Voice For Liberty

Tag: Economics

  • National Transit Database, an interactive visualization

    National Transit Database, an interactive visualization

    An interactive visualization of data over time from the National Transit Database.

    Do you wonder how much it costs to run your transit system? The National Transit Database holds data for transit systems in the U.S. I’ve gathered some key statistics and presented them in an interactive visualization.

    In the case of Wichita, we see that “OpExp per PMT” for 2015 is $1.02. This is total operating expense per passenger mile traveled. It’s not the cost to move a bus a mile down the street. It’s the cost to move one passenger one mile. And, it is operating cost only, which means the costs of the buses are not included.

    Some definitions used in the database:

    • UZA: The name of the urbanized area served primarily by a transit agency.
    • UPT: Unlinked passenger trips.
    • PMT: Passenger miles traveled.
    • Total OpExp: Total operating expense.

    The visualization holds three tabs. One is a table of figures. The other two illustrate data for a single transit system or single mode.

    Click here to access the visualization.

    Example from the visualization for Wichita. Click for larger.
  • In Wichita, new stadium to be considered

    In Wichita, new stadium to be considered

    The City of Wichita plans subsidized development of a sports facility as an economic driver.

    West Bank Redevelopment District. Click for larger.
    This week the Wichita City Council will consider a project plan for a redevelopment district near Downtown Wichita. It is largely financed by Tax Increment Financing and STAR bonds. Both divert future incremental tax revenue to pay for various things within the district.1 2

    City documents promise this: “The City plans to substantially rehabilitate or replace Lawrence-Dumont Stadium into a multi-sport athletic complex. The TIF project would allow the City to make investments in Lawrence-Dumont Stadium, construct additional parking in the redevelopment district, initiate improvements to the Delano multi-use path and make additional transportation improvements related to the stadium project area. In addition to the stadium work, the City plans to construct, utilizing STAR bond funds, a sports museum, improvements to the west bank of the Arkansas River and construct a pedestrian bridge connecting the stadium area with the Century II block. The TIF project is part of the overall plan to revitalize the stadium area and Delano Neighborhood within the district.”3

    We’ve heard things like this before. Each “opportunity” for the public to invest in downtown Wichita is accompanied by grand promises. But actual progress is difficult to achieve, as evidenced by the examples of Waterwalk, Kenmar,and Block One.4

    Trends of business activity in downtown Wichita. Click for larger.
    In fact, change in Downtown Wichita — if we’re measuring the count of business firms, jobs, and payroll — is in the wrong direction, despite large public and private investment. 5

    Perhaps more pertinent to a sports facility as an economic growth driver is the Intrust Bank Arena. Two years ago the Wichita Eagle noted the lack of growth in the area. 6 Since then, not much has changed. The area surrounding the arena is largely vacant. Except for Commerce Street, that is, and the businesses located there don’t want to pay their share of property taxes. 7

    I’m sure the city will remind us that the arena was a Sedgwick County project, not a City of Wichita project, as if that makes a difference. Also, the poor economic performance cited above is for Downtown Wichita as delineated by zip code 67202, while the proposed baseball stadium project lies just outside that area, as if that makes a difference.

    By the way, this STAR bonds district is an expansion of an existing district which contains the WaterWalk development. That development has languished, with acres of land having been available for development for many years. We’ve also found that the city was not holding the WaterWalk developer accountable to the terms of the deal that was agreed upon, to the detriment of Wichita taxpayers. 8

    Following, selected articles on the economics of public financing of sports stadiums.

    The Economics of Subsidizing Sports Stadiums

    Scott A. Wolla, “The Economics of Subsidizing Sports Stadiums,” Page One Economics, May 2017. This is a project of the Federal Reserve Bank of St. Louis. Link.
    “Building sports stadiums has an impact on local economies. For that reason, many people support the use of government subsidies to help pay for stadiums. However, economists generally oppose such subsidies. They often stress that estimations of the economic impact of sports stadiums are exaggerated because they fail to recognize opportunity costs. Consumers who spend money on sporting events would likely spend the money on other forms of entertainment, which has a similar economic impact. Rather than subsidizing sports stadiums, governments could finance other projects such as infrastructure or education that have the potential to increase productivity and promote economic growth.”

    What economists think about public financing for sports stadiums

    Jeff Cockrell, Chicago Booth Review, February 01, 2017. Link.
    “But do the economic benefits generated by these facilities — via increased tourism, for example — justify the costs to the public? Chicago Booth’s Initiative on Global Markets put that question to its US Economic Experts Panel. Fifty-seven percent of the panel agreed that the costs to taxpayers are likely to outweigh benefits, while only 2 percent disagreed — though several panelists noted that some contributions of local sports teams are difficult to quantify.”

    Publicly Financed Sports Stadiums Are a Game That Taxpayers Lose

    Jeffrey Dorfman. Forbes, January 31, 2015. Link.
    “Once you look at things this way, you see that stadiums can only justify public financing if they will draw most attendees from a long distance on a regular basis. The Super Bowl does that, but the average city’s football, baseball, hockey, or basketball team does not. Since most events held at a stadium will rely heavily on the local fan base, they will never generate enough tax revenue to pay back taxpayers for the cost of the stadium.”

