety of food and household items.

    Is the CID tax necessary?

    One of the issues relating to CIDs is their very necessity. If a business feels it needs to generate additional revenue, why not simply raise its prices? Why is it necessary to have the government collect taxes in order to generate additional revenue for the merchants in the CID?

    Ron Rhodes, who developed the existing Save-A-Lot store in Wichita, addressed the Wichita city council that day. Rhodes referred to the “people who have ability to pay” an extra sales tax, and those who don’t have the ability to pay. Listening to him I couldn’t help be reminded of another slogan: “From each according to his ability, to each according to his needs.”

    Rhodes also spoke of neighborhood pride. But how proud can a neighborhood be when merchants have to rely on corporate welfare to open a store there?

    In later questioning, Rhodes said that a Save-A-Lot store can’t raise its prices due to a “price deck” policy that says that most prices should be uniform in Save-A-Lot stores. This is an internal business policy of Save-A-Lot that should not bind the City of Wichita. It is not relevant to the formation of public policy in Wichita.

    The issue of tax increment financing

    At the same meeting, Greg Ferris, a lobbyist for Snyder, told the council that “there will not be a building on that corner if this is not passed today. There will not be any tax revenue, so we are not taking away any tax money away from schools, police, fire, etc.” He said we have “spent months” trying to figure out how to finance a project in that area. He said that “a grocery store is not going to move into the Planeview area to service those people,” alluding to how a grocery store did not move to the 13th and Grove area until the city subsidized it.

    Ferris contended that there is no city tax money going in to this project that is taken from something else.

    While presenting himself as speaking for the public interest, Ferris is a hired lobbyist for Snyder, the developer of the proposed grocery store. He is being paid to present Snyder’s interests, and those alone. He invokes the standard argument of those seeking corporate welfare through tax increment financing: the “but for” argument. This is the claim that without the benefit of the TIF district, nothing will happen.

    It may be true that without the corporate welfare provided by the TIF district and the CID, Snyder won’t develop the Save-A-Lot store. But that doesn’t mean that it is not possible to run a successful grocery store in that part of town, as we have evidence that it is.

    Ferris’ claim that no tax money from something else will go into this project is false, too. Will the Save-A-Lot store pledge to forgo the use of police, fire, and other city services? As this store wants to escape paying the same taxes that others have to pay, the rest of Wichita has to pay to provide services that Snyder doesn’t want to pay for.

    TIF is not a wise policy. Research on tax increment financing indicates that TIF is a zero-sum game. When someone wins, others lose an equal amount. TIF does not increase the total amount of development that takes place in a city. It simply transfers development from one part of the region to another. This intervention by government may actually decrease the amount of development in a city.

    In the case of Snyder and Ferris, the city’s actions in favoring a politically-connected developer and lobbyist with taxpayer-funded welfare may result in small ethnic grocers and one large established supermarket going out of business. How is this progress?

    The moral hazard

    In visiting with the owner of the large building and one of the grocery stores on Hillside, I asked him if he sought government assistance when developing that property. He answered no, that he didn’t know — speaking in his broken English — “where to dig the money” at that time.

    Now he knows to get a shovel.

    This creates an increasing cycle of dependence on government, particularly Wichita city government, for managing economic development. Entrepreneurship is replaced by bureaucracy and politics, not only for the revitalization of downtown Wichita, but across the city too.

  • Drury request for more Broadview Hotel subsidy should be rejected

    Tomorrow’s meeting of the Wichita City Council features a public hearing on the creation of a Community Improvement District to benefit Drury Southwest, developer of the Broadview Hotel in downtown Wichita.

    CIDs are a creation of the Kansas Legislature from the 2009 session. They allow merchants in a district to collect additional sales tax of up to two cents per dollar. The extra sales tax is used for the exclusive benefit of the CID.

    In this case, Drury is asking hotel guests — these are visitors to Wichita, usually — to pay an extra two cents per dollar sales tax. This CID is being constructed as “pay-as-you-go,” in which the extra sales tax is sent back to the applicant as it is collected.

    The agenda material for this item tells us that Drury suffered increased costs due to “delays to the project caused by legislative changes to the value of historic tax credits.” Last week I told the council how economic development management by government adds political uncertainty to the entrepreneurial process. The Broadview developers chose to operate in the political arena rather than the marketplace. They were hurt — they claim — and now they want politicians to make up for that.

