Voice For Liberty

Tag: Featured

  • No one is stealing* from KPERS

    No one is stealing* from KPERS

    No one is stealing from KPERS, the Kansas Public Employees Retirement System. But there are related problems.

    You don’t have to look for long on Facebook before you’ll find comments like these regarding KPERS, the Kansas Public Employees Retirement System:

    “This is BS. Stupid Brownback robbed our pension plan; we have no real confidence that it will ever be paid back. Why don’t we have some kind of safety measure in place to prevent governors like him from stealing from us?”

    “If the governor would keep his greedy hands off of the KPERS money that is there, we might not be having this problem. It was not set up as a lending bank when the Governor’s policies proved to be unworkable. Leave my money alone!!!!!”

    These comments — and many similar posted all over Facebook — accuse Kansas state government, specifically the current governor, of stealing from KPERS. But that is not happening, according to Alan Conroy, KPERS Executive Director. By email, he answered this question posed by Kansas Policy Institute: “Can you please confirm that the Legislature or the Governor cannot and have not borrowed money from funds deposited with KPERS?

    Conroy’s response, in part, was “Once funds are placed in the KPERS Trust Fund they cannot be withdrawn or ‘loaned-out’ to another entity or group. The only way funds come out of the Trust Fund is to pay the promised benefits to the members.”

    That ought to settle the question of whether money is being “robbed” or “stolen” from KPERS.

    But you’ll notice that the title of this article contains an asterisk. That’s because KPERS does have many problems. The most important is its underfunded status, which is a chronic problem. This is because the state has not made the actuarially required contributions. This is “stealing,” in a roundabout way. Who is suffering the loss? Not future KPERS retirees, as it is almost certain they will receive their promised benefits. Instead, it is future Kansas taxpayers who will have to make extra contributions to KPERS to make up for the current and past legislatures not making sufficient contributions.

    This is one of the reasons why government should not offer defined-benefit pension plans. Because of the long time horizons involved, it’s easy to delay and postpone a solution to the future. Or, legislators are prone to make risky investment decisions as Kansas did in 2015. The state’s action simply replaced KPERS debt with debt the general fund is responsible for. This, of course, is the state selling $1 billion in bonds and transferring the proceeds to KPERS. It makes the KPERS unfunded ratio look better, as the governor and Republican legislative leaders continually boast. But it’s a risky maneuver, and it has led to undesirable behavior that was entirely predictable.

    The plan was that the state would borrow $1 billion, and invest it. If the state earned more in investment returns than in interest cost on the bonds, the state wins. Barry Poulson, Ph.D., Emeritus Professor at the University of Colorado — Boulder has written on the danger of borrowing to shore up state pension funds, as Kansas has done. He explained there is the “lack of nexus between the investment of the bond proceeds and payments for unfunded liabilities in the plan.” This means that the borrowed funds may be used for current spending rather than for correcting the KPERS unfunded liability.1 What Poulson warned of happened in Kansas.

    There’s another way that KPERS is stealing from future taxpayers. When performing projections, a key variable is the discount rate, which is to say, the rate that KPERS expects to achieve on its investments, over the long term. Small changes in the discount rate have large impacts. The nearby illustration from the KPERS annual report for 2015 shows that using a discount rate of 8.00 percent, the KPERS unfunded liability is slightly less than $9 billion. Change the discount rate to 7.00 percent, and the unfunded liability rises to almost $12 billion.

    Some authorities believe that state pension funds should use a realistic discount rate, maybe four percent or so. That would cause the unfunded liability to explode. To its credit, KPERS recently adopted a discount rate of 7.75 percent, but that adjustment is not nearly enough.

    Who will have to pay to make up the deficiencies caused by using an unrealistic discount rate? Future Kansas taxpayers, not KPERS retirees.

    There was a time when money was really and truly stolen from KPERS, in a way. Under the leadership of former Kansas Governor John Carlin, it was decided that KPERS would make targeted, or direct, investments in Kansas companies. A scandal erupted, and KPERS lost many millions.2

    Another source described the aftermath as this: “In total KPERS faced losses of at least $138 million from its direct investment program. Moreover more than seven hundred Kansas residents lost their jobs as a result of these failures — a striking contradiction to the stimulus purpose of the Kansas investment program. In hindsight the lack of professional oversight by KPERS of its private investments program was blamed for the failure of the direct investment program.”3 The chair of the KPERS Board of Trustees pleaded no contest to one felony count of aiding and abetting securities fraud regarding a KPERS investment.4

    This sounds like stealing from KPERS. Despite this happening at the urging of Carlin, he now portrays himself as a leader, a senior statesman to whom we should listen.

    —
    Notes

    1. Weeks, Bob. This is why we must eliminate defined-benefit public pensions. https://wichitaliberty.org/kansas-government/we-must-eliminate-defined-benefit-public-pensions/. ↩
    2. “It started as a way to use the state pension fund to boost the Kansas economy, making loans or investing in healthy businesses. But it has mushroomed into the biggest scandal in state history. Although the Kansas Public Employees Retirement System remains financially sound, with a value of about $4.4 billion, known losses exceed $230 million. Experts say total losses could double or triple.” Curran, Tim. Toto, we’re not in Kansas anymore: state pension scandal a nightmare. Associated Press. Oct. 7, 1991. http://www.apnewsarchive.com/1991/Toto-We-re-Not-in-Kansas-Anymore-State-Pension-Scandal-A-Nightmare/id-fe758e81f6b6a821076c829764cb6399. ↩
    3. Cumming, Douglas ed. The Oxford Handbook of Private Equity. Oxford University Press. ↩
    4. Press, A 1992, ‘Former KPERS Chief Sentenced To Probation For Securities Fraud’, Wichita Eagle, The (KS), 25 Jun, p. 4D, (online NewsBank). ↩
  • Won’t anyone develop in downtown Wichita without incentives?

