The interactive chart is available from FRED (Federal Reserve Bank of St. Louis) here.
Sources:
For 2017, the Kansas economy shrank, and just two states performed worse.
In 2017, the Kansas economy contracted by 0.1 percent in real (inflation-adjusted) dollars from 2016, according to statistics released today by Bureau of Economic Analysis, a division of the United States Department of Commerce. 1
This put Kansas in 48th position among the states, with only Connecticut and Louisiana posting lower numbers.
For the fourth quarter of 2017, Kansas GDP grew at an annual rate of 2.3 percent, slowing slightly from the third quarter rate of 3.8 percent. The rates of -6.1 percent and -0.3 percent in the first two quarters kept the state from showing overall growth in economic output for the year.
The nearby table shows change in GDP by industry, for Kansas, the nation, Plains states, and some comparison states.
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The unemployment rate in the Wichita metropolitan area fell. So too did the number of jobs.
Today the Bureau of Labor Statistics released employment statistics for metropolitan areas through March 2018. These are numbers that are not seasonally adjusted, so it’s not very useful to compare any month with the month before. But it is appropriate to compare a month with the same month of the prior year.
The good news, sort of: The unemployment rate for the Wichita metro area declined to 3.9 percent in March 2018, down from 4.2 percent in March 2017. The number of unemployed persons also declined by 8.3 percent for the same period.
These numbers should be good news. But these two statistics don’t exist in a vacuum. Specifically, the unemployment rate is the ratio of the number of unemployed persons to the labor force. While the number of unemployed persons fell, so too did the labor force. It declined by 3,367 persons over the year, while the number of unemployed persons fell by 1,056. This produces a lower unemployment rate, but a shrinking labor force is not the sign of a healthy economy.
A further indication of the health of the Wichita MSA economy is the number of nonfarm jobs. This number declined by 1,200 from March 2017 to March 2018, a decline of 0.4 percent. This follows a decline of 0.7 percent from February 2017 to February 2018.
Of the metropolitan areas in the United States, BLS reports that 308 had over-the-year increases in nonfarm payroll employment, 72 had decreases, and 8 had no change.
Sources:
Bureau of Labor Statistics. Table 1. Civilian labor force and unemployment by state and metropolitan area, not seasonally adjusted. Available at https://www.bls.gov/news.release/metro.t01.htm.
Bureau of Labor Statistics. Table 3. Employees on nonfarm payrolls by state and metropolitan area, not seasonally adjusted. Available at https://www.bls.gov/news.release/metro.t03.htm.
An interactive visualization of tax collections by state governments.
Each year the United States Census Bureau collects a summary of taxes collected by each state for 5 broad tax categories and up to 25 tax subcategories. 1 I’ve collected this data and made it available in an interactive visualization.
You may recall that Kansas raised personal income tax rates in 2017 and made the new rate retroactive to January 1, 2017. But that change doesn’t seem to have affected this data. For 2016, Kansas collected $768 per person in individual income taxes, and for 2017, $799. Here’s why:
For most states, including Kansas, this data is for the fiscal year, not the calendar year. 2 New withholding tax tables were not available until June 27, 2017, just three days before the end of fiscal year 2017. 3
Click here to access the visualization.
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In this episode of WichitaLiberty.TV: Dr. Russ McCullough of Ottawa University introduces us to the Gwartney Institute and explains the importance of economic freedom. View below, or click here to view at YouTube. Episode 194, broadcast April 28, 2018.
Dr. Russ McCullough is the Wayne Angell Chair of Economics at Ottawa University in Kansas. He is also the Founder/Director of the Gwartney Institute for Freedom, Justice and Human Flourishing — A think tank that explores the evidence of social institutions around the world including faith and economics. He joined OU in 2011 coming from Iowa State University where he earned his PhD in Public Economics and taught classes while pursuing many entrepreneurial endeavors.
He completed his BA degree at St. Cloud State University in Minnesota where he grew up. While working on his dissertation in 1997, he was offered co-ownership in a real estate firm he worked at through school that specialized in college student housing. Property management and real estate sales eventually grew into having a few agents under his brokerage license. Shortly thereafter his daily activities focused more on real estate development which included multi-family housing, commercial mixed-use buildings and subdivisions. Real estate served as a catalyst into other business ventures including a construction company, a restaurant, a boutique hotel and an equestrian center.
Russ has studied and taught the economic principles of Fredrick Bastiat to his students in a course he developed called Entrepreneurial Economics. In addition to Bastiat, this class includes readings from Frederick Hayek, Ludwig Von Mises, Israel Kirzner and Ayn Rand.
