Explaining common economic development programs in Kansas.
TIF projects: Some background
Tax increment financing disrupts the usual flow of tax dollars, routing funds away from cash-strapped cities, counties, and schools back to the TIF-financed development. TIF creates distortions in the way cities develop, and researchers find that the use of TIF means lower economic growth. Click here.
STAR bonds in Kansas
The Kansas STAR bonds program provides a mechanism for spending by autopilot, without specific appropriation by the legislature. Click here.
Industrial Revenue Bonds in Kansas
Industrial Revenue Bonds are a mechanism that Kansas cities and counties use to allow companies to avoid paying property and sales taxes. Click here.
Community Improvement Districts in Kansas
In Kansas Community Improvement Districts, merchants charge additional sales tax for the benefit of the property owners, instead of the general public. Click here.
In Kansas, PEAK has a leak
A Kansas economic development incentive program is pitched as being self-funded, but is probably a drain on the state treasure nonetheless. Click here.
Government intervention may produce unwanted incentives
A Kansas economic development incentive program has the potential to alter hiring practices for reasons not related to applicants’ job qualifications. Click here.
City of Wichita
City of Wichita’s economic development page is here. The Sedgwick County/City of Wichita Economic Development Policy is here.
State of Kansas
A page at the Kansas Department of Commerce with incentive programs is here.
Kansas Governor Sam Brownback has another opportunity to promote and protect individual liberty by blocking expansion of an ever-growing regulatory state.
It took a bit of legislative wrangling, but on Sunday May 1 HB 2615 passed the Kansas Senate by a vote of 40 to zero, and the Kansas House of Representatives by 115 to seven. In its final form, the bill allows physicians and dentists to satisfy a portion of their continuing education requirements by providing charity care to medically indigent persons.1
This bill provides an opportunity to examine and reconsider the purpose of occupational licensure. Most fundamentally: In the case of physicians and dentists, we trust them with our health, our very lives. Can’t we trust them to do whatever they believe is necessary to stay up-to-date in their field without the government requiring a specific number of hours of continuing education? By the way, how does the state of Kansas know how many hours of continuing education are necessary to stay current? Is it the same in all branches of medicine and dentistry? That’s what the Kansas regulations imply.
In Kansas, physicians must participate in 50 hours of continuing medical education annually. This education requirement is satisfied by participating in “activity designed to maintain, develop, or increase the knowledge, skills, and professional performance of persons licensed to practice a branch of the healing arts.”2
But HB 2615 will let physicians satisfy 20 hours of this requirement by providing 40 hours of health care to needy people. Having doctors perform routine medical care — doing their daily job, in other words — doesn’t seem likely to advance the “knowledge, skills, and professional performance” of doctors, which is the stated goal of the regulation.
We have, therefore, a regulation that has a plausibly reasonable purpose — ensuring that physicians and dentists are up-to-date in professional knowledge — instead being used by the state to “encourage” them to provide free labor.
Charity is good. It’s wonderful. It’s why I regularly engage in charitable activity. But it isn’t charity when government is forcing you to do something. I have a feeling that many healthcare professionals already provide much charitable care. But now Kansas wants them to enter into an agreement with the Secretary of Health and Environment to provide gratuitous services if they want credit for performing care as a way to avoid continuing education requirements. Again: If continuing medical education is necessary, why let it be avoided by providing charity care? By allowing the performance of routine medical care to substitute for continuing education, isn’t the state creating a risk to physicians’ regular patients?
Governor Brownback has shown by his veto of SB 338 this year that he has the capacity to appreciate individual rights. In 2012 his veto of SB 353 shows he has an appreciation of the harm of burdensome regulation.
Now, Governor Brownback has another opportunity to promote individual liberty and block the expansion of an ever-growing regulatory state.
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Notes
“The bill would allow charitable healthcare providers and dentists to fulfill one hour of continuing education credit for performance of two hours of gratuitous service to medically indigent persons if the provider signs an agreement with the Secretary of Health and Environment (Secretary) to provide gratuitous services. Healthcare providers would be allowed to fulfill a maximum of 20 continuing educational credits through gratuitous service per licensure period, and dentists would be allowed to fulfill a maximum of 6 continuing educational credits through gratuitous service per licensure period.” Kansas Legislature. HB 2615, Fourth conference committee report brief, May 1, 2016. Available at www.kslegislature.org/li/b2015_16/measures/documents/ccrb_hb2615_03_may1.pdf. ↩
In this episode of WichitaLiberty.TV: Author John Chisholm talks about entrepreneurship, regulation, economics, and education. View below, or click here to view at YouTube. Episode 119, broadcast May 8, 2016.
