Voice For Liberty

Tag: Greater Wichita Economic Development Coalition

  • Wichita economic development claims deserve scrutiny

    Reports that Southwest Airlines may be considering adding service in Wichita have lead to enthusiasm for the economic development that this service would add.

    In the current case, reporting by Molly McMillan of the Wichita Eagle tells of a study produced by Wichita State University’s Center for Economic Development and Business Research. She reports “In a worst-case scenario, the entrance of the airline in the study would add roughly 7,000 direct and indirect jobs in Wichita over a three-year period.”

    An editorial in today’s edition of the Eagle repeats this number.

    While more air service options are good for Wichita travelers, we need to be suspicious of the lofty claims of huge jobs and economic impact like the number claimed in this case.

    In particular, 7,000 jobs is a very large number. According to figures provided by the Greater Wichita Economic Development Coalition, only one company in the greater Wichita area has over 7,000 employees. The company with an employee count nearest 7,000 is Cessna, with about 6,000 employees.

    Can anyone seriously claim that adding one more airline to the many already serving Wichita will result in the addition of more jobs than what exists at Cessna?

    These economic development figures need to be looked at closely. In 2005, I noted in the article Stretching figures strains credibility that the Center for Economic Development and Business Research has overstated the case before. In particular, the center included all the employees of Cessna and Bombardier in calculations of the economic impact of the Wichita airport:

    By reading this study I learned that the employees of Cessna and Bombardier — 12,134 in total — are counted in determining the economic impact of the airport. Why? To quote the study: “While it might appear that manufacturing businesses could be based anywhere in the area, both Cessna and Bombardier require a location with runways and instrumentation structures that allow for flights and flight testing of business jet airplanes.” This is true, but it is quite a stretch to attribute the economic impact of these employees to the airport.

    For one thing, if we count the economic impact of the income of these employees as belonging to the airport, what then do we say about the economic impact of Cessna and Bombardier? We would have to count it as very little, because the impact of their employees’ earnings has been assigned to the airport. This is, of course, assuming that we count the impact of these employees only once.

    Or suppose that Cessna tires of being on the west side of town, so it moves east and starts using Jabara Airport. Would Cessna’s economic impact on Sedgwick County be any different? I think it wouldn’t. But its impact on the Wichita airport would now be zero. Similar reasoning would apply if Cessna built its own runway.

  • Wichita Convention and Visitors Bureau should follow Kansas Open Records Act

    Remarks to be delivered to the December 1, 2009 meeting of the Wichita City Council.

    Mr. Mayor, members of the council,

    I’m recommending that the city not renew its contract with the Go Wichita Convention and Visitors Bureau until that organization decides to follow the Kansas Open Records Act.

    Recently I made a request under the provisions of the records act for records from the Bureau. This request was denied. The Bureau didn’t deny my request because of the nature of the records I asked for. Instead, the Bureau’s Chairman, Devin Hansen, has an understanding, he wrote, that the Bureau is not subject to the open records law.

    Here’s why the Convention and Visitors Bureau is a public agency subject to the Open Records Act. KSA 45-217 (f)(1) states: “‘Public agency’ means the state or any political or taxing subdivision of the state or any office, officer, agency or instrumentality thereof, or any other entity receiving or expending and supported in whole or in part by the public funds appropriated by the state or by public funds of any political or taxing subdivision of the state.”

    The Kansas Attorney General’s office offers additional guidance: “A public agency is the state or any political or taxing subdivision, or any office, officer, or agency thereof, or any other entity, receiving or expending and supported in whole or part by public funds. It is some office or agency that is connected with state or local government.”

    Let’s ask a few questions:

    Is the Convention and Visitors Bureau supported in whole or in part by tax funds? According to its 2008 annual report, 89% of its revenues came from the transient guest tax. We must answer “yes” to this question.

    Is the Convention and Visitors Bureau an office or agency connected with state or local government? Absolutely, in terms of both funding and function.