    Won’t anyone develop in downtown Wichita without incentives?

    Action the Wichita City Council will consider next week makes one wonder: If downtown Wichita is so great, why does the city have to give away so much?

    Next week the Wichita City Council will consider a package of incentives for the developer of a large downtown building, the Finney State Office Center.

    The building has an appraised value of $7,902,570, per the Sedgwick County Treasurer. The city will sell it for $100,000. That’s a mere 1.3 cents per dollar, if the county’s valuation is reasonable.

    (But, the $100,000 is non-refundable, should the purchaser decide not to close on the building.)

    Finney State Office Building environs. Click for larger.
    The project is also asking for the city to issue Industrial Revenue Bonds. Despite the use of the term “bond,” the city is not lending money to anyone. Someone else will purchase the bonds. Instead, the IRBs are a vehicle for conveying property tax abatements and sales tax exemptions.

    In this case, the developer requests a sales tax exemption for purchases during the renovation. City documents don’t give a value for the sales tax that might be exempted. But the developer has requested IRBs for an amount up to $35,000,000. So a sales tax exemption might be worth up to $2,625,000, depending on how much taxable products and services are purchased.

    IRBs also carry the possibility of a property tax abatement. Granting of the abatement is routine in most areas of the city. But, this property is located within a tax increment financing (TIF) district. That means, according to Kansas law, that a property tax abatement may not be awarded. That is, unless the property is removed from the TIF district, which is what the city proposes.

    What is the value of the tax abatement? City documents don’t say. But if the developer spends $35 million on the project, it ought to carry something near that appraised value when complete. So its annual property tax bill would be ($35,000,000 * 25 percent assessment rate for commercial property = $8,750,000 assessed value * 124.341 mill rate) $1,087,984.

    There’s another exception the city will probably make for this project. According to the city’s economic development incentives policy, the city must receive a payoff of at least 1.3 times its investment. That benchmark isn’t met in this case, with Wichita State University’s Center for Economic Development and Business Research reporting a benefit-cost ratio of 1.04 to the city. Nonetheless, city staff recommends the city approve the incentives, citing several loopholes to the policy.

    There’s also a parking agreement to consider. Given the city’s past practice, the city will lease parking stalls at rates below market rate or the city’s cost to provide.

    No cash incentives

    The city, in particular Wichita Mayor Jeff Longwell, have prominently and proudly touted the end of cash incentives. But, this project is receiving benefits better than cash: An $8 million building for a song, no sales tax, and no property tax for ten years. Let’s ask the city to be honest and give us dollar values for these incentives.

    Why?

    A second question is this: Why is it necessary to provide all these incentives in order to induce someone to develop in downtown Wichita? The cost of these incentives increases the cost of government for everyone else — that is, everyone else except all the other incentive-receivers.

  • Year in Review: 2016

    Year in Review: 2016

    Here are highlights from Voice for Liberty for 2016. Was it a good year for the principles of individual liberty, limited government, economic freedom, and free markets in Wichita and Kansas?

    Also be sure to view the programs on WichitaLiberty.TV for guests like journalist, novelist, and blogger Bud Norman; Radio talk show host Joseph Ashby; David Bobb, President of Bill of Rights Institute; Heritage Foundation trade expert Bryan Riley; Radio talk show host Andy Hooser; Keen Umbehr; John Chisholm on entrepreneurship; James Rosebush, author of “True Reagan,” Jonathan Williams of American Legislative Exchange Council (ALEC); Gidget Southway, or Danedri Herbert; Lawrence W. Reed, president of the Foundation for Economic Education; and Congressman Mike Pompeo.

    January

    Kansas legislative resources. Citizens who want to be informed of the happenings of the Kansas Legislature have these resources available.

    School choice in Kansas: The haves and have-nots. Kansas non-profit executives work to deny low-income families the school choice opportunities that executive salaries can afford.

    Kansas efficiency study released. An interim version of a report presents possibilities of saving the state $2 billion over five years.

    Wichita Eagle Publisher Roy Heatherly. Wichita Eagle Publisher Roy Heatherly spoke to the Wichita Pachyderm Club on January 15, 2016. This is an audio presentation.

    Pupil-teacher ratios in the states. Kansas ranks near the top of the states in having a low pupil-teacher ratio.

    Kansas highway conditions. Has continually “robbing the bank of KDOT” harmed Kansas highways?

    Property rights in Wichita: Your roof. The Wichita City Council will attempt to settle a dispute concerning whether a new roof should be allowed to have a vertical appearance rather than the horizontal appearance of the old.

    Must it be public schools? A joint statement released by Kansas Association of School Boards, United School Administrators of Kansas, Kansas School Superintendents’ Association, and Kansas National Education Association exposes the attitudes of the Kansas public school establishment.

