An incentive program in Wichita should cause us to question why investment in Wichita is not feasible without subsidy.
At its February 5, 2019 meeting, the Wichita City Council will consider an item regarding economic development in Delano. The owner of a building there has applied for financial assistance under the city’s facade improvement program.
The purpose of the facade improvement program, according to city documents, is to provide “low-cost loans and grants” to help improve the appearance of buildings “located in defined areas needing revitalization, including the City’s core area.”
The matter before the council this week is to accept the petition of the property owner and set February 19, 2019 for the public hearing.
Undoubtedly council members will praise the property owner for deciding to invest in Wichita. I’m glad he is, and it sounds like the project will improve the Delano area. But the need for this item raises a few questions regarding public policy in Wichita that are more important than any single project.
First, city documents state: “The Office of Economic Development has reviewed the economic (‘gap’) analysis of the project and determined there is a financial need for incentives based on the current market.” In other words, the city has determined that this project is not economically feasible unless it receives a government subsidy. Will any council members ask why is it not possible to renovate a building in the core of Wichita without subsidy? What factors in Wichita — specifically Delano — make it impossible to have investment like this without subsidy?
Second: Wichita officials, especially Wichita Mayor Jeff Longwell, tell us that the city doesn’t use cash as an economic development incentive. But this proposal includes a cash grant of $30,000. This is not a low-cost loan that must be repaid. Instead, it is an incentive, a gift — and it’s cash.
The cost of the Naftzger Park makeover is rising, will be paid for with borrowed funds, and possibly handled without public discussion.
The cost of the Naftzger Park project in downtown Wichita is rising, according to an item the Wichita City Council will consider at its Tuesday February 5, 2019 meeting. According to city documents, an additional $85,000 is needed for stormwater retention, a function the former pond provided.
This seems like a major oversight in the original project plans. The city has regulations regarding stormwater retention that private sector developers must follow. Didn’t any city planners consider these regulations as the project was planned? Didn’t any council member or bureaucrat look at the plans and wonder about stormwater drainage? Wasn’t there a highly-regarded architect designing the park? What about TGC Development, the developer of the surrounding property, to whom the city effectively outsourced the development of Naftzger Park? The construction manager?
The extra cost is proposed to come from savings realized in another nearby project. That requires a waiver of policy, according to the agenda: “Staff requested waiver of City Council Policy No. 2 regarding the use of projects savings to allow this transfer of funds.”
On top of that, this money will be borrowed. An accompanying resolution (number 19-048) provides the authorization: “Section 2. Project Financing. All or a portion of the costs of the Project, interest on financing and administrative and financing costs shall be financed with the proceeds of general obligation bonds of the City.”
Borrowing this money, even though it is a small amount, is a significant public policy issue. The city decided to use tax increment financing (TIF) to pay for this project. City officials pitch this as a method of financing that costs the general public nothing, as the TIF bonds are repaid from a project’s future property taxes.
In this case, as the surrounding development by TGC starts to pay higher property taxes, these taxes would be used to pay for Naftzger Park. (Never mind who pays for the public services the development will consume.)
But now, some expenses of the project have been shifted away from TIF to the general city.
The equitable way of handling this is to charge this expense to the TIF district. Either that, or to the responsible parties whose oversight, we now see, was lacking.
By the way, this item is on the consent agenda, meaning there will be no discussion unless a city council member requests the item to be “pulled” for discussion and a potentially separate vote. (A consent agenda is a group of items that are voted on in bulk with a single vote. An item on a consent agenda will be discussed only if a council member requests the item to be “pulled.” If that is done, the item will be discussed. Then it might be withdrawn, voted on by itself, or folded back into the consent agenda with the other items. Generally, consent agenda items are considered by the city to be routine and non-controversial, but that is not always the case.)
Following, an excerpt from the February 5, 2019 city council agenda:
Background: Naftzger Park currently has a small pond that acts as a storm water retention facility during rain events. Proposed improvements to Naftzger Park will eliminate the pond and all available storm retention. The project does not include funding for replacing the retention capacity.
Analysis: With the elimination of the existing pond, underground on-site storage is necessary to prevent a negative impact on the area storm sewer system and the surrounding developments during rain events.
Financial Considerations: Currently, the Stormwater Utility does not have funding available for these improvements. Staff proposes transferring $85,000 in General Obligation bond funding from the Douglas Underpass project. Funding is available for transfer due to underruns of bid items upon project completion and favorable bid pricing. Staff requested waiver of City Council Policy No. 2 regarding the use of projects savings to allow this transfer of funds. The total budget for the stormwater retention facility would be $85,000 and the revised budget for Douglas Underpass would be $2,015,000.
Wichita city leaders will latch onto any good news, no matter from how flimsy the source. But they ignore the news they don’t like, even though it may come from the U.S. Census Bureau, U.S. Bureau of Labor Statistics, or U.S. Bureau of Economic Analysis.