    There’s no rational or reasonable basis for the Bureau’s assertion that it is not a public agency subject to the Kansas Open Records Act.

    There are two other quasi-governmental organizations similarly situated, the Wichita Downtown Development Corporation and the Greater Wichita Economic Development Coalition. These two organizations have also refused to comply with the Kansas Open Records Act for the same reason as the Convention and Visitors Bureau. The WDDC, in particular, is relying on what I believe to be an incorrect interpretation of the law by city legal staff.

    Mr. Mayor and council members, look at the plain language of the Kansas Open Records Act, as I’ve explained. Look at the intent of the Kansas Legislature as embodied in the statute: “It is declared to be the public policy of the state that public records shall be open for inspection by any person unless otherwise provided by this act, and this act shall be liberally construed and applied to promote such policy.”

    The policy of the state is that records should be open. Governmental bodies shouldn’t be looking for reasons to avoid complying with the law, as has the City of Wichita and these three quasi-governmental organizations. Especially when the reasons the city legal staff has used are wrong, both in terms of the letter of the law and its intent.

    As a condition of renewing the city’s contract with the Convention and Visitors Bureau, I ask that this council instruct the Bureau to follow the Kansas Open Records Act.

  • Public effort should benefit all taxpayers, not a select few

    The following article by Dave Trabert, president of the Flint Hills Center for Public Policy, was printed in yesterday’s Wichita Eagle.

    Trabert makes the case for broad-based policies that will benefit all companies, not just those who happen to qualify for government economic development programs.

    A specific example of a small business struggling but not qualifying for assistance was presented by Steve Compton, owner of the Eaton Steakhouse in Wichita. In February he spoke to the Wichita City Council and explained the difficulties his business is facing. He asked the council to consider small businesses just as much as large businesses and corporations when deciding who will receive economic assistance. My post At Wichita City Council, why are some doors open, and others closed? holds Mr. Compton’s remarks. The post In Wichita, let’s have economic development for all holds further information about this.

    At nearly every Wichita city council meeting, the city dishes out economic development favors. Many are in the form of industrial revenue bonds, which allow companies to buy property without paying property tax for some term of years, and in some cases, they can avoid paying sales tax on the purchase. These favors seek to narrow the tax base at the same time politicians like Mayor Carl Brewer promote broadening the tax base. For those companies who can’t qualify for these economic development programs — not to mention residents — their taxes are higher than they would be.

    Public Effort Should Benefit All Taxpayers, Not a Select Few

    Dave Trabert
    Flint Hills Center for Public Policy

    A recent Wichita Eagle commentary by Doug Stanley, vice chairman of the Greater Wichita Economic Development Coalition, made the case for government to invest taxpayer money in developing “shovel-ready” sites to attract a wide range of new employers, especially large industrial and manufacturing companies. He says consultants who work with large employers on site selection give preference to communities that have made the upfront investment to save them time and obviously, a lot of money.

    The logic is that communities want jobs, so some companies and their site consultants use that carrot to entice local and state governments to absorb a portion of their upfront risk. It’s easy to understand what’s in it for the company receiving a taxpayer-funded inducement to build, and these deals certainly give elected officials a chance to show taxpayers that they’re working to create jobs. Some jobs are created if one of these deals gets done and that’s a good thing, but “buying” those jobs is not the best use of taxpayer money.

    First of all, it’s a roll of the dice as to whether spending money on shovel-ready sites will actually result in job creation, and even when it does, it’s not unheard of for some recipients of taxpayer money to close or leave town. Sometimes they even threaten to leave if they don’t get more money for new projects. It’s not unlike betting money in Las Vegas; you might win once in a while but the House is the only winner in the long run. Come to think of it, though, the bettor always wins in this case. If they place a bet on a site and eventually land some jobs, they get the credit; if they lose, well, it wasn’t their money … it belonged to taxpayers.