Shownotes
John Chisholm’s new book Unleash Your Inner Company: Use Passion and Perseverance to Build Your Ideal Business at Amazon and its own website.
Wichita’s mayor pens an op-ed that is counter to facts that he knows, or should know.
In the pages of the Wichita EagleWichita Mayor Jeff Longwell wrote: “The city of Wichita has held its mill levy steady for the past 22 years.”1
That’s the mayor’s opinion. The facts, as can be easily found in government documents, are that the Wichita mill levy rises nearly every year.2 Since 2005 it has risen every year.
Change in Wichita mill levy rates, year-to-year and cumulative. Click for larger version.The mayor, city council, and bureaucrats say they have not taken action to raise the mill levy. They also say the mill levy is set by the county. All this is true.
But the county sets the mill levy based on two factors, one the city controls: The amount it decides to spend. The other factor, the assessed valuation of property, is not controlled by the city. So it is understandable that the mill levy may vary by small amounts from year to year when the two numbers are melded to form the actual mill levy. Some years the levy might rise, and in some years, it may fall. If it is a truly random matter, we should expect that over time the number of rising years and falling years should be equal, and that the overall change should be near zero.
But in Wichita, the mill levy rises nearly every year. And over time, since 1995, it has risen by 4.46 percent.
Wichita mill levy, percent dedicated to debt service. Click for larger version.(Besides that, there has been a shift in the application of property tax revenue, with revenue was diverted from debt service to current spending. As recently as 2007 the city devoted 31 percent of property tax revenue to debt service. In 2015 it was 26 percent.)
What should concern Wichitans about their mayor’s op-ed is that he knows these facts. Or, at least he should. Despite the data that is readily available in the city’s comprehensive annual financial reports, Mayor Longwell has chosen to remain misinformed and/or uninformed, and to spread that to citizens.
Following are excerpts from the minutes of the August 7, 2012 council meeting, which Jeff Longwell attended as council member, and following that, video.
Wichita City Council, August 7, 2012
Bob Weeks 2451 Regency Lakes Court stated we say the City has not raised its mill levy in a long time and thinks it is true that this Council has not taken action to raise the mill levy, but it has increased. Stated in 2002 the City’s mill levy was 31.845 and last year 32.359, which is an increase of about half a mill or 1.6 percent. Stated we should also recognize that property tax revenue increased from about $83 million to $118 million dollars or 42 percent. Stated we did not experience anything near that in the rate of growth of population or inflation? even the two put together. Stated in the City sales tax collection for the same years, $41 million to about $55 million or 34 percent increase. Stated City revenues have increased quite a bit even though the Council has not taken explicit action to increase either the sales tax rate or the property tax rate. Stated another thing he is concerned about is shifting one mill of property tax revenue from the debt service fund to the general fund. Stated over the past years since 2007 there has been a shift of about 2.5 mills, which is more than the explicit policy of one mill, which will be ending over the next two years. Stated we have not delayed paying off debt in the sense that we have not made our scheduled bond payments but that 2.5 mills could have been used to retire debt instead of supporting current spending. Stated we could have repurchased some of our outstanding bonds or we could have used that money to pay for things that we borrowed for. Stated we need to realize that we have been not taking advantage of opportunities to retire longterm debt and had been redirecting that spending to current fund spending, which is where Cowtown and the Nature Center come from. Stated we need to be aware of these types of things as we make the policies going forward.
Mayor Brewer asked staff to explain the figures that Mr. Weeks was talking about.
Kelly Carpenter Finance Director stated regarding the mill levy, they started out at 10 mills in the capital improvement plan. Stated they reduced that down to 7.5 mills and now we are gradually increasing that mill levy back up in the debt service fund to 8.5 mills over the next two years.
Council Member O’Donnell stated he was referring that the mill levy has actually increased.
Kelly Carpenter Finance Director stated the overall mill levy has not increased within the last 19 years. Stated there has been a shift between the general fund and the debt service fund but the overall mill levy of the 32 mills has not increased.
Council Member O’Donnell asked Mr. Weeks to return to the podium and asked where his figures are from.
Bob Weeks stated from the 2011 Comprehensive Annual Financial Report, page H17. Stated they are the numbers that he extracted from that report. Stated it may not be that this Council took an action to raise the mill levy but somehow it did increase.