Census data shows that some counties in Kansas are growing faster than others.
Each year the United States Census Bureau publishes County Business Patterns (CBP). The Bureau describes the data as follows:
County Business Patterns (CBP) is an annual series that provides subnational economic data by industry. This series includes the number of establishments, employment during the week of March 12, first quarter payroll, and annual payroll. This data is useful for studying the economic activity of small areas; analyzing economic changes over time; and as a benchmark for other statistical series, surveys, and databases between economic censuses. Businesses use the data for analyzing market potential, measuring the effectiveness of sales and advertising programs, setting sales quotas, and developing budgets. Government agencies use the data for administration and planning. 1
What does this data tell us about counties in Kansas? I gathered the data back to 2005 and made the data in an interactive visualization available here. In the nearby illustration I show the data for large Kansas counties, starting in 2010. (In the visualization you may adjust all these parameters.) The data is indexed so that we can see relative changes independent of the size of the county.
In the chart, we can see that some Kansas counties are doing better than others. Notably, Sedgwick County shows a decline in employees and payroll in 2016.
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If Wichita-area companies can’t fill jobs, the declining labor force may be the reason. Who is responsible?
The Chung Report has a recent article noting the low unemployment rate in Wichita. That may make it difficult to fill jobs: “Wichita also has a low unemployment rate, which has seen steep decline in the past five years and now sets at 3.9 percent, below the national average of 4.1 percent. So even if companies are dead set on hiring, do we have the available workforce?” 1
It’s a useful article. But where it could be better, especially when discussing how Wichita companies will find workers to fill anticipated new jobs, is to note the shrinking Wichita labor force.
Here is a table of data for the Wichita MSA from the Bureau of Labor Statistics Local Area Unemployment Statistics (LAUS) program. 2 It is part of the Bureau’s Current Population Survey (CPS), which is a “monthly survey of households conducted by the Bureau of Census for the Bureau of Labor Statistics.” 3
I chose the year ending January 2011 as a comparison point, as it is near the low point of the great recession. Since then, the unemployment rate has fallen greatly, and is just half the rate of 2010.
But that isn’t the total story. It isn’t even the most important part of the story. Since the unemployment rate is a ratio, it has two moving parts, specifically the number of unemployed people and the number of people in the labor force. (The labor force, broadly, is the number of persons working plus those actively looking for work.)
It is possible that the unemployment rate falls while the number of people employed falls or rises slowly. This is the general trend in Wichita for the past seven years or so. The nearby table illustrates this. The labor force has fallen, and by a lot, while employment growth has been modest.
In fact, of the changes, we can say that 35.2 percent of the change in the unemployment rate is due to new jobs, while 67.8 percent of the change is due to a smaller labor force.
So when Wichita leaders ask “Do we have the workforce?” the answer might be no. The next question ought to be “Why not?”
Our leaders are quick and eager to take credit for economic development gains. But what about the shrinking labor force caused by the many of the same leaders and their policies?
As the proverb says, “Success has many fathers, while failure is an orphan.”
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Over the past year, Kansas job growth trailed the nation, except in government.
The nearby table shows Kansas and national figures in various categories, for March 2018 and one year before.
Overall, Kansas jobs grew at a rate about half that of the nation. A notable exception is government jobs, where Kansas grew by 0.51 percent compared to the nation at 0.26 percent.
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As in years past, a truthful accounting of the finances of Intrust Bank Arena in downtown Wichita shows a large loss.
The true state of the finances of the Intrust Bank Arena in downtown Wichita are not often a subject of public discussion. Arena boosters cite a revenue-sharing arrangement between the county and the arena operator, referring to this as profit or loss. But this arrangement is not an accurate and complete accounting, and it hides the true economics of the arena. What’s missing is depreciation expense.
There are at least two ways of looking at the finance of the arena. Nearly all attention is given to the “profit” (or loss) earned by the arena for the county according to an operating agreement between the county and SMG, a company that operates the arena. 1
This agreement specifies a revenue sharing mechanism between the county and SMG. For 2107, the accounting method used in this agreement produced a profit, or “net building income,” of $1,000,829 to be split (not equally) between SMG and the county. The county’s share was $300,414. 2
While described as “profit” by many, this payment does not represent any sort of “profit” or “earnings” in the usual sense. In fact, the introductory letter that accompanies these calculations warns readers that these are “not intended to be a complete presentation of INTRUST Bank Arena’s financial position and results of operations in conformity with accounting principles generally accepted in the United States of America.” 3
A much better reckoning of the economics of the Intrust Bank Arena can be found in the 2017 Comprehensive Annual Financial Report for Sedgwick County. 4 This document holds additional information about the finances of the Intrust Bank Arena. The CAFR, as described by the county, “… is a review of what occurred financially last year. In that respect, it is a report card of our ability to manage our financial resources.”