    Sports Facilities and Economic Development

    Andrew Zimbalist, Government Finance Review, August 2013. Link.
    “This article is meant to emphasize the complexity of the factors that must be evaluated in assessing the economic impact of sports facility construction. While prudent planning and negotiating can improve the chances of minimizing any negative impacts or even of promoting a modest positive impact, the basic experience suggests that a city should not expect that a new arena or stadium by itself will provide a boost to the local economy.

    Instead, the city should think of the non-pecuniary benefits involved with a new facility, whether they entail bringing a professional team to town, keeping one from leaving, improving the conveniences and amenities at the facility, or providing an existing team with greater resources for competition. Sports are central to cultural life in the United States (and in much of the world). They represent one of the most cogent ways for residents to feel part of and enjoy belonging to a community. The rest of our lives are increasingly isolated by modern technological gadgetry. Sport teams help provide identity to a community, and it is this psychosocial benefit that should be weighed against the sizeable public investments that sports team owners demand.”

    Professional Sports as Catalysts for Metropolitan Economic Development

    Robert A. Baade, Journal of Urban Affairs, 1996. Link.
    “To attract or retain a team, cities are offering staggering financial support and rationalize their largesse on economic grounds. Do professional sports increase income and create jobs in amounts that justify the behavior of cities? The evidence detailed in this paper fails to support such a rationale. The primary beneficiaries of subsidies are the owners and players, not the taxpaying public.”

    —
    Notes

    1. Weeks, Bob. STAR bonds in Kansas. Available at https://wichitaliberty.org/kansas-government/star-bonds-kansas/. ↩
    2. Weeks, Bob. Wichita TIF projects: some background. Available at https://wichitaliberty.org/wichita-government/wichita-tif-projects-background/. ↩
    3. Wichita City Council, agenda packet for July 18, 2017. ↩
    4. Weeks, Bob. Downtown Wichita’s Block One, a beneficiary of tax increment financing. Before forming new tax increment financing districts, Wichita taxpayers ought to ask for progress on current districts. Available at https://wichitaliberty.org/wichita-government/downtown-wichita-block-one-beneficiary-tax-increment-financing/. ↩
    5. Weeks, Bob. Downtown Wichita business trends. Available at https://wichitaliberty.org/wichita-government/downtown-wichita-business-trends/. ↩
    6. “Ten years ago, Elizabeth Stevenson looked out at the neighborhood where a downtown arena would soon be built and told an Eagle reporter that one day it could be the ‘Paris of the Midwest.’ What she and many others envisioned was a pedestrian and bike-friendly neighborhood of quaint shops, chic eateries and an active arts district, supported by tens of thousands of visitors who would be coming downtown for sporting events and concerts. It hasn’t exactly turned out that way. Today, five years after the opening of the Intrust Bank Arena, most of the immediate neighborhood looks much like it did in 2004 when Stevenson was interviewed in The Eagle. With the exception of a small artists’ colony along Commerce Street, it’s still the same mix of light industrial businesses interspersed with numerous boarded-up buildings and vacant lots, dotted with ‘for sale’ and ‘for lease’ signs.” Lefler, Dion. 5 years after Intrust Bank Arena opens, little surrounding development has followed. Wichita Eagle. December 20, 2014. Available at http://www.kansas.com/news/local/article4743402.html. ↩
    7. Riedl, Matt. Has Commerce Street become too cool for its own good? Wichita Eagle. April 8, 2017. http://www.kansas.com/entertainment/ent-columns-blogs/keeper-of-the-plans/article143529404.html. ↩
    8. Weeks, Bob. Wichita WaterWalk contract not followed, again Available at https://wichitaliberty.org/wichita-government/wichita-waterwalk-agreement-not-followed/. ↩

  • More Cargill incentives from Wichita detailed

    More, but likely not all, of the Cargill incentives will be before the Wichita City Council this week.

    A division of Cargill, Cargill Meat Solutions Corporation, is moving from an office on North Main Street in downtown Wichita to the site of the former Wichita Eagle building, also in downtown Wichita. Last year it was widely reported that Cargill was considering moving this division to another city. Reports of incentives offers to Cargill from other cities spurred the City of Wichita to offer its own incentives if Cargill would remain in Wichita. This week the city council will consider additional subsidies and incentives besides those already offered. 1

    As summarized in the agenda packet:

    “In exchange for Cargill’s commitment, the City has negotiated the following:

    • Issue Industrial Revenue Bonds (Letter of Intent approved April 18, 2017) 100% property tax abatement; 5+5 year basis
    • Sales tax exemption
    • Acquisition of a 15 year parking easement for public access to the garage in the evenings and on weekends (estimated cost of $6,500,000)
    • Expedited plan review (50% reduction in time)
    • Reduced permitting fees (50%) (estimated savings of $85,000)
    • Assign a project manager/ombudsman for a single point of contact for the company”

    Industrial Revenue Bonds

    In April the city council approved a letter of intent regarding Cargill’s participation in the Industrial Revenue Bond program. 2 The city won’t be lending Cargill money. Instead, IRBs are a (convoluted) method whereby local governments are able to forgive the payment of property taxes. For the case of Cargill, city documents from April state the tax forgiveness could be worth $1,359,531 per year. 3 This would be shared by these taxing jurisdictions in these annual amounts, again according to city documents:

    • City of Wichita: $378,450
    • Sedgwick County: $340,958
    • USD 259, the Wichita Public School District: $622,723
    • State of Kansas $17,400

    The property tax savings will probably be greater, if Cargill spends as much as it has agreed to spend and the appraiser values the building accordingly. Rough calculations indicate tax savings as much as $1,755,000 per year. 4

    Cargill has agreed to make an annual Payment-In-Lieu-Of-Taxes (PILOT) of $413,900, according to city documents.