    Kansas schools and other states. A joint statement released by Kansas Association of School Boards, United School Administrators of Kansas, Kansas School Superintendents’ Association, and Kansas National Education Association makes claims about Kansas public schools that aren’t factual.

    After years of low standards, Kansas schools adopt truthful standards. In a refreshing change, Kansas schools have adopted realistic standards for students, but only after many years of evaluating students using low standards.

    Brownback and Obama stimulus plans. There are useful lessons we can learn from the criticism of Kansas Governor Sam Brownback, including how easy it is to ignore inconvenient lessons of history.

    February

    Spending and taxing in Kansas. Difficulty balancing the Kansas budget is different from, and has not caused, widespread spending cuts.

    In Sedgwick County, choosing your own benchmarks. The Sedgwick County Commission makes a bid for accountability with an economic development agency, but will likely fall short of anything meaningful.

    This is why we must eliminate defined-benefit public pensions. Actions considered by the Kansas Legislature demonstrate — again — that governments are not capable of managing defined-benefit pension plans.

    Kansas transportation bonds economics worse than told. The economic details of a semi-secret sale of bonds by the State of Kansas are worse than what’s been reported.

    Massage business regulations likely to be ineffective, but will be onerous. The Wichita City Council is likely to create a new regulatory regime for massage businesses in response to a problem that is already addressed by strict laws.

    Inspector General evaluates Obamacare website. The HHS Inspector General has released an evaluation of the Obamacare website HealthCare.gov, shedding light on the performance of former Kansas Governor Kathleen Sebelius.

    Kansas highway spending. An op-ed by an advocate for more highway spending in Kansas needs context and correction.

    Brookings Metro Monitor and Wichita. A research project by The Brookings Institution illustrates the poor performance of the Wichita-area economy.

    March

    Wichita: A conversation for a positive community and city agenda. Wichita City Manager Robert Layton held a discussion titled “What are Wichita’s Strengths and Weaknesses: A Conversation for a Positive Community and City Agenda” at the February 26, 2016 luncheon of the Wichita Pachyderm Club.

    In Kansas, teachers unions should stand for retention. A bill requiring teachers unions to stand for retention elections each year would be good for teachers, students, and taxpayers.

    In Kansas, doctors may “learn” just by doing their jobs. A proposed bill in Kansas should make us question the rationale of continuing medical education requirements for physicians.

    Power of Kansas cities to take property may be expanded. A bill working its way through the Kansas Legislature will give cities additional means to seize property.

    Wichita TIF district disbands; taxpayers on the hook. A real estate development in College Hill was not successful. What does this mean for city taxpayers?

    Kansas and Colorado, compared. News that a Wichita-based company is moving to Colorado sparked a round of Kansas-bashing, most not based on facts.

    In Wichita, the phased approach to water supply can save a bundle. In 2014 the City of Wichita recommended voters spend $250 million on a new water supply. But since voters rejected the tax to support that spending, the cost of providing adequate water has dropped, and dropped a lot.

    Wichita Eagle, where are you? The state’s largest newspaper has no good reason to avoid reporting and editorializing on an important issue. But that’s what the Wichita Eagle has done.

    April

    Wichita on verge of new regulatory regime. The Wichita City Council is likely to create a new regulatory regime for massage businesses in response to a problem that is already addressed by strict laws.

    Wichita economic development and capacity. An expansion fueled by incentives is welcome, but illustrates a larger problem with Wichita-area economic development.

    Rich States, Poor States, 2106 edition. In Rich States, Poor States, Kansas continues with middle-of-the-pack performance, and fell sharply in the forward-looking forecast.

    In Wichita, revealing discussion of property rights. Reaction to the veto of a bill in Kansas reveals the instincts of many government officials, which is to grab more power whenever possible.

    ‘Trump, Trump, Trump’ … oops! An event in Wichita that made national headlines has so far turned out to be not the story news media enthusiastically promoted.

    Wichita doesn’t have this. A small Kansas city provides an example of what Wichita should do.

    Kansas continues to snub school choice reform that helps the most vulnerable schoolchildren. Charter schools benefit minority and poor children, yet Kansas does not leverage their benefits, despite having a pressing need to boost the prospects of these children.

    Wichita property tax rate: Up again. The City of Wichita says it hasn’t raised its property mill levy in many years. But data shows the mill levy has risen, and its use has shifted from debt service to current consumption.

    AFP Foundation wins a battle for free speech for everyone. Americans for Prosperity Foundation achieves a victory for free speech and free association.

    Kansas Center for Economic Growth. Kansas Center for Economic Growth, often cited as an authority by Kansas news media and politicians, is not the independent and unbiased source it claims to be.

    Under Goossen, Left’s favorite expert, Kansas was admonished by Securities and Exchange Commission. The State of Kansas was ordered to take remedial action to correct material omissions in the state’s financial statements prepared under the leadership of Duane Goossen.

    May

    Spirit Aerosystems tax relief. Wichita’s largest employer asks to avoid paying millions in taxes, which increases the cost of government for everyone else, including young companies struggling to break through.

    Wichita mayor’s counterfactual op-ed. Wichita’s mayor pens an op-ed that is counter to facts that he knows, or should know.

    Electioneering in Kansas?. An op-ed written under the banner of a non-profit organization appears to violate the ban on electioneering.