Regarding the arena, the CAFR states:
The Arena Fund represents the activity of the INTRUST Bank Arena. The facility is operated by a private company; the County incurs expenses only for certain capital improvements or major repairs and depreciation, and receives as revenue only a share of profits earned by the operator, if any, and naming rights fees. The Arena Fund had an operating loss of $4.3 million. The loss can be attributed to $4.5 million in depreciation expense.
Financial statements in the same document show that $4,522,596 was charged for depreciation in 2017.
Depreciation expense is not something that is paid out in cash. That is, Sedgwick County did not write a check for $4,522,596 to pay depreciation expense. Instead, depreciation accounting provides a way to recognize and account for the cost of long-lived assets over their lifespan. It provides a way to recognize opportunity costs, that is, what could be done with our resources if not spent on the arena.
But not many of our civic leaders recognize this, at least publicly. We — frequently — observe our governmental and civic leaders telling us that we must “run government like a business.” The county’s financial report makes mention of this: “Sedgwick County has one business-type activity, the Arena fund. Net position for fiscal year 2017 decreased by $4.3 million to $156.3 million. Of that $156.3 million, $146.0 million is invested in capital assets. The decrease can be attributed to depreciation, which was $4.5 million.” 5 (emphasis added)
At the same time, these leaders avoid frank and realistic discussion of economic facts. As an example, in years past Commissioner Dave Unruh made remarks that illustrate the severe misunderstanding under which he and almost everyone labor regarding the nature of spending on the arena: “I want to underscore the fact that the citizens of Sedgwick County voted to pay for this facility in advance. And so not having debt service on it is just a huge benefit to our government and to the citizens, so we can go forward without having to having to worry about making those payments and still show positive cash flow. So it’s still a great benefit to our community and I’m still pleased with this report.”
The contention — witting or not — is that the capital investment of $183,625,241 (not including an operating and maintenance reserve) in the arena is merely a historical artifact, something that happened in the past, something that has no bearing today. There is no opportunity cost, according to this view. This attitude, however, disrespects the sacrifices of the people of Sedgwick County and its visitors to raise those funds. Since Kansas is one of the few states that adds sales tax to food, low-income households paid extra sales tax on their groceries to pay for the arena — an arena where they may not be able to afford tickets.
Any honest accounting or reckoning of the performance of Intrust Bank Arena must take depreciation into account. While Unruh is correct that depreciation expense is not a cash expense that affects cash flow, it is an economic reality that can’t be ignored — except by politicians, apparently. The Wichita Eagle and Wichita Business Journal aid in promoting this deception.
The upshot: We’re evaluating government and making decisions based on incomplete and false information, just to gratify the egos of self-serving politicians and bureaucrats.
In February 2015 the Wichita Eagle reported: “The arena’s net income for 2014 came in at $122,853, all of which will go to SMG, the company that operates the facility under contract with the county, Assistant County Manager Ron Holt said Wednesday.” A reading of the minutes for the February 11 meeting of the Sedgwick County Commission finds Holt mentioning depreciation expense not a single time. Neither did the Eagle article.
In December 2014, in a look at the first five years of the arena, its manager told the Wichita Eagle this: “‘We know from a financial standpoint, the building has been successful. Every year, it’s always been in the black, and there are a lot of buildings that don’t have that, so it’s a great achievement,’ said A.J. Boleski, the arena’s general manager.”
The Wichita Eagle opinion page hasn’t been helpful, with Rhonda Holman opining with thoughts like this: “Though great news for taxpayers, that oversize check for $255,678 presented to Sedgwick County last week reflected Intrust Bank Arena’s past, specifically the county’s share of 2013 profits.” (For some years, the county paid to create a large “check” for publicity purposes.)
That followed her op-ed from a year before, when she wrote: “And, of course, Intrust Bank Arena has the uncommon advantage among public facilities of having already been paid for, via a 30-month, 1 percent sales tax approved by voters in 2004 that actually went away as scheduled.” That thinking, of course, ignores the economic reality of depreciation.
Even our city’s business press — which ought to know better — writes headlines like Intrust Bank Arena tops $1.1M in net income for 2015 without mentioning depreciation expense or explaining the non-conforming accounting methods used to derive this number.
All of these examples are deficient in an important way: They contribute confusion to the search for truthful accounting of the arena’s finances. Recognizing depreciation expense is vital to understanding profit or loss, we’re not doing that.
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