Council Member O’Donnell asked staff to answer that.
Mark Manning Finance Department the mill levy is set by the county and what they tell the Council each year is that the mill levy in the proposed budget is not changed from the mill levy certified by the county, the prior year. Stated they do not know what the mill levy will be for 2013 right now and will not know until November when the county finalizes its evaluation. Stated it may be slightly higher or lower and that is why you see those annual fluctuations. Stated Mr. Weeks is correct? some years it goes up and some years it goes down a little bit. Stated it does fluctuate and there is nothing we can do to control that but the general policy has been to keep it level for the last 19 years.
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.
This week the Wichita City Council will consider offering Spirit Aerosystems economic development incentives that will allow the company to avoid paying some $45 million in taxes. This will be accomplished through the authorization of $280 million of Industrial Revenue Bonds. 1
Industrial Revenue Bonds are a vehicle for generating and conveying tax exemptions. 2 In the IRB program, government is not lending money, and Wichita taxpayers are not at risk if the bonds are not repaid. In fact, in the present case the applicant company plans to purchase the bonds itself, according to city documents. Instead, the purpose of the IRB process is to allow Spirit to escape paying property taxes and sales taxes.
Cost of Spirit Aerosystems incentives.Usually the agenda packet the city prepares for council members and the public contains the amount of tax expected to be foregone. For this item that summary is missing, and the sales tax exemption is not mentioned. I have prepared a table summarizing data from the analysis prepared for the city by the Center for Economic Development and Business Research at Wichita State University.
Of note, the share of the cost of the incentives born by the City of Wichita is small, slightly less than one percent. The bulk of the cost is born by the State of Kansas, with the Derby School District and Sedgwick County facing smaller shares of the cost.
Also, the city is forcing a decision on a neighboring jurisdiction that it would not accept for itself, unless it uses one of many exceptions or loopholes. This adverse decision is forced upon the Derby School District. It faces a benefit-cost ratio of 1.16 to 1, which is below the city’s standard of 1.30 to 1, unless an exception is cited. 3 The Derby School District is not involved in this action and has no ability to affect the issuance of these bonds, should it desire to.
Besides this, the granting of these tax breaks calls into question the validity of taxation. If a company can be excused from tens of millions of dollars in taxes, can we say there is equal treatment under law?
Effect on young companies
When large companies receive tax abatements and exemptions, others must pay the cost of government. In particular, small and young business firms are usually not eligible for incentive programs like that being offered to Spirit, and therefore must bear a disproportional share of the cost of government. This is an important consideration, as Wichita is relying on entrepreneurship as a principle method of growing its economy.
The cost of these tax abatements burdens a class of business firms that can’t afford additional cost and risk. These are young startup firms, the entrepreneurial firms that we need to nurture in order to have real and sustainable economic growth and jobs. This action — the award of incentives to an established company — is harmful to the Wichita economy for its strangling effect on entrepreneurship and young companies. As this company and others receive incentives and escape paying taxes, others have to pay.
There’s plenty of evidence that entrepreneurship, in particular young business firms, are the key to economic growth. But Wichita’s economic development policies, as evidenced by this action, are definitely stacked against the entrepreneur. As Wichita props up its established industries, it makes it more difficult for young firms to thrive.
Additionally, Wichita relies on targeted investment in our future. Our elected officials and bureaucrats believe they have the ability to select which companies are worthy of public investment, and which are not. But as we’ve seen in the unfortunate news emanating from several local companies, this is not the case. (See Kansas economic growth policy should embrace dynamism and How to grow the Kansas economy.)
Taxes for you, but not for me
Based on documents supplied by the city, Spirit will avoid paying $6,620,025 in sales tax through its participation in the IRB program. Kansans should be aware that our state has one of the highest sales taxes in the nation on groceries. The effect of this falls disproportionally on low-income households. 4
While Spirit seeks to avoid paying millions in sales tax, it campaigned for ordinary Wichitans to pay more sales tax. When Wichita placed a one cent city sales tax on the ballot in November 2014, Spirit Aerosystems contributed $10,000 to the group campaigning in favor of the sales tax. 5 Spirit’s immediate past president contributed $10,000 to the same effort.
Small business
This week American City Business Journals presented the results of a study of small business vitality in cities. 6 Wichita ranked at number 104 out of 106 cities studied. Awarding incentives to large companies places small business at a disadvantage. Not only must small business pay for the cost of government that incentivized companies avoid, small companies must also compete with subsidized companies for inputs such as capital and labor.