    Wichita city council campaign finance reform. Some citizen activists and Wichita city council members believe that a single $500 campaign contribution from a corporation has a corrupting influence. But stacking dozens of the same $500 contributions from executives and spouses of the same corporation? Not a problem.

    In Wichita, more sales tax hypocrisy. Another Wichita company that paid to persuade you to vote for higher taxes now seeks to avoid paying those taxes.

    Wichita student/teacher ratios. Despite years of purported budget cuts, the Wichita public school district has been able to improve its student/teacher ratios.

    June

    KPERS payments and Kansas schools. There is a claim that a recent change in the handling of KPERS payments falsely inflates school spending. The Kansas State Department of Education says otherwise.

    Regulation in Wichita, a ‘labyrinth of city processes’. Wichita offers special regulatory treatment for special circumstances, widening the gulf between the haves and have-nots.

    They really are government schools. What’s wrong with the term “government schools?”

    July

    Kansas City Star as critic, or apologist. An editorial in the Kansas City Star criticizes a Kansas free-market think tank.

    State and local government employee and payroll. Considering all state and local government employees in proportion to population, Kansas has many, compared to other states, and especially so in education.

    Kansas government ‘hollowed-out’. Considering all state and local government employees in proportion to population, Kansas has many, compared to other states, and especially so in education.

    In Wichita, Meitzner, Clendenin sow seeds of distrust. Comments by two Wichita city council members give citizens more reasons to be cynical and distrusting of politicians.

    David Dennis, gleeful regulatory revisionist. David Dennis, candidate for Sedgwick County Commission, rewrites his history of service on the Kansas State Board of Education.

    Say no to Kansas taxpayer-funded campaigning. Kansas taxpayers should know their tax dollars are helping staff campaigns for political office.

    Roger Marshall campaign setting new standards. Attacks on Tim Huelskamp reveal the worst in political campaigning.

    Wichita Metro Chamber of Commerce on the campaign trail. We want to believe that The Wichita Metro Chamber of Commerce and its PAC are a force for good. Why does the PAC need to be deceptive and untruthful?

    August

    Which Kansas Governor made these proposals?. Cutting spending for higher education, holding K through 12 public school spending steady, sweeping highway money to the general fund, reducing aid to local governments, spending down state reserves, and a huge projected budget gap. Who and when is the following newspaper report referencing?

    Wichita Business Journal editorial missed the news on the Wichita economy. A Wichita business newspaper’s editorial ignores the history of our local economy. Even the history that it reported in its own pages.

    Sedgwick County Health Department: Services provided. Sedgwick County government trimmed spending on health. What has been the result so far?

    School staffing and students. Trends for the nation and each state in teachers, administrators, and students, presented in an interactive visualization.

    Intrust Bank Arena loss for 2015 is $4.1 million. The depreciation expense of Intrust Bank Arena in downtown Wichita recognizes and accounts for the sacrifices of the people of Sedgwick County and its visitors to pay for the arena.

    School spending in the states. School spending in the states, presented in an interactive visualization.

    September

    Kansas construction employment. Tip to the Wichita Eagle editorial board: When a lobbying group feeds you statistics, try to learn what they really mean.

    Wichita has no city sales tax, except for these. There is no Wichita city retail sales tax, but the city collects tax revenue from citizens when they buy utilities, just like a sales tax.

    CID and other incentives approved in downtown Wichita. The Wichita City Council approves economic development incentives, but citizens should not be proud of the discussion and deliberation.

    Cost per visitor to Wichita cultural attractions. Wichitans might be surprised to learn the cost of cultural attractions.

    GetTheFactsKansas launched. From Kansas Policy Institute and the Kansas Chamber of Commerce, a new website with facts about the Kansas budget, economy, and schools.

    The nation’s report card and charter schools.
    * An interactive table of NAEP scores for the states and races, broken down by charter school and traditional public school.
    * Some states have few or no charter schools.
    * In many states, minority students perform better on the NAEP test when in charter schools.

    School choice and funding. Opponents of school choice programs argue the programs harm traditional public schools, both financially and in their ability to serve their remaining students. Evidence does not support this position.

    October

    Public school experts. Do only those within the Kansas public schooling community have a say?

    Kansas and Arizona schools. Arizona shows that Kansas is missing out on an opportunity to provide better education at lower cost.

    Video in the Kansas Senate. A plan to increase visibility of the Kansas Senate is a good start, and needs to go just one or two steps farther.

    Kansas, a frugal state?. Is Kansas a frugal state, compared to others?

    Topeka Capital-Journal falls for a story. The editorial boards of two large Kansas newspapers have shown how little effort goes into forming the opinions they foist upon our state.

    Kansas revenue estimates. Kansas revenue estimates are frequently in the news and have become a political issue. Here’s a look at them over the past decades.

    Kansas school fund balances.
    * Kansas school fund balances rose significantly this year, in both absolute dollars and dollars per pupil.
    * Kansans might wonder why schools did not spend some of these funds to offset cuts they have contended were necessary.
    * The interactive visualization holds data for each district since 2008.

    In Wichita, developer welfare under a cloud. A downtown Wichita project receives a small benefit from the city, with no mention of the really big money.