In his media briefing today, Wichita Mayor Jeff Longwell cited an article promoting the purportedly recession-proof and growing Wichita-area economy. 1
Based on the article 2 Longwell cited Wichita’s low unemployment rate and growing job count.
One quote from the article highlights Wichita’s low unemployment rate: “In 2018, the city saw unemployment fall to 3.5 percent — the lowest it’s been since May 1999.” Here’s some data regarding this claim:
In the table, we see that the unemployment rate (monthly average) for 2018 is nearly unchanged from 1999. Also nearly unchanged for these 19 years are the civilian labor force and number of jobs. Both values are slightly lower now. This is not “steady job growth.”
The article the mayor relies upon doesn’t reflect the economic reality in Wichita. It isn’t even close. Yet the mayor and other city officials have heavily promoted this article on social media.
Mayor Longwell also said, “We want to celebrate some of our successes because it has not been easy to get here and it’s been very intentional, and the things that we’re doing that help make Wichita a great place to live but more importantly a place where we can ride out a potential recession that may hit the rest of the country at some point in time and we think that’s a great place for us to be right now.”
Click for larger.Regarding recessions and being “recession-proof:” The usual definition of a recession is two consecutive quarters of declining economic activity as measured by gross domestic product. For the nation, the last recession ended in 2009. For metropolitan areas like Wichita GDP data is not available quarterly. Annual data, however, tells us that since 2011 — well after the end of the last national recession — Wichita has had two separate years in which real GDP declined, 2013 and 2017. 3
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That’s like two recessions in Wichita at a time the national economy was growing. Is that recession-proof?
The mayor also presented a forecast that Wichita will add 2,700 jobs in 2019. The source of this forecast is the Center for Economic Development and Business Research at Wichita State University. 4
For the Wichita metropolitan area economy, adding 2,700 jobs in a year represents 0.9 percent job growth. Is that good? Nationally, the economy is expected to continue strong growth, although perhaps slightly slower than in 2018, in which nonfarm jobs grew by 1.8 percent. 5 Nationally, job growth is forecast at 1.7 percent for 2019. 6 Wichita’s forecast rate of 0.9 percent is 53 percent of the national rate — barely more than half.
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The nearby chart illustrates that since the end of the last recession, job growth in Wichita has been below job growth in the nation as a whole. 7 Generally, job growth in Wichita has been at about half the rate of the nation. In 2017, Wichita lost jobs. Yet, City of Wichita officials tout “steady job growth.”
It’s not only jobs and output. Personal income has grown only slowly. 8
The Wichita metropolitan area population is growing, but at a rate slower than most metro areas. From 2010 to 2017, the Wichita metro area grew in population by 2.3 percent. For all U.S. metro areas, the population growth was 6.5 percent. Of the 382 metropolitan areas, Wichita ranked 245. Considering just the change from 2016 to 2017, Wichita’s population grew by 0.1 percent, ranking 268 of the 382 metro areas. All U.S. metro areas grew by 0.8 percent over the same period.
For net domestic migration, Wichita experienced a loss of 2.9 percent of its population from 2010 to 2017. This ranked 295 among metro areas. For 2016 to 2017, Wichita lost 0.5 percent, ranking 293, nearly unchanged from the larger earlier period. 9
This slow population growth and out-migration is happening at the same time Wichita-area leaders tell us that we have great momentum going forward. But the data — domestic migration, employment, gross domestic product, and personal income — don’t support what our leaders tell us.
U.S. Bureau of Economic Analysis, Total Real Gross Domestic Product for Wichita, KS (MSA) RGMP48620, retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/RGMP48620, January 31, 2019.
The All industry total includes all Private industries and Government. Real GDP by metropolitan area is an inflation-adjusted measure of each metropolitan area’s gross product that is based on national prices for the goods and services produced within the metropolitan area.
Also: U.S. Bureau of Economic Analysis, Real Gross Domestic Product GDPCA, retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/GDPCA, January 31, 2019. ↩
“For all metropolitan areas in the United States, personal income rose by 4.5 percent. For the Wichita metro area, the increase was 2.3 percent. Of 383 metropolitan areas, Wichita’s growth rate was at position 342.” Weeks, Bob. Personal income in Wichita rises, but slowly. Available at https://wichitaliberty.org/economics/personal-income-in-wichita-rises-but-slowly/. ↩
For the Wichita metropolitan area in December 2018, jobs are up, the labor force is up, and the unemployment rate is down when compared to the same month one year ago. Seasonal data shows a slowdown in the rate of job growth and a rising unemployment rate.
Total nonfarm employment rose from 296,900 last December to 302,300 this December. That’s an increase of 5,800 jobs, or 2.0 percent. (This data is not seasonally adjusted, so month-to-month comparisons are not valid.) For the same period, jobs in the nation grew by 1.8 percent.