    The real conundrum, though, is why government and economic development entities place risky bets that only really pay off for a select few instead of going after a sure thing where everyone wins. A new employer coming to town with a few hundred or even a thousand jobs gets a lot of headlines and large employers are certainly important, but they pale in comparison to the jobs provided by small business. According to Dun & Bradstreet data analyzed at YourEconomy.org, 73.5% of Kansans employed in 2007 worked for businesses that employed fewer than 100 people.

    Instead of picking winners and losers, government should be doing things that benefit all taxpayers and employers of all sizes. Find ways to operate more efficiently and reduce property, sales and income taxes. Eliminate a lot of the bureaucratic red tape in the licensing and permitting process. Creating a stable, pro taxpayer environment is the best kind of economic development; instead of costing taxpayers money, it puts money in their pockets.

    There’s no doubt that governments and economic development agencies feel pressure to compete with communities that offer inducements to potential employers, but they should be creating strategies that benefit all taxpayers instead of a select few.

  • Wichita’s economic development is expensive, risky

    Sunday’s Wichita Eagle carried an op-ed piece written by Doug Stanley, vice chairman of the Greater Wichita Economic Development Coalition. As we might expect, he calls for more government involvement and management of economic development.

    Stanley makes the point that economic development organizations like GWEDC have customers, going so far as to cite the saying “the customer is king.”

    The idea of a customer, however, implies willing and voluntary participants on both sides of the transaction. While the companies that receive benefits from the taxpayer are willing participants, the taxpayers are not.

    Reading Stanley’s op-ed, you might conclude that Wichita has no industrial sites available. Conversations will several local developers indicate that the opposite is true: there are many industrial sites — some complete with existing buildings — available for immediate occupancy. It may be true that we don’t have the 800 acre site that Sedgwick County wants in an industrial park, but we have many sites that even very large companies could use.

    And it’s a rare company that could use even a small fraction of 800 acres.

    Critics might say that these sites, owned by private interests, won’t be as responsive to the needs of companies making site selections. But who do you trust to be more proactive and responsive: entrepreneurs looking for survival and profit, or government bureaucrats like those working for GWEDC?

    The problem, of course, is that private entrepreneurs don’t have government largess funded by taxpayers to offer.

    That leads to something that Stanlely doesn’t mention: Chasing jobs through economic development is expensive. A 1996 PBS report stated “The strategy of offering cheap land, cheap labor, and sizeable tax breaks has worked well for the southern and southeastern states, but it is getting expensive. In 1980, landing a new Nissan plant cost Tennessee $11,000 per job created. In 1985, recruiting the Saturn Corporation cost the state $26,000 per job. In 1992, it cost South Carolina more than $68,000 per job to bring in a BMW plant, and the estimates range from $150,000 to $200,000 per job for the Mercedes Benz plant in Alabama.”

    This arms race among states needs to stop. Last year Cessna used the fact of an offer from other states to extract subsidy from Kansas, Sedgwick County, and the City of Wichita. But how else could political leaders in Kansas react? It would have been political suicide to let one of Kansas’ most famous companies escape.

    Not that Cessna was planning to leave Wichita altogether. Instead, the decision was where to build a plant to produce a new airplane model. Since last year, Cessna has scrapped plans for the new plane. To its credit, Cessna is returning or not using the subsidies. But this is an indication of the risk that government assumes when engaging in economic development.

    Government has a dismal record of picking winners and losers. Instead of making decisions based on economic factors, decisions are made for political reasons. Those reasons often have little to do with sound economic prospects and more to do with the next campaign for re-election.

    Action at the federal level is needed to stop this wasteful competition between states. Then, all states can disband their economic development organizations and let business be business.

  • Sedgwick County industrial park requires scrutiny

    At Wednesday’s meeting of the Board of Sedgwick County Commissioners, a seemingly innocent item appeared on the meeting agenda.

    Titled simply “LAND PURCHASE CONTRACT — Presented by Chris Chronis, CFO” and accompanied by a recommendation to approve the contract, this item might have slipped public notice if not for Dion Lefler’s Wichita Eagle story the day before.