    Wichita, give back the Hyatt proceeds. Instead of spending the proceeds of the Hyatt hotel sale, the city should honor those who paid for the hotel — the city’s taxpayers.

    Kansas Democrats: They don’t add it up — or they don’t tell us. Kansas Democrats (and some Republicans) are campaigning on some very expensive programs, and they’re aren’t adding it up for us.

    November

    How would higher Kansas taxes help?. Candidates in Kansas who promise more spending ought to explain just how higher taxes will — purportedly — help the Kansas economy.

    Decoding the Kansas teachers union. Explaining to Kansans what the teachers union really means in its public communications.

    Kansas school spending: Visualization. An interactive visualization of revenue and spending data for Kansas school districts.

    Decoding Duane Goossen. The writing of Duane Goossen, a former Kansas budget director, requires decoding and explanation. This time, his vehicle is “Rise Up, Kansas.”

    Decoding the Kansas teachers union. Decoding and deconstructing communications from KNEA, the Kansas teachers union, lets us discover the true purpose of the union.

    Government schools’ entitlement mentality. If the Kansas personal income grows, should school spending also rise?

    December

    Wichita bridges, well memorialized. Drivers on East Twenty-First Street in Wichita are happy that the work on a small bridge is complete, but may not be pleased with one aspect of the project.

    Gary Sherrer and Kansas Policy Institute. A former Kansas government official criticizes Kansas Policy Institute.

    Wichita to grant property and sales tax relief. Several large employers in Wichita ask to avoid paying millions in taxes, which increases the cost of government for everyone else, including young companies struggling to break through.

    Economic development incentives at the margin. The evaluation of economic development incentives in Wichita and Kansas requires thinking at the margin, not the entirety.

    The Wichita economy, according to Milken Institute. The performance of the Wichita-area economy, compared to other large cities, is on a downward trend.

    State pension cronyism. A new report details the way state pension funds harm workers and taxpayers through cronyism.

    In Wichita, converting a hotel into street repairs. In Wichita, it turns out we have to sell a hotel in order to fix our streets.

    In Wichita, we’ll not know how this tax money is spent. Despite claims to the contrary, the attitude of the City of Wichita towards citizens’ right to know is poor, and its attitude will likely be reaffirmed this week.

  • In Wichita, we’ll not know how this tax money is spent

    In Wichita, we’ll not know how this tax money is spent

    Despite claims to the contrary, the attitude of the City of Wichita towards citizens’ right to know is poor, and its attitude will likely be reaffirmed this week.

    This week the Wichita City Council will consider approval of a contract with Visit Wichita, the city’s convention and visitor bureau. Once again, citizens will be left out of knowing how the city’s tax money is spent.

    In the past, I’ve asked that Visit Wichita (formerly Go Wichita Convention and Visitors Bureau) make its spending records available. It’s the same type of information that the city will send you about its own spending. But for Go Wichita, spending must — apparently — be kept secret.

    It’s not a small amount of money that will be spent in secret. This year the city will send Go Wichita almost $2.5 million.1

    But that’s not all. Since the implementation of the “City Tourism Fee” Visit Wichita collects 2.75 percent of hotel bills. (Welcome to Wichita! Here’s the bill for your tourism fee!) That’s estimated to generate $3 million in 2017.2

    That is a lot of tax money, and also a high proportion of the agency’s total funding. We don’t have IRS filings from Visit Wichita since the city tourism fee started, so it’s difficult to say what portion of its funding is tax money. But it’s a lot, at least 90 percent.

    Despite being nearly totally funded by taxes, Visit Wichita refuses to supply spending records. Many believe that the Kansas Open Records Act requires that it comply with such requests. If the same money was being spent directly by the city, the records undoubtedly would be supplied.

    I’ve appeared before the council several times to ask that Visit Wichita and similar organizations comply with the Kansas Open Records Act. See Go Wichita gets budget approved amid controversy over public accountability, City of Wichita Spends $2 million, Rebuffs Citizen’s Transparency Request, and articles at Open Records in Kansas.

    The lack of transparency at Visit Wichita is more problematic than this. Visit Wichita refused to provide to me its contract with a California firm retained to help with the re-branding of Wichita. When the Wichita Eagle later asked for the contract, it too was refused. If the city had entered into such a contract, it would be a public record. Contracts like this are published each week in the agenda packet for city council meetings. But Visit Wichita feels it does not have to comply with simple transparency principles.

    The City of Wichita could easily place conditions on the money it gives to these groups, requiring them to show taxpayers how their tax dollars are being spent. But the City does not do this. This is not transparency.

    In the past I’ve argued that Visit Wichita is a public agency as defined in the Kansas Open Records Act. But the city disagreed. And astonishingly, the Sedgwick County District Attorney agreed with the city’s interpretation of the law.

    So let’s talk about good public policy. Let’s recognize that even it is the case that the Kansas Open Records Act does not require Visit Wichita, WDDC, and GWEDC to disclose records, the law does not prohibit or prevent them from fulfilling requests for the types of records I’ve asked for. Even if the Sedgwick County District Attorney says that Visit Wichita is not required to release documents, the law does not prevent the release of these records.

    Once we understand this, we’re left with these questions:

    Why does Visit Wichita want to keep secret how it spends taxpayer money, as much as $5.5 million next year?