    In addition to the property tax exemption, the IRBs also carry a sales tax exemption for purchases related to construction. City documents give an estimated value of $2,026,291 for the sales tax Cargill will not have to pay. 5

    Parking easement

    At one time, it was thought that the city would build a parking garage and let Cargill use it an no cost, or at a greatly reduced cost. Instead, the city now proposes that Cargill build the garage and the city will acquire an easement. This has sounded almost benign, but now we realize that the city will pay Cargill an estimated $6.5 million. In return, the city will be able to use up to approximately 700 parking spaces outside of Cargill business hours.

    Is this a good deal for the city? The city has agreed to pay $9,286 for the use of each parking space. 6 For comparison, recently the city rehabilitated the parking garage at 215 S. Market at a cost of $17,609 per parking space. The city rents 180 of these to a nearby company at the rate of $35 per month, which is $420 per year. 7

    To repeat: The city has agreed to pay Cargill $9,286 for something it charges others $420 per year.

    It is not known whether the city will charge fees to the public to use the garage. It is also unknown whether there is much demand for public parking at the Cargill location, but present market conditions would suggest there is not much additional demand.

    Expedited plan review, reduced fees, and ombudsman

    The city has agreed to cut permit fees and speed response time for approvals. 8

    This incentive — the need for it and its value to Cargill — is an explicit admission that City of Wichita regulations are burdensome. If not, why would the city devote time and expense to helping Cargill obtain relief from these regulations?

    Consider this aspect of public policy: Cargill is a large company with — presumably — fleets of bureaucrats and lawyers trained to deal with burdensome government regulation. These costs can be spread across a large company, meaning that Cargill can afford to overcome burdensome regulations.

    But what about the small companies that don’t have fleets of bureaucrats and lawyers? Small companies that can’t spread the costs of regulation across a large volume of business? What will the city do for these companies? This is especially important because the spirit of entrepreneurship the city wants to cultivate is most commonly found in small, young, companies — the type of company without fleets of bureaucrats and lawyers.

    The city says it would do for any company what it is doing for Cargill. Except: How are companies supposed to know to ask for regulatory relief, streamlining, and a discount on fees?

    If the city really wants to help all companies, it would — at its own initiative — cut fees and reduce response time across the board, for everyone. Until then Wichita offers special regulatory treatment for special circumstances, which widens the gulf between the haves and have-nots. 9

    Other subsidy programs

    The agenda packet for the city council meeting doesn’t mention this, but from the state of Kansas Cargill is likely to receive PEAK benefits. Under this program, the Kansas state withholding tax deducted from Cargill employees’ paychecks will be routed back to Cargill. 10 (Not all; only 95 percent.) Some very rough calculations show that PEAK benefits might be worth some $2 million annually to Cargill. 11

    Ironically, with the recent increases in Kansas income taxes, PEAK is even more valuable to Cargill.

    Is this needed?

    In the past, economic development subsidies of this type were justified by local governments as necessary to recruit new companies to the area. These subsidies, however, are used simply to retain a company that is already located in downtown Wichita.

    The city has asked Wichita State University’s Center for Economic Development and Business Research to produce benefit/cost ratios. They show that the costs the city, county, and state incur will generate benefits that exceed these costs. For the school district, costs exactly equal benefits — a remarkable coincidence.

    The reasoning and calculation behind these benefit/cost ratios is opaque. The general idea is that spending by a company spawns other spending that results in economic benefit and growth. That’s true. It’s important to know, however, that this benefit also occurs when companies move to Wichita or expand in Wichita, without the benefit of economic development subsidies.

    The question, then, becomes are these incentives necessary? Would Cargill have moved to another city if not for these incentives? It’s only if Cargill would have left Wichita that the benefit/cost ratios have any meaning.

    The City of Wichita says Cargill received lucrative offers from other cities. But these offers have not been seen, to my knowledge. We’re left to take the word of Cargill that it received offers from other cities, and that it would have moved from Wichita if not for Wichita’s incentives.

    Cargill, as we’ve seen, has a multi-million dollar motive. City of Wichita officials also have a large motive, as do officials and politicians at the state level. The politicians and bureaucrats want to — need to — be seen as doing something to improve the economy. It costs none of them one dime to pay these incentives. But the Cargill building will fulfill their ediface complex when they preside at groundbreaking and ribbon-cutting ceremonies.