    Four members of the public — one being myself — attended the meeting to speak to the commissioners on this matter.

    There was one other person who attended for the same reason. I’m not including him as “public,” because as chairman of a quasi-governmental body, he seems to hold special status before the commission. He was able to give input to the commissioners, while none of the public were able to do the same.

    I don’t fault the commission for shutting off the public speakers. Not too much, anyway, as there will be a public hearing on this matter at next Wednesday’s meeting. We’ll ask our questions then. The problem is that we will likely ask questions that haven’t been asked before — questions that need answers. Will the commission be in the mood to delay action another week or more so that these questions can be answered?

    There are many reasons to be skeptical of the claimed need to move forward quickly on this item. One that troubles me is that the organization that wants this industrial park, the Greater Wichita Economic Development Coalition, has been trying to market this very park for over five years. What has changed now? How has this organization earned our trust?

    At Wednesday’s meeting, even basic questions such as the width of the railroad right-of-way could not be answered.

    There’s also the issue of deannexation of the property by Bel Aire. Part of the deal requires Bel Aire to spend $4.1 million to provide water and sewer service to the park. But if the land is no longer in that small city, what incentive do they have to spend this money?

    Perhaps the most important reason is that there are many developers in Wichita who own land — empty buildings too — that are suitable for industrial park-style use. When government gets involved and competes with them, it greatly affects these developers’ business. Government has many advantages that the private sector doesn’t have, such as the ability to buy and develop land, using taxpayer funds, with little consideration of risk. Then, it can — and often does — give it away.

    Under these conditions, what motivation do entrepreneurs have to raise capital and assume huge risk, just to have government step in and destroy their investment?

  • Sedgwick County land purchase raises questions

    Wichita Eagle newspaper stories from summer 2003 tell of the City of Bel Aire‘s plans for an industrial park. Today Sedgwick County may purchase this land from the small city.

    This item, described on the agenda — at least I think this is the item — simply as “Land purchase contract” has assumed a sense of urgency.

    The Eagle news stories tell how the city of Bel Aire purchased the land in secret, because it didn’t want the City of Wichita to be aware of its plans.

    But the important questions are these:

    Bel Aire hired real estate developer Steve Martens to develop the industrial park. Recently the Greater Wichita Economic Development Coalition says they’ve lost out on bids to attract industry to Wichita because we don’t have ready-to-go land available for industrial development. Steve Martens has been the chairman of the GWEDC during some of the time since Bel Aire announced plans to develop this industrial park.

    I’m having trouble forming a precise question based on these facts. But I hope you see how I am perplexed by these facts.

    Then, what has changed now that would make us believe that Sedgwick County — a different governmental body, but still government — will have a better experience developing this industrial park?

    If the GWEDC has a specific prospect in mind for this land — and that may be a very real possibility — it would be reassuring to hear it say so. I understand that the courting of companies looking to relocate or expand may be shrouded in secrecy by necessity. It’s also possible that we’re being used as a bargaining chip. These are problems for a different day.

    What is the plan for future ownership of the land in question? Will the county continue to own it, or will it sell it to companies that locate here?

    Is it possible to have the private sector develop this land even if it’s owned by Sedgwick County? We have many talented real estate developers in this area.

  • Wichita Eagle’s GWEDC board membership in perspective

    What is the role in public affairs of a newspaper like the Wichita Eagle? Can it wear more than one hat — making news as well as covering it?

    This is not a hypothetical question.

    Consider that Pam Siddall, president and publisher of the Wichita Eagle is a member of the steering council of the Greater Wichita Economic Development Coalition, an important, partially tax-funded board, that plays a significant role in Wichita.

    Should this make any difference to you?