    Why is this city council satisfied with this lack of disclosure of how taxpayer funds are spent? Many council members have spoken of how transparency is important. One said: “We must continue to be responsive to you. Building on our belief that government at all levels belongs to the people. We must continue our efforts that expand citizen engagement. … And we must provide transparency in all that we do.” That was Mayor Brewer speaking in his 2011 State of the City address.

    The city’s official page for the current mayor holds this: “Mayor Longwell has championed many issues related to improving the community including government accountability, accessibility and transparency …”

    During the recent mayoral campaign, Longwell told the Wichita Eagle that he wants taxpayers to know where their money goes: “The city needs to continue to improve providing information online and use other sources that will enable the taxpayers to understand where their money is going.”

    In a column in the Wichita Business Journal, Wichita Mayor Jeff Longwell wrote: “First off, we want City Hall to be open and transparent to everyone in the community.”

    Now is the chance to fulfill these promises. All the city needs to do is add to its contract with Visit Wichita that the agency agree that it is a public agency spending public dollars, and that it will comply with the Kansas Open Records Act.

    It would be a simple matter for the council to declare that the city and its taxpayer-funded partner agencies believe in open government. All the city has to have is the will to do this. It takes nothing more. It costs the city and its agencies nothing, because the open records law lets government charge for filling records requests. I would ask, however, that in the spirit of open transparent government, in respect for citizens’ right to know how tax funds are spent, and as a way to atone for past misdeeds, that Visit Wichita fulfill records requests at no charge.

    —
    Notes

    1. “The 2017 Adopted Budget includes funding for Visit Wichita’s annual allocation in the amount of $2,476,166, which is to be paid from the Convention & Tourism Fund.” City of Wichita. Agenda for December 20, 2016. ↩
    2. “For 2017 the tax is budgeted to generate $3 million.” City of Wichita. Agenda for April 19, 2016. ↩
  • In Wichita, converting a hotel into street repairs

    In Wichita, converting a hotel into street repairs

    In Wichita, it turns out we have to sell a hotel in order to fix our streets.

    Update: The Council approved these projects.

    In September the Wichita City Council decided to sell the Hyatt Regency hotel in downtown Wichita for $20 million. Now the council will consider two proposals for spending this money.

    One proposal is to spend $10 million on street repair, called “one-time pavement maintenance projects” in city documents.1

    A second proposal is to spend $4 million on transit over the next four years. This is pitched as sort of a “bridge to sustainability.” That is, if the Wichita transit system can make it through the next four years, it can — somehow — become sustainable. The plan contains idea like this: “Extensive public education will be used to build ridership. Transit information will be available to a wider audience. Potential users will be engaged in more one-on-one manner.”2

    Whatever the merits of these spending programs, Wichita is taking a capital asset and using it to fund current spending. In particular, street maintenance needs to be performed continuously. Here, the city has not been taking care of streets that taxpayers paid for and entrusted to the city for care. It turns out we have to sell a hotel in order to fix our streets. But street maintenance is something that needs to be performed — and paid for — every year. We shouldn’t have to rely on a sale of a capital asset to fund daily needs.

    Following, from October, what the city should do with the Hyatt proceeds.

    Wichita, give back the Hyatt proceeds

    Instead of spending the proceeds of the Hyatt hotel sale, the city should honor those who paid for the hotel — the city’s taxpayers.

    The City of Wichita has sold the Hyatt Regency Hotel for $20 million. Now, what should the city do with these funds? In a workshop this week, the city manager and council recognized that these funds should not be used for operating purposes. This is important. The Hyatt Hotel was paid for with long-term debt, which the city says has been retired. The proceeds from this sale should be used in a similar way: For long-term capital investment, not day-to-day operating expenses. But the council heard two proposals that are decidedly more like operating expenses rather than capital investment.

    One proposal, presented by Public Works Director Alan King, is to spend $10 million on street repair over two years. Part of that expense is to purchase a new truck, which is a capital, not operating, expense. But King later revealed that the truck could be purchased out of the existing capital budget.

    Street maintenance, however, is an operating expense.

    A second proposal, from the Wichita Transit System, would use about $4 million to sustain and improve current bus service. It was presented to the council as a “bridge to a long term solution.”

    This, too, is an operating expense.

    As these proposals were presented in a workshop, no decision was made.

    These two proposed uses of the $20 million Hyatt sales proceeds are contrary to the goal of not using the funds for operating purposes. If the city decides to use the sales proceeds in this way, a capital investment will have been sold in order to pay for day-to-day expenses.

    Instead of spending on these two projects, the city should simply return the money to those who paid for the Hyatt in the first place. Those people are, of course, the taxpayers of Wichita. It would be difficult to give back the funds to individual taxpayers in proportion to the amount they supplied. So what the city should do is retire $20 million of the city’s long-term debt.

    If not that, then the city should use the Hyatt proceeds to pay for another long-lived asset, perhaps the new downtown library. Either of these alternatives respects the principles of sound financial practice, and also respects the taxpayers.

    —
    Notes

    1. City of Wichita. Agenda for December 20, 2016. Agenda Item No. IV-2. ↩
    2. City of Wichita. Agenda for December 20, 2016. Agenda Item No. IV-3. ↩
  • The Wichita economy, according to Milken Institute

    The Wichita economy, according to Milken Institute

    The performance of the Wichita-area economy, compared to other large cities, is on a downward trend.