    If Wichita leaders wanted to gain the trust of Wichitans, to have us believe and understand that these incentives are necessary to keep Cargill in Wichita, the city could reveal the other offers Cargill received. Cargill itself could reveal offers it received from other cities. These actions would help Wichitans understand whether these incentives are truly needed. But the world of economic development incentives is a murky swamp.

    Finally, Mayor Jeff Longwell, other council members, and city hall bureaucrats tell us that the city has moved beyond cash incentives. Cash will not be paid for jobs, they say.

    But forgiving a tax bill is just like paying cash. Discounting the cost of permits is just like paying cash. Paying $6.5 million to use a company’s parking garage during hours the company has no use for it: How is that different from simply paying the company a cash incentive?

    Perhaps the mayor and others have a different understanding of the economics of transactions than I.

    —
    Notes

    1. City of Wichita. Agenda Packet for July 18, 2017. Approval of Development Agreement with Cargill Meat Solutions Corporation. ↩
    2. Weeks, Bob. Industrial revenue bonds in Kansas. http://wichitaliberty.org/kansas-government/industrial-revenue-bonds-kansas/. ↩
    3. City of Wichita. Council agenda packet for April 18, 2017. ↩
    4. “The Office Building will consist of approximately 170,000 square feet space to be used primarily for Class A office space at an estimated construction cost of approximately $71,736,290, including, without limitation, land acquisition costs and the costs of construction of the Parking Garage.” Agenda packet for July 18, 2017. But the city has limited the value of the IRBs at $60 million. Calculation: $60,000,000 x 25% assessment rate for commercial property x approx. 117 mill rate / 1000 = $1,755,000 tax savings per year. ↩
    5. Weeks, Bob. Cargill subsides start forming. Available at https://wichitaliberty.org/wichita-government/cargill-subsides-start-forming/. ↩
    6. $6,500,000 / 700. ↩
    7. Weeks, Bob. Why is this man smiling? Available at https://wichitaliberty.org/wichita-government/man-smiling/. ↩
    8. “Section 4.03. Approvals. The City agrees to provide a 50% reduction in the fees charged by the City for permits and approvals, including plan review, utility and building permitting fees, for all matters related to the Project. The City also agrees to reduce the response time for approval of building plans from the standard 30 days to 15 days for all matters related to the Project.” Also: “The reduction in the permitting fees will be paid from the Economic Development fund.” ↩
    9. Weeks, Bob. Regulation in Wichita, a ‘labyrinth of city processes.’ Available at https://wichitaliberty.org/regulation/regulation-wichita-labyrinth-city-processes/. ↩
    10. Weeks, Bob. In Kansas, PEAK has a leak. http://wichitaliberty.org/kansas-government/kansas-peak-leak/. ↩
    11. For the first year of the agreement, Cargill is expected to have 750 or more employees at an average salary of $66,814. That annual salary / 26 pay periods = $2,570 biweekly. For a family with two children (this is just a guess and could be way off), there are two withholding allowances, so $2,570 – ($86.54 x 2) = $2,397. Using the new withholding tables for married workers (another assumption), bi-weekly withholding is $48.17 + 5.7% x ($2,397 – $1,298) = $48.17 + $62.64 = $110.81. That means $2,881 annual withholding, so Cargill’s 95% share is $2,737. For 750 employees, this is an annual subsidy to Cargill of $2,052,750. ↩
  • Intrust Bank Arena loss for 2016 is $4,293,901

    Intrust Bank Arena loss for 2016 is $4,293,901

    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 hides the true economics of the arena. What’s missing is depreciation expense.

    An example: 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.”

    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.

    All of these examples are deficient in an important way, and contribute confusion to the search for truthful accounting of the arena’s finances. As shown below, recognizing depreciation expense is vital to understanding profit or loss, and the “net income” referred to above doesn’t include this. In fact, the “net income” cited above isn’t anything that is recognized by standard accounting principles.

    The problem with the reporting of Intrust Bank Arena profits

    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 2106, the accounting method used in this agreement produced a profit of $680,268 to be split (not equally) between SMG and the county. The county’s share was $140,134. 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

    That bears repeating: This is not a reckoning of profit and loss in any recognized sense. It is simply an agreement between Sedgwick County and SMG as to how SMG is to be paid, and how the county participates.

    A much better reckoning of the economics of the Intrust Bank Arena can be found in the 2016 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 $4.6 million. The loss can be attributed to $4.4 million in depreciation expense.

    Financial statements in the same document show that $4,434,035 was charged for depreciation in 2016, bringing accumulated depreciation to a total of $35,126,958.

    If we subtract SMG payment of $140,134 from depreciation expense, we learn that the Intrust Bank Arena lost $4,293,901 in 2016.

    Depreciation expense is not something that is paid out in cash. That is, Sedgwick County did not write a check for $4,434,035 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 public leaders recognize this. 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.”

    Earlier in this article we saw examples of the (then) Sedgwick County Assistant Manager, the Intrust Bank Arena manager, and several Wichita Eagle writers making the same mistake.

    Intrust Bank Arena commemorative monument
    Intrust Bank Arena commemorative monument
    The contention — witting or not — of all these people 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.