    Drury has already received, or will receive, a huge amount of assistance from government for its work on the Broadview Hotel. Its participation in Kansas’ historic preservation tax credit program means a grant to the developers of perhaps $4 million. It is just as though the state wrote a check to Drury for that amount, and this is money that Kansas taxpayers have to make up.

    Further, Drury will escape paying much of the taxes that the rest of us have to pay. According to city information provided last week, Drury plans to spend $22,797,750 on the hotel. If we use this as the appraised value for the property when it is complete, the annual property taxes due for this property would be $22,797,750 times .25 times 126.323 divided by 1000, or $719,970. This calculation may be rough, but it gives us an idea of the annual operating subsidy being given to this hotel for the next ten years.

    Then, as part of the industrial revenue bond program this hotel is participating in, the hotel will avoid paying sales tax on purchases related to its renovation and furnishing. It’s a little ironic, then, that the hotel asks its guests to pay a special additional sales tax that benefits only the hotel.

    Finally, the city accelerated riverbank improvements that benefit the Broadview, and there’s a sweetheart sale by the city of a parking garage across the street.

    So this hotel is receiving plenty of subsidy from Wichita and Kansas taxpayers.

    Does Wichita trust its planners?

    This request by Drury for more Broadview Hotel subsidy poses a challenge to Wichita city council members. Goody Clancy, the firm that has been planning the revitalization of downtown Wichita, has proposed what seems to be a tougher stance towards government handouts to downtown developers. David Dixon, principal planner for Wichita’s planning effort, was reported in the Wichita Eagle thusly: “Dixon was clear: There will be enough private development downtown to repay taxpayers for the public investments through increases in the tax base.”

    In January’s preliminary findings, Goody Clancy told Wichita that there is a strong market for hotels in downtown Wichita. The final report states: “Downtown Wichita offers a strong potential for new lodging developments.” That implies that hotels ought to be profitable without requiring massive subsidy. But right after the preliminary finding, the city broke new ground in granting millions in subsidy to a hotel developer to build a Fairfield Inn downtown.

    The Goody Clancy plan has not yet been before the Wichita city council for formal acceptance. But most members, especially Mayor Carl Brewer, are enthusiastic about the plan.

    Tomorrow’s meeting and the action by the council will let us know if the city has the political will to take Goody Clancy’s findings and advice to heart.

  • Subsidy for Planeview Save-A-Lot grocery store bad for Wichita

    By John Todd

    I am troubled by what I see the Wichita city government doing to the owners of the Checkers Grocery store located near the Wichita Planeview neighborhood. At the public hearing before the Wichita City Council on September 14th, one of the Checkers owners testified that their grocery business has been serving the people of Planeview for many years. After listening to the owner’s testimony and listening to testimony presented by Planeview customers at the hearing, it appears obvious to me that the Checkers grocery store’s Planeview customer base is a vital part of their business.

    At the hearing, the Checkers owner expressed his opposition to the massive subsidy our city was offering the developer of the proposed Save-A-Lot grocery store in Planeview. His concern was the unfair economic advantage city government was creating for their competitor through the use of public funding programs.

    The total economic incentive package city officials were offering the Save-A-Lot project through tax increment financing (TIF) and Community Improvement Districts (CID) funding packages was $880,440 of total project cost of $2,083,430. That figure is in excess of 40 percent of the total project cost.

    I believe the Checkers grocery store owner’s concerns are valid, and the massive subsidy that the Wichita City Council has approved for their Save-A-Lot competitor is wrong. The council vote was 7 to 0 in favor of the subsidy with no consideration given by council members for Checkers or any other taxpaying grocery businesses that competes in the Wichita market.

    The CID funding program, as approved by the Wichita city council, allows the Save-A-Lot grocery store to charge an additional two cents per dollar sales tax. This extra sales tax is then given to the project developer. Under the guise of helping an economically “underserved” neighborhood, customers of the new Planeview Save-A-Lot grocery store will soon be paying 9.3 percent sales tax on their grocery purchases. This additional sales tax enriches the developer and punishes the residents of the Planeview neighborhood.

    The TIF funding program, also approved by the city council, diverts future real estate taxes into developers’ pocket instead of paying for police and fire protection and the schools that educate our children.