The unemployment rate in December 2018 was 3.4 percent, down from 3.5 percent one year ago.
Considering seasonally adjusted data from the household survey, the labor force rose by 596 persons (0.2 percent) in December 2018 from November 2018, the number of unemployed persons fell by 394 (3.6 percent), and the unemployment rate rose from 3.5 percent to 3.6 percent. The number of employed persons not working on farms rose to 299,120 in December from 298,918 the prior month, an increase of 202 persons, or 0.1 percent.
Wichita city officials promote an article that presents an unrealistic portrayal of the local economy.
Click for larger.An article promoting the Wichita economy 1 was noticed and promoted by official City of Wichita sources.
A tweet came from the official @CityofWichita Twitter account and reads “We have been named one of the top two recession-proof cities in the nation by @Livability. Wichita was praised for its ability to withstand turbulence in the national economy, steady job growth and the state’s low income-to-debt ratio.” 2
Those who retweeted this include the Wichita Regional Chamber of Commerce, Wichita Economic Dev (“Promoting, building and preserving Wichita’s economic strength to ensure Wichita is the preferred location for new, existing and expanding organizations.”), and Scot Rigby, who is who is Assistant City Manager, Director of Development Services for the City of Wichita. City officials also shared the article of the city’s Facebook page. 3 That post has been shared 169 times.
One quote from the article highlights Wichita’s low unemployment rate: “In 2018, the city saw unemployment fall to 3.5 percent — the lowest it’s been since May 1999.” Here’s some data regarding this claim:
In the table, we see that the unemployment rate (monthly average) for 2018 is nearly unchanged from 1999. Also nearly unchanged for these 19 years are the civilian labor force and number of jobs. Both values are slightly lower now. This is not “steady job growth,” as Wichita officials proclaim.
Regarding jobs, the article states: “In 2019, job growth is predicted to be positive and steady, and the city anticipates adding 2,700 new jobs.” As a source, the article cites an article from KSN News, which states: “For 2019, the job growth is expected to jump modestly by 0.9 percent, meaning 2,700 new jobs are predicted to come to the city.” 4
This is an accurate report of what the WSU forecast said, except it doesn’t come from the Wichita State University School of Business, as the article reports. Instead, the source is the Center for Economic Development and Business Research at Wichita State University. 5
Is 0.9 percent job growth good? Nationally, the economy is expected to continue strong growth, although perhaps slightly slower than in 2018. 6 Nationally, job growth is forecast at 1.7 percent for 2019. 7 Wichita’s forecast rate of 0.9 percent is 53 percent of the national rate.
The nearby chart illustrates that since the end of the last recession, job growth in Wichita has been below job growth in the nation as a whole. Generally, job growth in Wichita has been at about half the rate of the nation. In 2017, Wichita lost jobs. Yet, City of Wichita officials tout “steady job growth.”
It’s not only employment that has been bad news. In 2017 the Wichita economy contracted. 8 Personal income has grown only slowly. 9
We really must wonder what Wichita officials are thinking and where they get their data.
“For 2017, the Wichita metropolitan area GDP, in real dollars, fell by 1.4 percent. Revised statistics for 2016 indicate growth of 3.8 percent for that year. Last year BEA reported growth of -1.4 percent.” Weeks, Bob. Wichita economy shrinks, and a revision. Available at https://wichitaliberty.org/economics/wichita-economy-shrinks-and-revision/. ↩
“For all metropolitan areas in the United States, personal income rose by 4.5 percent. For the Wichita metro area, the increase was 2.3 percent. Of 383 metropolitan areas, Wichita’s growth rate was at position 342.” Weeks, Bob. Personal income in Wichita rises, but slowly. Available at https://wichitaliberty.org/economics/personal-income-in-wichita-rises-but-slowly/. ↩
A tweet from a top Wichita city official promotes great news that really isn’t so great.
Click for larger.The @WichitaEconDev Twitter account is managed by Scot Rigby, who is Assistant City Manager, Director of Development Services for the City of Wichita. Its tagline is “Promoting, building and preserving Wichita’s economic strength to ensure Wichita is the preferred location for new, existing and expanding organizations.”
But the Business Journal article didn’t provide any useful context. Once we learn more about what the numbers in the forecast mean, we may want to temper our enthusiasm.
The forecast for Wichita metro area employment in 2019 calls for modest growth of 0.9 percent, according to the Center for Economic Development and Business Research at Wichita State University. 1 This follows growth of 0.8 percent in 2018. 2
Nationally, the economy is expected to continue strong growth. 3
The nearby chart illustrates that since the end of the last recession, job growth in Wichita has been below job growth in the nation as a whole. Generally, job growth in Wichita has been at about half the rate of the nation. In 2017, Wichita lost jobs.