    We see our governmental and civic leaders telling us that we must “run government like a business.” Without frank and realistic discussion of numbers like these and the economic facts they represent, we make decisions based on incomplete and false information.

    —
    Notes

    1. Management Agreement between Sedgwick County and SMG. August 1, 2007. Available here. ↩
    2. The Operations of INTRUST Bank Arena, as Managed by SMG. December 31, 2016. Available here. ↩
    3. Ibid. ↩
    4. Sedgwick County. Comprehensive Annual Financial Report of the County of Sedgwick, Kansas for the Year ended December 31, 2016. Available here. ↩
  • The yardstick for the Kansas experiment

    The yardstick for the Kansas experiment

    A politician’s boasting should not be the yardstick for policy.

    As noted by Ed Flentje in the Wichita Eagle:

    As a newly elected governor in 2011 Brownback embraced the discredited, tax-cut dogma of Arthur Laffer in the belief that tax cuts would dramatically stimulate economic growth. He told a friendly audience that cutting income tax rates would generate even more revenue for government. Soon after, the governor elevated the bluster. His tax cuts would give “a shot of adrenaline in the heart of the Kansas economy.” “We’ll have a real live experiment.” “Look out Texas. Here comes Kansas!” “Glide path to zero.”

    Despite Professor Flentje’s claim, there is much evidence that higher taxes, especially higher income taxes, mean lower economic growth. 1 2 3 (There’s also the side benefit of leaving more money in the hands of those who earned it, rather than transferring it to the wasteful public sector.) Cutting taxes — or raising taxes, for that matter — is a treatment that influences things in one direction. If other more powerful forces influence things in an opposite direction, it doesn’t mean the original treatment didn’t work.

    In the case of Kansas, think how much worse things might be if not for the stimulative effect of the tax cuts.

    Still, Governor Brownback should have been more measured in his remarks — or his bluster. He shouldn’t have followed the example of President Barack Obama. He, right after becoming president, promised that the unemployment rate would not top eight percent if his stimulus bill was passed. That plan passed.

    In January 2009 two Obama administration officials, including Christina Romer (who would become chair of the Council of Economic Advisers) wrote a paper estimating what the national unemployment rate would be with, and without, the American Recovery and Reinvestment Plan, commonly known as the stimulus. The Romer paper included a graph of projected unemployment rates. The nearby chart from e21 took the Romer chart and added
    actual unemployment rates. (The accompanying article is Revisiting unemployment projections. That chart and article were created in 2011. I’ve updated the chart to show the actual unemployment rate since then, as black dots. The data shows that the actual unemployment rate was above the Obama administration projections — with or without the stimulus plan — for the entire period of projections.

    The purpose of this is not to defend Brownback by showing how Obama is even worse. (Disclosure: Although I am a Republican, I didn’t vote for Brownback for governor.) Instead, we ought to take away two lessons: First, let’s learn to place an appropriately low value on the promises, boasts, and bluster made by politicians. Then, let’s recognize the weak power government has to manage the economy for positive effect. Indeed, the lesson of the Obama stimulus is that it made the unemployment rate worse than if there had been no stimulus — at least according to the administration projections.

    Governor Brownback was right to cut taxes because Kansas taxes were too high.

    Unemployment with and without stimulus through 2014-01

    1. “So what does the academic literature say about the empirical relationship between taxes and economic growth? While there are a variety of methods and data sources, the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions, and monetary policy. In this review of the literature, I find twenty-six such studies going back to 1983, and all but three of those studies, and every study in the last fifteen years, find a negative effect of taxes on growth. Of those studies that distinguish between types of taxes, corporate income taxes are found to be most harmful, followed by personal income taxes, consumption taxes and property taxes.” McBride, William. What Is the Evidence on Taxes and Growth? Tax Foundation. Available at https://taxfoundation.org/what-evidence-taxes-and-growth/. ↩
    2. “Research finds that higher state taxes are generally associated with lower economic performance. There is somewhat weaker evidence that state and local taxes can significantly reduce income growth within a state, particularly when the revenues raised are devoted to transfer payments. More recent research corroborates this finding in relation to net investment and employment. However, when additional tax revenue is used to improve the quality of public goods and services, economic growth may increase. When looking at business activity more broadly, more comprehensive reviews of the literature find higher taxes to be associated with less economic growth. They also find this relationship to be stronger within metropolitan areas than across metropolitan areas, which means that local taxes have a larger effect on economic growth when it is less costly for firms and taxpayers to relocate to avoid the tax.” Mercatus Center. Economic Perspectives: State and Local Tax Policy. Available at https://www.mercatus.org/publication/economic-perspectives-state-and-local-tax-policy. ↩
    3. “Two research papers illustrate the need to maintain low taxes in Kansas, finding that high taxes are associated with reduced income and low economic growth.” Weeks, Bob. Kansas needs low taxes. Available at https://wichitaliberty.org/kansas-government/kansas-needs-low-taxes/. ↩
  • Wichita, Kansas, and U.S. economic dashboards

    Wichita, Kansas, and U.S. economic dashboards

    Dashboards of economic indicators for Wichita and Kansas, compared to the United States.

    Example of the Wichita economic dashboard. Click to view.