    The subsidy programs our city is offering the Planeview Save-A-Lot grocery project are great for the developer, but bad for competing businesses and their customers. They create an unfair advantage for other grocery stores and result in increased sales tax for the very residents it is intended to help. The grocery store will no doubt expect fire and police protection and the grocery store customers will want schools for their children. Yet, the store will not be paying anywhere near its fair share for these services, as it will continue to effectively pay the same property taxes as does a vacant lot. Perhaps these programs should be renamed “The Developer Relief Act!”

    Under TIF, the developer is the winner and the people that pay the city’s bills lose. In other words, one guy wins and the taxpaying public loses. The harm is that by exercising its power to choose winners and losers, government discourages the risk-takers that invest their own money in projects. The potential for abuse of government’s power to create winners and losers in the marketplace creates a sense of regulatory uncertainty.

    This uncertainty serves to keep private capital on the sidelines rather than being invested, as businessmen are justifiably concerned that the city may prop up a subsidized competitor in their same market. Not only do entrepreneurs have to contend with all the usual economic risks they face, they must also face political risk coming from Wichita City Hall. No one can plan ahead with this type of government involvement tampering with markets.

    Unfortunately, as is the case when government exercises its power to influence economic development outcomes, the hidden results of this intervention does more harm than good. Government mandated stimulus programs, even on the local level, are not good public policy.

    State law gives the Sedgwick County Commissionand USD 259 (the Wichita public school district) until October 14th to voice objection to the diversion of tax funds away from county services and schools and into the pocket of the Planeview Save-A-Lot grocery developer. I hope they exercise the check over local government’s abuse of local economic stimulus tools by voting to opt out the county taxpayer from the city’s abuse of their economic power. Sedgwick County commissioners need to step to the line and put a stop to this nonsense!

  • Economic incentives and corporate welfare in Wichita

    At a Wichita city council meeting, economic development incentives in the form of property tax abatements are discussed.

    News coverage: Council to vote on bridge and tax exemptions (Wichita Eagle), Council approves tax exemption for Leading Technology Composites (Wichita Eagle), Tax exemption approved for Leading Technology Composites (Wichita Business Journal).

  • Economic development planning in Wichita on tap

    Tuesday’s meeting of the Wichita City Council features four public hearings concerning Community Improvement Districts. One CID also will have a public hearing on its application for tax increment financing (TIF).

    CIDs are a creation of the Kansas Legislature from the 2009 session. They allow merchants in a district to collect additional sales tax of up to two cents per dollar. The extra sales tax is used for the exclusive benefit of the CID.

    Under tax increment financing (TIF), developers get to use their property taxes to pay for the same infrastructure (or other costs) that everyone else has to pay for. That’s because in TIF, the increment in property taxes are used to pay off bonds that were issued for the exclusive benefit of a development. Or, as in the case with a new form of TIF called pay-as-you-go, the increment in property taxes are simply given back to the developer. (Which leads to the question: why even pay at all?)

    The developments seeking this form of public financing include a grocery story in Plainview, a low-income and, according to the application, underserved area of town. Material on this hearing provided by the city is at Plainview Grocery Store CID and TIF in Wichita, Kansas.

    A second applicant asks to charge an extra one cent per dollar sales tax for Central Park Place, a proposed suburban shopping center. Read more here: Community Improvement District at Central Park Place, Wichita, Kansas.

    Then the developers of Bowllagio, a proposed bowling alley and entertainment district, will make their pitch to add two cents per dollar sales tax. Read more here: Community Improvement District for Bowllagio (Maize 54 Development).

    Finally, the developers of the downtown Wichita Broadview Hotel will ask to add two cents per dollar sales tax on purchases made by the hotel’s visitors. Read more here: Community Improvement District for Broadview Hotel, Wichita, Kansas.

    All of these applications should be turned down by the city council, and for a variety of reasons.

    For example, the goal of the Plainview grocery store is to serve a low-income area of town. To do that, however, the store will be charging its customers an extra $1 for every $50 spent. Supporters make the case that many of the potential customers presently shop at Quik-Trip, which is not an inexpensive store, so the city is really doing these people a favor. The developer makes the case that he’s just trying to do something for the community, giving back something.

    But if the developer really wants to do something for the community, he should agree to pay his share of property taxes like almost everyone else pays. That won’t happen, as most of the taxes he will pay will be routed right back to him through the TIF district.

    The extra sales tax is a consumer protection issue, both in the case of the Plainview grocery store and the suburban shopping center. Shoppers won’t have any idea that they’re going to be paying extra sales tax by shopping at these merchants until after they get their receipt. Most people probably won’t notice then.