Finally, research has found that the pursuit of large companies doesn’t produce the desired growth: “The results show that large firms fail to produce significant net benefits for their host communities, calling into question the high-stakes bidding war over jobs and investment.” 7
William F. Fox and Matthew N. Murray, “Do Economic Effects Justify the Use of Fiscal Incentives?” Southern Economic Journal, Vol. 71, No. 1, 2004, p. 79. ↩
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.
During the administration of Governor Mark Parkinson, the State of Kansas issued eight series of bonds raising $273 million. Regarding these, the U.S. Securities and Exchange Commission has determined that the state failed to adequately inform investors of significant, material, negative information.
In a nutshell, according to the SEC: The Kansas Public Employee Retirement System (KPERS) was in terrible financial condition compared to other states, and Kansas did not adequately disclose that to potential bond buyers. That violated the Securities Act. In 2011 Kansas implemented reforms to the SEC’s satisfaction.
Duane Goossen biographyOf interest to current Kansas public affairs is that the head of the Kansas Department of Administration at the time the SEC found these violations was Duane Goossen. In its findings, the SEC specifically criticized the Department of Administration for its preparation of financial statements included in bond offerings — statements that were missing materially important, and negative, information.
Since his departure from Kansas government, Goossen has remained active in shaping Kansas policy, first as vice president for fiscal and health policy at Kansas Health Institute. 1 In 2015 Goossen joined Kansas Center for Economic Growth as Senior Fellow. 2 In announcing Goossen’s appointment, KCEG executive director Annie McKay noted his “wealth of expertise and knowledge.”
KCEG advocates for more taxes on Kansans, with the Goossen announcement mentioning “unprecedented and unaffordable tax cuts.” Goossen added he was excited to continue “contributing to the conversation across Kansas about the importance of budget and tax policy and the consequences of drastic tax cuts on everyday investments critical to Kansans.”
It’s ironic that Goossen mentioned “investments,” as we now know that under his leadership Kansas violated Sections 17(a)(2) and 17(a)(3) of the Securities Act, materially misleading bond investors while other states made full disclosure.
While critics of current Kansas government — including Goossen 3 — use KPERS underfunding as evidence of failure, this incident shows that KPERS has had funding problems for a long time, under leadership of both parties, and of both conservatives and moderates.
The SEC findings
According to a press release from the Securities and Exchange Commission, the State of Kansas “failed to disclose that the state’s pension system was significantly underfunded, and the unfunded pension liability created a repayment risk for investors in those bonds.” 4
The nature of the SEC’s inquiry involved “the disclosures surrounding eight bond offerings through which Kansas raised $273 million in 2009 and 2010.” 5
In its order, the SEC found: “The failure to disclose this material information in the Official Statements resulted from insufficient procedures and poor communications between KDFA and the Kansas Department of Administration (“KDA”), which provided information to KDFA for inclusion in the Official Statements, including preparing the State’s financial statements that were included as part of the Official Statements.” 6 (emphasis added)
The SEC also found that Kansas was an outlier among the states in failing to disclose negative information: “Kansas’s practice of not disclosing the underfunded status of KPERS became increasingly inconsistent with the practice of most states issuing municipal securities, which generally provided disclosure in their CAFRs or the body of their Official Statements regarding the financial health of their pension funds. By 2008, with the exception of Kansas, the overwhelming majority of the Official Statements for state-level bond issuances at a minimum disclosed the UAAL or funded ratios of the associated state-level pension plans, particularly if those plans were significantly underfunded.”
Prior to a new issue of bonds in November 2011, the SEC found that the State of Kansas instituted satisfactory policies and procedures regarding disclosure of material information.
SEC. Administrative proceeding file no. 3-16009. Order instituting cease-and desist proceedings pursuant to section 8a of the Securities Act of 1933, making findings, and imposing a cease-and-desist Order. Available at www.sec.gov/litigation/admin/2014/33-9629.pdf. ↩
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.
When supporters of more government spending and taxation in Kansas want to bolster their case, they often turn to Kansas Center for Economic Growth (KCEG). Portraying itself as a “nonprofit, nonpartisan organization,” KCEG says its mission is “to advance responsible policies by informing public discussion through credible, fact-based materials.” It says it conducts research and analysis to “promote balanced state policies.” 1
As it turns out, KCEG is not really the nonpartisan, independent think tank it pretends to be. Instead, as shown below, KCEG is a side project of Kansas Action for Children, Inc.. Both organizations are funded by and affiliated with well-known liberal organizations whose goals are always to expand the size and scope of government.