    The Federal Reserve Bank of St. Louis gathers economic data from sources like the U.S. Bureau of Labor Statistics and the U.S. Bureau of Economic Analysis. This data is then available in an interactive graphing and charting system.

    Using this system, I’ve created dashboards (collections of charts) holding economic data for Wichita and Kansas. The images of the charts are static. Click on a chart for the current data.

    At the bottom of each chart is the link “View on FRED.” By clicking on that link you gain access to the interactive version of the chart. You may then make many different types of customizations.

    Click here for the Wichita dashboard, and click here for the Kansas dashboard.

    Other Wichita data

    The Center for Economic Growth and Business Research at Wichita State University produces data and forecasts for Wichita and Kansas. It has a dedicated site for these at kansaseconomy.org. Of special interest are these data series, available as tables and charts:

  • Explaining the Kansas budget, in a way

    Explaining the Kansas budget, in a way

    A video explaining the Kansas budget is accurate in many aspects, but portrays a false and harmful myth regarding school spending.

    A popular video explaining the Kansas budget deserves scrutiny for some of the data presented. The video is available at the Facebook page of Loud Light.

    The presentation makes a few good points. For example, the video is correct in that the sales tax is a regressive tax, affecting low-income households in greater proportion. During the capaign for a Wichita city sales tax in 2014 I analyzed Census Bureau data and found that the lowest income class of families experience an increase nearly four times the magnitude as do the highest income families, as a percentage of after-tax income.1 2

    The video also rightly notes that Kansas is now, and it has in the past under other legislatures and governors, inadequately funding KPERS, the state employee pension plan.

    Interestingly, the video praises Kansas for its early adoption of “progressive economics.” I think the narrator meant “progressive taxation,” as the video shows Kansas adopting an income tax in 1933. How has that worked for Kansas? There are a variety of ways to look at the progress of Kansas compared to the nation, but here’s a startling fact: For the 73rd Congress (1933 to 1935) Kansas had seven members in the U.S. House of Representatives. (It had eight in the previous session.) Today Kansas has four members, and may be on the verge of losing one after the next census. This is an indication of the growth of Kansas in comparison to the nation.

    Kansas Department of Transportation Funding, partial. Click for larger.
    The narrator states, “Kansas Department of Transportation is mostly funded by restricted revenue like fuel tax.” This was true at one time. But starting in 2011 KDOT has received more funding from sales tax than motor fuel tax.3 The gap is getting wider, as can be seen in the nearby chart. (By the way, there are proposals to increase the motor fuel tax. This tax is just like the sales tax, affecting low-income households greatest.)

    School spending

    The greatest problem in this video is its explanation of state spending on K through 12 schools. This is important, as the video correctly notes that this spending is half of the general fund budget. In introducing this section, the narrator notes “budget report gamesmanship that’s created a rhetorical paradox,” conceding it is “technically” true that education spending is at record levels.

    The video then shows a chart titled “State Aid Per Pupil.” The chart starts with a value a little over $6,000 in 1993, declining to about $4,000 in 2013, then staying at that level. The citation is “Governor’s Budget Report” from the Kansas Division of Budget, and at the end of the video there is the explanation, “All financial data in this video is inflation adjusted to January 2017.”

    A more accurate title for the chart is “Base State Aid Per Pupil.” That’s the actual name for the component of school spending that the video displays. This is important because base state aid is only the starting point for determining spending. Actual state aid to schools is much higher.

    Kansas school spending, showing base state aid and total state aid. See article for notes about 2015. Click for larger.
    Base state aid per pupil — the statistic the video presents — is an important number.4 It’s the starting point for the Kansas school finance formula used before the 2015-2016 (fiscal 2016) school year, and something like it may be used in a new formula. 5

    Base state aid, however, is not the only important number. To calculate the funding a school district receives, weightings are added. If students fall into certain categories, weightings for that category are added to determine a weighted enrollment. That is multiplied by base state aid to determine total state aid to the district. 6

    While this may seem like a technical discussion that doesn’t make a difference, it’s very important. Some of the weightings are large and have increased by large amounts. The at-risk weighting, intended to cover the additional costs of teaching students from low-income families, started at five percent in 1993. In other words, for every student in this category, a school district received an extra five percent of base state aid. The value of this weighting has risen by a factor of nine, reaching 45.6 percent starting with the 2008-2009 school year.7

    So in the nearby chart that I prepared using data adjusted for inflation in 2016, we see base state aid per pupil on a downward trend, just as the video shows. But I also plotted total state aid per pupil, which includes weightings. This number is on a mostly upward trend.

    Kansas school spending, showing ratio of total state aid to base state aid. See article for notes about 2015. Click for larger.
    Kansas school spending. See article for notes about 2015. Click for larger.
    The weightings have a large effect on school funding. For example: During the 2004-2005 school year, base state aid was $3,863 and the at-risk weighting was ten percent. An at-risk student, therefore, generated $4,249 in state funding. (Other weightings might also apply.)

    Ten years later base state aid was $3,852 — almost exactly the same — and the at-risk weighting was up to 45.6 percent. This generates funding of $5,609. For a district that qualified for the maximum high-density at-risk weighting, an additional $404 in funding was generated. (These numbers are not adjusted for inflation.)