    There are several council members who normally would be in favor of exposing greedy merchants who overcharge people, but they haven’t shown this concern so far regarding Community Improvement Districts.

    The Broadview hotel is already the recipient of potentially $4.75 million in Kansas historic preservation tax credits. Despite the name of the program, the tax credits are in effect a grant of money to the developers — the state might as well write the developers a check. The City of Wichita has also assisted the hotel in several ways. But now it’s back at the government trough asking for even more corporate welfare.

    We ought to ponder the wisdom of renovating this hotel if it can’t survive without so much government assistance. And having plowed so much into an economically unfeasible project, we can easily see sometime a few years down the road where owner Drury Hotels come to the city saying they can’t make a profit, and they need some other form of assistance.

    Having given so much already, the city won’t be able to turn down the request for a little more. It’s happened before.

    Even pointing out how the city works at cross-purposes with itself doesn’t impress the council. We spend millions every year subsidizing airlines so that airfares to Wichita are low. Then we turn around and add extra tax to visitors’ hotel bills, with Vice Mayor Jeff Longwell and the Wichita Eagle editorial board approving this as a wise strategy.

    People remember high taxes. I don’t think it’s a good strategy to establish high-tax districts designed to capture extra tax revenue from visitors to our city. A good strategy for Wichita to pursue would be to establish itself as a low-cost destination, but we’re going the other way.

    Then we must consider: does all this economic development planning work? The answer, emphatically, is: No. City leaders tell us that they do these things to grow Wichita’s economy. The activity of developers who seek subsidy like this is called, in economic terms, rent seeking, and city leaders encourage it. But evidence shows that rent seeking activity harms economic growth.

    It’s usually pretty good for the favored developers who receive such economic rents (subsidy). But it’s a bad deal for everyone else. It illustrates one of the primary problems with government taxation and spending. John Stossel explains:

    The Public Choice school of economics calls this the problem of concentrated benefits and dispersed costs. Individual members of relatively small interest groups stand to gain huge rewards when they lobby for government favors, but each taxpayer will pay only a tiny portion of the cost of any particular program, making opposition pointless.

    We see this in play nearly every week in Wichita as the city seeks to manage economic development. City leaders portray “success stories” (that’s when a company accepts subsidy from the city to build something) as evidence of people having faith in Wichita. Someone has confidence in Wichita because they’re investing here, they say.

    But I wonder why these people won’t invest in Wichita unless they receive millions of dollars through preferential tax treatment such as tax abatements, CID, TIF, STAR bonds, forgivable loans, and other forms of local corporate welfare.

    These preferential tax treatments increase the cost of government for everyone else in the city. That fuels the cycle of people coming to city council saying their plans are not feasible unless they receive tax breaks. This expanding role of Wichita in centralized economic planning is great if you’re a city hall bureaucrat like Wichita city manager Bob Layton and Wichita economic development director Allen Bell. It satisfies the incentives and motivations of bureaucrats. But it’s bad for economic freedom and the people of Wichita.

    Finally, perhaps the simplest public policy issue is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? Why the roundabout process of the state collecting extra sales tax, only to ship it back to the merchants in the CID?

  • Wichita economic development incentives to be topic of meeting

    This Thursday (September 9) Americans for Prosperity is holding a meeting to discuss a series of economic development incentives that will be considered in an upcoming meeting of the Wichita city council.

    John Todd of AFP says:

    “On Tuesday, September 14, 2010 the Wichita City Council will be considering the approval of several public economic development incentive programs for private development projects. The City Council meeting starts at 9:00 a.m. Copies of the council agenda detailing these projects is usually available online at Wichita.gov on the Friday prior to the Tuesday city council meeting.

    “The purpose of tonight’s meeting is to provide you with the opportunity to discuss and learn more about the incentives used by local government officials in economic development projects so that if you wish, you can get involved in the project vetting process as a more informed citizen.

    The meeting, which is open to the public, is from 7:00 pm to 8:30 pm on Thursday, September 9, 2010, at the Wichita Public Library Central Branch (Patio Meeting Room), at 223 S. Main, Wichita, Kansas 67202

    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.