    While good news for the Wichita metropolitan area economy is becoming more frequent, it’s important to compare how Wichita is doing relative to other cities. The Milken Institute produces ranking of cities based on their economic performance in its Best-Performing Cities project.

    The ranking are composed of a number of factors such as short-term and long-term job growth, short-term and long-term wage and salary growth, growth of high-tech industry, and high-tech location quotient.1 Milken also notes: “Best-Performing Cities is solely an outcomes-based index. It does not incorporate input measures (business costs, cost-of-living components, and quality-of-life conditions, such as commute times or crime rates). These measures, although important, are prone to wide variations and can be highly subjective.”2

    Ranking of the Wichita-area economy from 2003 to 2016, from Milken Institute.
    I’ve gathered data from the Milken project for Wichita. The data starts in 2003, the first year for which data is available. The data in the table is the rank for Wichita among 200 large metropolitan areas. The best rank is 1, while the worst is 200. In the line chart for each data series, I’ve inverted the data so that the best performance is at the top.

    As the charts show, for overall ranking, Wichita has been declining for some time.

    Wichita employment compared to Kansas and the nation. Click for larger.
    This does not mean the Wichita-area economy is on the decline. But it means the relative performance of Wichita has not kept up with other cities. As can be seen in the chart of Wichita, Kansas, and U.S. non-farm employment, Wichita employment is rising. But it isn’t rising as fast as the nation, as can be seen in the widening gap between Wichita and the nation since 2010.

    Of note, Wichita economic development agencies rely on Milken data.3 4

    Data for Wichita from Milken Institute Best-Performing Cities. Click for larger.

    —
    Notes

    1. “High-tech location quotients (LQs), which measure the industry’s concentration in a particular metro relative to the national average, are included to gauge an area’s participation in the knowledge-based economy. We also measure the number of specific high-tech fields (out of a possible 19) whose concentrations in an MSA or MD are higher than the national average.” Milken Institute. 2015 Milken Institute Best-Performing Cities. http://www.best-cities.org/2015/best-performing-cities-report-2015.pdf. ↩
    2. ibid. ↩
    3. Greater Wichita Partnership. In Wichita, you will find the knowledge & skill base to get the job done well. http://www.gwedc.org/site_selectors/labor_data. ↩
    4. Greater Wichita Partnership. Air Capital of the World. http://www.gwedc.org/key_industries/aerospace_aviation. ↩
  • Kansas school employees by type

    Kansas school employees by type

    An interactive visualization of relative trends in Kansas school employment.

    Kansas State Department of Education makes available tables of the number of employees working in Kansas schools. Employees are classified in two broad categories, Certified and Non-Certified. Within each category, employees are further classified by job type such as Superintendent, Curriculum Specialist, and Social Worker.

    Example from the visualization, showing assistant superintendents highlighted. Click for larger.
    I’ve gathered the tables back to fiscal year 2002 (the 2001 — 2002 school year) and present them in an interactive visualization. There are separate visualizations for Certified and Non-Certified employees. In each, as shown in the instruction, you may check the check boxes to add or remove types of employees. For the employee types that are shown, you may click to highlight types apart from the others.

    The line charts show the relative change in the number of employees. You may learn whether the number of employee type A is growing faster or slower than employee type B.

    The visualization also holds tables showing the number of employees.

    Click here to open the visualization in a new window.

    Using the visualization.
    Using the visualization.
  • The plan to raise your taxes that can’t be found

    The plan to raise your taxes that can’t be found

    A coalition of Kansas advocacy groups wants to raise your taxes, but the plan is difficult to find.

    On Wednesday a coalition of groups presented their plan to balance the Kansas budget and provide more tax revenue to spend. But — this plan can’t be found at any of the participating groups’ websites. So as a service to these groups, (Kansas Center for Economic Growth, Kansas Action for Children, Kansas Contractors Association, Kansas Organization of State Employees, and Kansas-National Education Association) I present a scanned version of the plan. Maybe one of the groups will send me a digital original.

    Click here to view the plan.

  • Economic development incentives at the margin

    Economic development incentives at the margin

    The evaluation of economic development incentives in Wichita and Kansas requires thinking at the margin, not the entirety.

    When considering the effect of economic development incentives, cities like Wichita use a benefit-cost analysis to determine whether the incentive is in the best interests of the city. The analysis usually also considers the county, state, and school districts (although these jurisdictions have no say over whether the incentive is granted, with a few exceptions). The idea is that by paying money now or forgiving future taxes, the city gains even more in increased tax collections. This is then pitched as a good deal for taxpayers: The city gets more jobs (usually) and a “profit,” too.

    Economic activity usually generates tax revenue that flows to governmental agencies. When people work, they pay income taxes. When they make purchases, they pay sales taxes. When they buy existing property or create new property, they pay property taxes. This happens whether or not the economic activity is a result of government incentives. This is a key point that deserves more exploration.

    Government often claims that without an incentive provided by government, a company would not have located in Wichita. Or, without the incentive, it would not have expanded in Wichita. Now, the city says incentives are necessary to persuade companies to consider remaining in Wichita rather than moving somewhere else.1

    But there are a few problems with the arguments that cities, states, and their economic development agencies promote. One is that the increase in tax revenue happens regardless of whether the company has received incentives. Therefore, the benefit-cost ratio calculations are valid only if incentives were absolutely necessary. Otherwise, government claims credit for something that was going to happen anyway. This is a big question that deserves exploration.