    So even though base state aid remained (almost) unchanged, funding targeted at certain students rose, and by a large amount.

    Over time, values for the various weightings grew until by 2014 they added 85 percent to base state aid. A nearby chart shows the growth of total state aid as compared to base state aid. (Starting in fiscal 2015 the state changed the way local tax dollars are counted. That accounts for the large rise for the last year of data in the chart. For school years 2016 and 2017, block grants have replaced the funding formula, so base aid and weightings do not apply in the same way.)

    All this determines state aid to schools only. There is also local aid and federal aid.

    The questions Kansans should ask are these: Why doesn’t this video explain that “base state aid per pupil” is not the same as “state aid per pupil?” And why not explain that total state aid per pupil is much higher than base state aid, and has been rising over the long term?

    —
    Notes

    1. Weeks, Bob. Wichita sales tax hike would hit low income families hardest. Analysis of household expenditure data shows that a proposed sales tax in Wichita affects low income families in greatest proportion, confirming the regressive nature of sales taxes. Available at https://wichitaliberty.org/wichita-government/wichita-sales-tax-hike-hit-low-income-families-hardest/. ↩
    2. Weeks, Bob. Kansas sales tax has disproportionate harmful effects. Kansas legislative and executive leaders must realize that a shift to consumption taxes must be accompanied by relief from its disproportionate harm to low-income households. https://wichitaliberty.org/taxation/kansas-sales-tax-has-disproportionate-harmful-effects/. ↩
    3. Kansas Department of Transportation. Comprehensive Annual Financial Report for 2016. ↩
    4. Weeks, Bob. Kansas school weightings and effects on state aid. In making the case for more Kansas school spending, the focus on base state aid per pupil leaves out important considerations. https://wichitaliberty.org/wichita-kansas-schools/kansas-school-weightings-and-effects-on-state-aid/. ↩
    5. For the fiscal 2016 and 2017 school years, the formula was replaced by block grants. ↩
    6. Amendments to the 1992 School District Finance And Quality Performance Act and the 1992 School District Capital Improvements State Aid Program (Finance Formula Components), Kansas Legislative Research Department, May 20, 2014
      http://ksde.org/Portals/0/School%20Finance/amends_to_sdfandqpa_2015.pdf ↩
    7. There’s also the high-density at-risk weighting. Starting with the 2006-2007 school year districts with a high concentration of at-risk students could receive an extra weighting of four percent or eight percent. Two years later the weightings were raised to six percent and ten percent. (This formula was revised again in 2012 in a way that may have slightly increased the weightings.) ↩
  • Census data for downtown Wichita workers

    Census data for downtown Wichita workers

    Is the presentation of the number of workers in downtown Wichita an innocent mistake, mere incompetence, or a willful lie?

    There’s a question regarding how many people work in downtown Wichita, the Wichita Eagle reports.1 Other sources have noticed a discrepancy.2

    Promotional material on the former Henry’s building. Click for larger.
    At issue is the meaning of “working” in a certain location. Data that the Center for Economic Development and Business Research at Wichita State University supplied to the Wichita Downtown Development Corporation indicates about 26,000 people work in downtown Wichita, for these purposes defined as zip code 67202. This number is used in a wide variety of ways, including in Wichita city budgets and federal grants made by the city.

    It’s appropriate, then, to understand what the 26,000 number means. The Eagle article mentions “a likely mistake in how the number of jobs downtown is calculated.”3 The same article quotes Jeremy Hill, director of CEDBR, as saying, “It looks very obvious and plausible that it is an error.”

    There is no “mistake” or “error” in this Census data, which is known as LEHD Origin-Destination Employment Statistics, or LODES. But we need to be curious or cautious enough to investigate what this data means. Documentation from the Census Bureau for LODES data gives the definition of the place of work and a cautionary note: “A place of work is defined by the physical or mailing address reported by employers in the QCEW (formerly ES-202) or Multiple Worksite Reports. An address from administrative data may or may not be the actual location that a worker reports to most often.”

    The Census Bureau continues with another warning regarding this data: “Nonreporting of multiple worksites is especially common with state and local governments and school districts. In such a case, LEHD infrastructure files assign all workers for that employer (within the state) to the main address provided.”4

    In the case of downtown Wichita, the mistake was made in the application of this data, which is the claim that there are 26,000 workers in downtown Wichita. There may be that many people who draw a paycheck from an administrative office located in downtown. But large numbers of these don’t come to downtown to perform their jobs.

    Census block 201730043001036, showing 7,740 workers.
    The LODES data reports a one square block in downtown that holds 7,740 workers. This is the block that holds the administrative office building for the Wichita public school district. Regarding this, the Eagle article reports: “One of the most likely reasons for the difference, according to multiple local academics, including Hill, is that the Census is reporting that every employee for USD 259 works downtown. Most USD 259 employees work in buildings across the city, but the central office is located downtown.” This is something the Census Bureau warns users to consider.