  • For downtown Wichita, Mayor Brewer has a vision

    In Sunday’s Wichita Eagle, Wichita Mayor Carl Brewer penned a piece that states his belief in the importance of downtown and prepares the people of Wichita for the start of a prescriptive planning process, with accompanying subsidy to politically-favored developers willing to fulfill the plan.

    The mayor used the word “vibrant” twice. Asking citizens a question like “Would you like to have a vibrant downtown?” is meaningless. Who doesn’t? It’s only when the question is accompanied by context that citizens can start to understand how they should answer.

    For example, in the mayor’s article, he mentions the use of special assessment financing that funded suburban infrastructure, and that this is not sufficient for downtown needs. This statement reveals a misunderstanding by the mayor about the various forms of financing that might be used to help development.

    Special assessment financing means that the city spends money to build something, like the new street to serve a site where someone wants to build a house or a shopping center. The cost of this street, plus interest, is added to the property’s tax bill over a period of years. The property owner doesn’t get anything for free.

    But in the forms of financing that the mayor and city hall planners favor for downtown, developers do get something for free. Under tax increment financing (TIF), developers get to use their property taxes to pay for the same infrastructure that everyone else has to pay for. That’s because in TIF, the increment in property taxes are used to pay off bonds that were issued for the exclusive benefit of a development. Or, as in the case with a new form of TIF called pay-as-you-go, the increment in property taxes are simply given back to the developer. (Which leads to the question: why even pay at all?)

    Some deny that TIF directly enriches the developer. They’ll make arguments such as “it’s only used for infrastructure and eligible expenses” or “it’s not lending, it’s bonding” or “it wouldn’t happen but for TIF” or the biggest lie: TIF doesn’t have any cost. But despite these claims, TIF has a cost, and it does directly enrich the developer. That’s its entire purpose; its reason for being. If TIF didn’t enrich the developer, how does it change something that is claimed to be not economically feasible into something that is?

    While city leaders say that public participation in the revitalization of downtown is to be limited, we should be cautious and skeptical. Goody Clancy planners have said that public participation will be limited to TIF. This is bad in its own right and should be opposed on its merits.

    We need to be skeptical of the mayor and downtown planners because there isn’t enough TIF money available to do what they want to do. I fully expect a citywide sales tax, probably in the amount of one cent per dollar, to be proposed for the benefit of downtown subsidized developers. City leaders speak fondly of such a tax that Oklahoma City has used for many years.

    City leaders have already shown themselves to be not averse to imposing additional sales taxes in Wichitans and our visitors, having granted several Community Improvement Districts the ability to charge up to an additional two cents per dollar sales tax. This means that when visitors check out of the Fairfield Inn in downtown Wichita, they’ll be faced with a sales tax rate of 9.3 percent. That’s in addition to the six percent guest tax, which in the case of this hotel is collected for the exclusive benefit of itself, rather than funding general government and tourism activities.

    More community improvement districts are in the works. Wichita may soon be peppered with them.

    No faith in free markets means no faith in people

    The unwillingness of Wichita city leaders to let Wichitans freely decide where they live, and Wichita businesses freely decide where to locate, is a sign of lack of confidence in free markets and the people of Wichita. Because Wichitans do not choose to live and locate their business firms where politicians like Carl Brewer and Janet Miller — to name just two — and city hall bureaucrats like Wichita city manager Bob Layton and Wichita economic development director Allen Bell want them to, they deliver a slap in the face. It appears in the form of a vision backed up by planning, regulation, and the power to dish out favorable tax treatment, as outlined above.

    Once formed, a vision is a powerful force. Randal O’Toole, author of The Best-Laid Plans: How Government Planning Harms Your Quality of Life, Your Pocketbook, and Your Future has written about visionaries and government planning:

    The worst thing about having a vision is that it confers upon the visionary a moral absolutism: only highly prescriptive regulation can ensure that the vision overcomes an uncaring populace responding to a free market that planners do not really trust. But the more prescriptive the plan, the more likely it is that the plan will be wrong, and such errors will prove extremely costly for the city or region that tries to implement the plan.

    An example of planning that many see as having gone wrong is the government planning that led to growth on the city’s fringes. An example that helped make this possible is the government’s decision to build the northeast expressway also known as K-96. Acts of government like this are claimed to have caused the demise of downtown, the very situation that planners now want to correct.