    For example, what about all the companies that locate to Wichita, or expand in Wichita, or simply remain in Wichita without receiving incentives? How do we calculate the benefit-cost ratio when a company receives no incentives? The answer is it can’t be calculated, as there is no government cost, so the divisor in the equation is zero. Instead, there is only benefit.

    Then, we don’t often ask why some companies need incentives, and others do not. Do the companies that receive incentives really need them? Is it really true that a business investment is not feasible without subsidy? Why do some companies receive incentives multiple times while others thrive without incentives?

    We may never know

    We may never know the answer to these questions. Here’s why. Suppose fictional company XYZ Enterprises, Inc. dangles the idea of moving from Wichita to some other city. XYZ cites incentive packages offered by other cities. Wichita and the state then come up with millions in incentives, and XYZ decides to remain in Wichita. Question: Were the incentives necessary? Was the threat to move genuine? If XYZ admits the threat was not real, then it has falsely held Wichita and Kansas hostage for incentives. If the city or state admits the threat was not real, then citizens wonder why government gave away so much.2

    So we’ll never really know. Everyone involved has incentive to maintain the fiction and avoid letting the truth leak out.

    A small lever moves big boulders, they say

    Related is that jurisdictions may grant relatively small incentives and then take credit for the entire deal. I’ve been told that when economic development agencies learn of a company moving to an area or expanding their Wichita operations, they swoop in with small incentives and take credit for the entire deal. The agency is then able to point to a small incentive and take credit for the entire deal. As you can imagine, it’s difficult to get the involved parties to speak on the record about this.

    Further, governments may not credit the contribution of other governments. In the past when the Wichita economic development office presented information about an incentive it proposed to offer to a company, it would sometimes list the incentives the company is receiving from other governments. As an example, when the city offered incentives to NetApp in 2012, the city’s contribution was given as a maximum of $418,000. The agenda material mentioned — obliquely — that the State of Kansas was involved in the incentive package. Inquiry to the Kansas Department of Commerce revealed that the state had promoted incentives worth $35,160,017 to NetApp.3 Wichita’s incentive contribution is just 1.2 percent of what the state offered, which makes us wonder if the Wichita incentive was truly needed. Nonetheless, Wichita city officials spoke as though the city alone was responsible for NetApp’s decision.

    The importance of marginal thinking

    When evaluating economic development incentives, we often fail to properly evaluate the marginal gains. Here’s an example of the importance of looking at marginal gains rather than the whole. In 2012, the City of Wichita developed a program called New HOME (New Home Ownership Made Easy). The crux of the program is to rebate Wichita city property taxes for five years to those who buy newly-built homes in certain neighborhoods under certain conditions.

    Wichita City HallThe important question is how much new activity this program will induce. Often government takes credit for all economic activity that takes place. This ignores the economic activity that was going to take place naturally — in this case, new homes that are going to be built even without this subsidy program. According to data compiled by Wichita Area Builders Association and the WSU Center for Economic Development and Business Research — this is the data that was current at the time the Wichita city council made its decision to authorize the program — in 2011 462 new homes were started in the City of Wichita. The HOME program contemplated subsidizing 1,000 homes in a period of 22 months. That’s a rate of 545 homes per year — not much more than the present rate of 462 per year. But, the city has to give up collecting property tax on all these homes — even the ones that would be built anyway.

    What we’re talking about is possibly inducing a small amount of additional activity over what would happen naturally and organically. But we have to subsidize a very large number of houses in order to achieve that. The lesson is that we need to evaluate the costs of this program based on the marginal activity it may induce, not all activity.

    For more, see Wichita new home tax rebate program: The analysis.

    —
    Notes

    1. “But the Hawker Beechcraft deal is different, focused on saving existing jobs, not creating new jobs, and the result diverts millions in limited taxpayer funds, primarily state income tax revenues, from state coffers to a company’s benefit, simply to have an existing business stay put.” Flentje, Edward. Brinkmanship with jobs. https://wichitaliberty.org/economics/brinkmanship-with-jobs/. ↩
    2. For more on this, see LeRoy, Greg. The Great American Jobs Scam. Especially chapter two, titled Site Location 101: How Companies Decide Where to Expand or Relocate. The entire book may be read online at http://www.greatamericanjobsscam.com/pages/preview-book.html. A relevant excerpt: “These prisoners’ dilemma games also enable companies to create fictions about cause and effect. These fictions can be used to create public versions of how deals happened that no one can credibly contradict, because the company’s real decision-making process will never be revealed. The most important fiction to maintain, of course, is that subsidies matter in deciding where a company expands or relocates. For example, being able to send secret signals to competing cities means companies can tell contradictory stories to different cities and have no fear of being exposed. If a company really has its heart set on City A, it can tell that city that it is in the hunt, but needs to do better. Meanwhile, it can send less urgent signals to Cities B and C, even if they offered bigger packages at first. Eventually, City A offers the biggest package, and the company announces its decision to go there.” ↩
    3. Weeks, Bob. NetApp economic development incentives: all of them. https://wichitaliberty.org/wichita-government/netapp-economic-development-incentives-all-of-them/. ↩