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Of Wichita job growth in 2018, the CEDBR forecast notes, “This marked a return to the level of growth experienced in the Wichita area from 2012 to 2016, after experiencing a contraction in overall employment in 2017.” The average annual rate of job growth for those years in Wichita was 0.83 percent. It was 1.82 percent for the nation, which is 2.2 times the rate for Wichita.
CEDBR also notes, “Wichita’s unemployment rate declined throughout 2018 to a low of 3.5 percent in October 2018, the lowest unemployment rate for the area since 1999.” We should note that this decline is primarily due to a declining labor force in Wichita, rather than robust job growth.
Back to Rigby’s tweet: There is good news — Wichita is not forecast to lose jobs, as it has in the recent past.
But the rate of growth seen for Wichita is not robust, and that’s a serious problem, especially when our officials think it’s good.
The praise for retired Sedgwick County Commissioner Dave Unruh can’t be based on our region’s accomplishments under his guidance. That is, if people are informed and truthful.
He easily won re-election because his constituents and the rest of us knew he was dedicated to strengthening our community, region and the state.
…
In economic development Commissioner Unruh was chairman in 2006 when the board voted to build a world-class technical-education facility to ensure we remained competitive for new jobs. The National Center for Aviation Training is home to the growing WSU Tech. He also championed smart economic development programs that generated additional tax dollars and regional cooperation through REAP and other efforts.
…
In his perseverance to get things done and his belief in our future, he’s made a difference.
On Sunday, the Wichita Eagle published a drawing by cartoonist Richard Crowson which lauded Unruh’s championing of the Intrust Bank Arena, Sedgwick County Zoo, Exploration Place, and mental health services. Responding on his Facebook profile, Commissioner Michael O’Donnell wrote this for public consumption:
“A society grows great when old men plant trees whose shade they know they will never sit in” I believe this Greek proverb sums up the leadership of Dave Unruh as much as this stupendous Wichita Eagle cartoon. Our community has been blessed by the selfless and indelible leadership of Dave Unruh. I believe he was the most consequential local leader in our region for the last 2 decades and those of us fortunate enough to live in Sedgwick County are able to sit under the countless trees which Dave planted for us and our families for generations to come.
There’s another way to look at the Dave Unruh legacy in Sedgwick County, and that is through the lens of data. A shiny downtown area is nice, but not as nice as a prospering economy. Here are some figures.
In 2001, the year when Unruh assumed office in its first month, the median household income in Sedgwick County was higher than that of both Kansas and the United States. By 2017, Unruh’s last full year on the commission, Sedgwick County had fallen behind both, and by significant margins.
In 2001, the poverty rate in Sedgwick County was lower than that for the nation. By 2017, the situation was reversed: The Sedgwick County poverty rate is now higher, and significantly higher.
Looking at other measures of prosperity, we see Sedgwick County falling behind during the time Unruh was in office. Gross domestic product, personal income, per capita personal income, population, total employment, wage and salary employment, and manufacturing employment: In all these measures Sedgwick County underperformed the nation, and usually the State of Kansas. (GDP is available only for the Wichita metropolitan area, which is dominated by Sedgwick County.)
By himself, Dave Unruh isn’t responsible for this economic performance. Many others contributed at Wichita City Hall and the Kansas Capitol, as well as some of Unruh’s colleagues on the Sedgwick County Commission. Unruh and they supported the interventionist, corporatist model of economic development, and it hasn’t worked. That’s why it’s surprising to see so much praise for Unruh. It’s sad, too, because if business leaders and politicians really believe the “Unruh way” is the way that works, the outlook for our region is bleak.
In his media briefing today, Wichita Mayor Jeff Longwell cited an article promoting the purportedly recession-proof and growing Wichita-area economy. 1
In the table, we see that the unemployment rate (monthly average) for 2018 is nearly unchanged from 1999. Also nearly unchanged for these 19 years are the civilian labor force and number of jobs. Both values are slightly lower now. This is not “steady job growth.”
The mayor also presented a forecast that Wichita will add 2,700 jobs in 2019. The source of this forecast is the Center for Economic Development and Business Research at Wichita State University. 4
Looking at other measures of prosperity, we see Sedgwick County falling behind during the time Unruh was in office. Gross domestic product, personal income, per capita personal income, population, total employment, wage and salary employment, and manufacturing employment: In all these measures Sedgwick County underperformed the nation, and usually the State of Kansas. (GDP is available only for the Wichita metropolitan area, which is dominated by Sedgwick County.)
In the table, we see that the unemployment rate (monthly average) for 2018 is nearly unchanged from 1999. Also nearly unchanged for these 19 years are the civilian labor force and number of jobs. Both values are slightly lower now. This is not “steady job growth.”