    There’s another area of erroneous application, too, and it isn’t mentioned in the Eagle article. This concerns the second largest concentration of workers in downtown Wichita (according to the LODES data) in a Census block which has 3,437 employees. This is the block that holds Wichita city hall. In 2014 the city had 3,270 employees. But they don’t all work at Main and Central. They’re dispersed throughout the city in police stations, fire stations, and other sites.

    How was this missed?

    The Census Bureau OnTheMap application for downtown Wichita, zip code 67202. Click for larger.
    Nearby is an example of using the Census OnTheMap application.5 This is the source of LODES data that the WDDC cites in its footnotes to its annual report. When using the application for zip code 67202, there are two — and only two — large dark blue dots. These represent the census blocks with the greatest number of workers, 7,740 and 3,437. I’d like to think that if someone at CEDBR, WDDC, or city hall looked at this map and saw those two big blue dots, they might ask a few questions. Wasn’t someone curious as to how a single block of downtown Wichita manages to hold so many employees? Which companies do they work for? What can we learn from the success of these companies that employ so many people? Can we duplicate this success in other parts of downtown?

    But I don’t think anyone asked these questions. No one — not at CEDBR, WDDC, or city hall — was inquisitive enough to really look at this data and see what it means. It’s either that or there was a willful misrepresentation.

    The Eagle article also reports this: “This won’t make much of a difference to most businesses downtown, according to Hill. They already know how big the market is because they have experience with it. … The best companies will look at census data when coming up with their business plans, Hill said, but every business relies on several numbers, so even if there are thousands of fewer jobs downtown than previously thought, it’s unlikely that it would have much of an impact.”

    On these remarks, I would say that first, we’re trying to recruit new businesses to downtown Wichita. It’s those business firms that this data speaks to. While the “best” companies may use other sources of data, I don’t think we want to discriminate. All companies are welcome to Wichita, I hope.

    Second, Hill says companies “will look at census data.” Well, this is census data.

    Third, Hill says this mistake won’t have “much of an impact.” In the future, I think we’ll need to ask CEDBR, WDDC, and city hall if the data they supply is intended to have an impact, or is it for something else.

    Trends of business activity in downtown Wichita. Click for larger.
    Fourth, there is other census data. The United States Census Bureau tracks business data by zip code.6 The data that is available includes the number of business establishments, the number of employees, and the annual payroll, expressed in thousands of dollars not adjusted for inflation. It includes private-sector workers only, so it does not count all workers.

    Nearby are results for zip code 67202. For 2015 the number of jobs is 13,581, not much more than half of what city leaders have told us. Again, these are private-sector workers only.7

    Not only are these numbers much smaller, the results since 2007 show fewer business establishments, fewer people working downtown, and lower earnings generated in downtown Wichita. In all cases, the trend is lower. The LODES data is on a downwards trend, too.

    —
    Notes

    1. Morrison, Oliver. How many people work downtown? Fewer than Census says. Wichita Eagle, May 10, 2017. Available at http://www.kansas.com/news/local/article149848144.html. ↩
    2. Weeks, Bob. Downtown Wichita jobs, sort of. Available at https://wichitaliberty.org/wichita-government/downtown-wichita-jobs/. ↩
    3. “But the reason for this is not because 7,000 workers actually will leave but because of a likely mistake in how the number of jobs downtown is calculated. ↩
    4. “For LODES, a place of work is defined by the physical or mailing address reported by employers in the QCEW (formerly ES-202) or Multiple Worksite Reports. An address from administrative data may or may not be the actual location that a worker reports to most often. The distinction of worksite and administrative address may be especially significant in some industries such as construction, where work is often carried out at temporary locations. In some cases, employers do not provide a multiple worksite report when it would be appropriate to do so. Nonreporting of multiple worksites is especially common with state and local governments and school districts. In such a case, LEHD infrastructure files assign all workers for that employer (within the state) to the main address provided. Bureau of Labor Statistics (BLS) data show a national noncompliance rate of 5.61 percent of multiunit employers responsible for about 4.45 percent of multiunit employment.” U.S. Census Bureau. Matthew R. Graham, Mark J. Kutzbach, and Brian McKenzie. Design comparison of LODES and ACS commuting data products. Available at ftp://ftp2.census.gov/ces/wp/2014/CES-WP-14-38.pdf. ↩
    5. U.S. Census Bureau. OnTheMap application. Available at https://onthemap.ces.census.gov/. ↩
    6. U.S. Census Bureau. County Business Patterns (CBP). https://www.census.gov/programs-surveys/cbp/data.html. ↩
    7. Weeks, Bob. Downtown Wichita business trends. Available at https://wichitaliberty.org/wichita-government/downtown-wichita-business-trends/. ↩
  • Wichita post-recession job growth

    Wichita post-recession job growth

    Wichita has recovered from recessions, but after the most recent, the city is falling further behind.

    Since 1990 the country has experienced three recessions. For the first two of these, Wichita was able to catch up with the employment growth experienced by the entire nation.

    For the most recent recession, however, this hasn’t been the case. In fact, as time progressed since 2010, the gap between Wichita and the nation has grown.

    Following are three charts of private sector employment for the Wichita metro area and the nation. Each is indexed starting with the end of a recession so that job growth may be compared. Click charts for larger version. You may access and alter the chart here.