This is of interest to Kansans as groups that support low taxes, efficient government spending, and economic freedom are often maligned as being merely puppets of larger organizations that hide their purportedly nefarious goals. In particular, Kansas Policy Institute is often mentioned in this regard.
On its website KPI says it is “an independent think-tank that advocates for free market solutions and the protection of personal freedom for all Kansans.” 2 Also, KPI says it produces “objective research and creative ideas to promote a low-tax, pro-growth environment.”
Whenever KPI is mentioned, often condemnation of American Legislative Exchange Council follows, scorned for purportedly being a shadowy outfit that forces model legislation on unwitting legislators. But ALEC’s mission is quite clear and transparent. Its website says ALEC is “dedicated to the principles of limited government, free markets and federalism.” Economic freedom is also mentioned. ALEC says it provides a “toolkit for anyone who wants to increase the effectiveness and reduce the size, reach and cost of government.” 3
These mission statements plainly state the purposes of KPI and ALEC. Contrast them with the mission of Center on Budget and Policy Priorities, which is filled with material like this: “We pursue federal and state policies designed both to reduce poverty and inequality and to restore fiscal responsibility in equitable and effective ways.” 4 “Fiscal responsibility” can mean almost anything. To CBPP and its affiliates like KCEG, it means more taxes and more spending.
That dovetails cleanly with the preference of most Kansas newspapers. They — and most other news outlets — call for more spending and more taxation as the solution to all problems, state and local. They do so explicitly on their editorial pages, which is their right and privilege. In their news reporting, by using KCEG as an “objective” source, they rely on a source that isn’t being honest about its independence, its organizational status, and its ingrained policy preferences.
Who — or what — is Kansas Center for Economic Growth?
On its website, Kansas Center for Economic Growth (KCEG) says it is a “nonprofit, nonpartisan organization.” But no records exist for this entity at either the IRS or Kansas Secretary of State. Instead, KCEG uses Kansas Action for Children, Inc. (KAC) as its “fiscal agent” and funding source. KAC is a registered 501(c)(3) tax-exempt organization.
On its IRS form 990s, KAC lists a grant from AECF and SFAI, the purpose of which is supporting the type of work KCEG performs. AECF is Annie E. Casey Foundation, a non-profit with income of nearly $223 million and an endowment of $2.9 billion, according to most up-to-date IRS form 990 available. SFAI is State Priorities Partnership, originally founded as the State Fiscal Analysis Initiative (SFAI). It lists KCEG as a partner organization. 5 Both organizations promote solutions involving more government spending and taxation.
State Priorities Partnership, in turn, is coordinated by Center on Budget and Policy Priorities (CBPP). 6 CBPP promotes itself as pursuing “federal and state policies designed both to reduce poverty and inequality and to restore fiscal responsibility in equitable and effective ways.” 7 Its recommend policies nearly always call for more government spending and taxation.
In 2013 Bob Weeks was recognized by the Kansas Policy Institute with the John J. Ingalls Spirit of Freedom Award, given annually to a Kansan who uniquely supports the principles of individual liberty and economic freedom.
In this episode of WichitaLiberty.TV: Keen Umbehr is an attorney from Alma. Besides setting a precedent protecting free speech in the United States Supreme Court, he’s an advocate for criminal justice reform and a former candidate for governor. View below, or click here to view at YouTube. Episode 118, broadcast May 1, 2016.
Small Town Showdown, the true story of Keen A. Umbehr, a trashman who dared to challenge the powers that be in his hometown of Alma, Kansas, population 850.
An interactive visualization of tax collections by state governments shows Kansas distinguished from some of its neighbors.
Note: this visualization has been updated. Click here for the most recent version.
Per-capita tax collections, Kansas and nearby states. Click for larger.As shown in the nearby illustration, Kansas collects more taxes than some nearby states, on a per-person basis. This information should guide Kansas legislators and policymakers and Kansas prepares to balance its budget. Does Kansas want to further separate itself from its neighbors with even higher taxes?
The values are from the United States Census Bureau, and are for tax collections by the state only. Local governmental entities like cities, counties, townships, improvement districts, cemetery districts, library districts, drainage districts, watershed districts, and school districts are not included.
You may use this interactive visualziaton to prepare your own analysis and illustrations. Of particular interest is the “State Total” tab. Here you can select a number of states and compare their tax burdens. (Probably three or four states at a time is the practical limit.)