    With government making “mistakes” (their claim, not mine) like this on a grand scale, why are we willing to trust that politicians and bureaucrats are making correct decisions now? Especially when you look at the campaign finance reports of most city council members and see the same names giving repeatedly to all council members, with these same names appearing repeatedly before the council asking for their subsidy. This is not a decision making process that gives citizens confidence.

    It bears repeating: the existence of the downtown planning process tells Wichitans they’ve made a mistake in where they chose to buy a home or build a business. Not only will Wichitans have to pay for what they freely chose, they’re going to be asked to pay again so that those with purportedly superior vision can have their way.

  • Kansas airports and their economic impact

    Last week’s release by the Kansas Department of Transportation of a study of the economic impact of Kansas airports caused quite a stir, with newspapers such as the Los Angeles Times (at least its online version) carrying the Associated Press coverage.

    Perhaps the reason so many distant newspapers were interested in the story is the sensationally large economic impact figures reported. The number of jobs purported to airports is large, by any standard.

    But there’s a problem with these numbers. They’re similar to sensational claims made a few years ago when the case for subsidizing airlines in Wichita was made. Those figures were bogus. So are these.

    The staggeringly large figures come from two aspects of the study. First, the study counts the economic activity from businesses near the airport as attributable to the airport. In the case of the Wichita airport, this means that the employees of Cessna and Bombardier Learjet, and all the economic activity these companies produce, is credited as economic impact of the airport.

    This economic sleight-of-hand allows the study to attribute 22,313 jobs to the Wichita airport. The total economic impact of the Wichita airport is reported as $4.7 billion.

    All these employees don’t work for the airport. Almost all of them work at business firms located near the airport. But the study doesn’t really make that distinction. And when you do things like this, you can really pump up some inflated figures.

    It is a convenient circumstance that these two manufacturers happen to be located near the airport. To credit the airport with the economic impact of these companies — as though the airport was involved in the actual manufacture of airplanes instead of providing an incidental (but important) service — is to grossly overstate the airport’s role and its economic importance.

    A second problem is the study’s use of economic impact multipliers to pump up the figures. A multiplier reflects the fact that money spent at, say an airport, get spent again. Proponents of multipliers forget that money spent elsewhere get multiplied too. In fact, money that is saved and invested get multiplied, too.

    These two factors inspired the Associated Press reporter to lead off a story with “Airports in Kansas support more than 47,000 jobs, generate $2.3 billion in payroll and have an annual economic impact of $10.4 billion …” With numbers so big, you can see why news editors in far-away cities might run the story.

    There’s another problem: these studies usually assume that all the activity is the responsibility of the entity being promoted, that none of it would have happened without the celebrated entity, and that since (usually) the promoted entities are government-owned, all this is evidence of the goodness of government.

    Another problem is that these economic impact figures get used several times to support various government subsidies to business. Here we have the airport claiming two aircraft manufacturing companies’ employees and their economic impact as the product of the airport.

    But when these companies want corporate welfare from the Kansas state government, the economic impact of the companies and their employees will be cited as justification. Politicians, bureaucrats, and the public will believe their case.

    Then, the same numbers might be cited again at Wichita city hall, and maybe before the Sedgwick County Commission as the company makes its case for industrial revenue bonds, tax abatements, forgivable loans, and other forms of local corporate welfare.

    But this economic impact can’t be recycled like this. It exists only once. If the Wichita airport claims it, then it can’t be used again to justify some other program or request.

    Another way the study leaps beyond credibility is its inclusion of the Beech Factory Airport in east Wichita. This is an airport without commercial air service. It exists solely for the convenience of Hawker Beechcraft, and is undoubtedly a necessary component of the capital plant needed to manufacture airplanes.

    The study, however, mixes this airport in with all other Kansas airports, so this airport’s claimed $1.8 billion in economic impact is treated the same as any other Kansas airport. But regular people can’t catch a flight at this airport.

    When government officials use stretched and inflated figures like these, they diminish their credibility. The Kansas Department of Transportation already snowed the Kansas public earlier this year with their claims of the need for huge spending on Kansas roads and highways.

    Now they’re at it again, with claims that simply make no economic sense at all. The fact that news media laps up these figures without any skepticism or critical thought doesn’t help.

    Does this mean that Kansas and its local government shouldn’t offer airports and businesses like aircraft manufacturers help from the public treasury? That’s a different question for a different day.

    Today, however, we need to realize that accurate, reasonable, and believable information about Kansas airports and other transportation infrastructure isn’t available from the Kansas Department of Transportation.