    When the Eagle’s editorial board grants the president of the Greater Wichita Economic Development Coalition space on its pages, should readers be aware of this connection? (Vicki Pratt Gerbino: Invest in recruiting, preserving area jobs, February 15, 2009 Wichita Eagle)

    When the Eagle’s editorial blog writes a fawning post titled GWEDC crucial to attracting, retaining jobs, should readers be aware of this connection?

    When Eagle reporters write a story that can be characterized as critical of anyone who questions the need for the GWEDC — the story starts with “The hard-won balance between the city, county and business leaders over economic development is wobbling a bit after some comments last week.” — should readers be aware of this connection? (See Sedgwick County commissioners question economic development funding, February 17, 2009 Wichita Eagle.)

    The nature of the connection is that the Eagle is an “Investor” in the GWEDC, which means they contributed at least $5,000, at least some in the form of advertising. The Wichita Business Journal is also in the Investor class.

    I asked the heads of the two organizations involved — Vicki Pratt Gerbino, president of the GWEDC, and Pam Siddall, publisher of the Wichita Eagle — if they thought there was potential for conflict of interest when a news organization covers an entity it has made contributions to. Ms. Gerbino said no, there’s no conflict of interest. Ms. Siddall said the same, citing the separate news and business functions at the Eagle.

    In conversations I’ve had in the past with a few Eagle reporters, they’ve cited the “wall of separation” between the main functions of a newspaper, which are news, editorial, and the business of the newspaper.

    But this wall may not be as tall and wide as it seems. In an excerpt from Knightfall: Knight Ridder and How the Erosion of Newspaper Journalism Is Putting Democracy At Risk, Davis Merritt, former editor of the Eagle writes “The notion of strict separation between the business and journalism functions of newspapers is relatively recent in terms of the whole of American newspaper history, and judging by current practice, it may be only a passing phase.”

    It is difficult for an outsider to be able to know if the Eagle’s news and editorial judgments are influenced by its relationship with the GWEDC. That’s why people and organizations are often advised to avoid even the appearance of a conflict of interest.

    Could the GWEDC survive without the publisher of the Eagle on its steering committee and without the Eagle’s financial contribution? I think they could. Then, without this connection, readers of the Eagle wouldn’t have to worry so much about the Eagle’s news and editorial independence.

  • In Wichita, let’s have economic development for all

    GWEDC crucial to attracting, retaining jobs, says a post by Phillip Brownlee on the Wichita Eagle Editorial Blog. (GWEDC is the Greater Wichita Economic Development Coalition.)

    There’s probably little doubt that offering incentives to companies to move to Wichita results in some that do. And, as we’ve seen, some Wichita companies are adept at inciting rumors they might move or locate new facilities somewhere else in order to gain some advantage or incentive from local or state (or sometimes both) government.

    Whether these economic development policies are wise is far from settled. Last year the Kansas Legislative Division of Post Audit released a study examining economic develompent efforts at the state level. This report may be read at Economic Development: Determining the Amounts the State Has Spent on Economic Development Programs and the Economic Impacts on Kansas Counties Executive Summary.

    Some conclusions of interest are these:

    First: “There are a number of problems in trying to assess the effectiveness of economic development programs and activities.” The document elaborates, but the important thing is that when organizations like the GWEDC make grandiose claims, realize that many are only crude estimates formulated to produce the best possible numbers,.

    Second: “Most studies of economic development incentives suggest these incentives don’t have a significant impact on economic growth. The literature we reviewed concluded that, thus far, negative and inconclusive findings are far more numerous than positive findings. Most reviews of economic development assistance find few results are achieved — a theme that audits in Kansas and other states commonly find, as well. Findings of ineffectiveness include promised jobs weren’t created, return on investment is low or negative, and incentives offered weren’t a determining factor.”

    This paragraph hardly requires comment, except to note that professionals in the field of economic development, politicians, and government bureaucrats don’t believe this.

    Third: “The literature also suggests that economic development incentives must be offered to remain competitive with other states.”

    Because the parties identified above believe that incentives work, they want to offer them and will continue to do so. This is true, I believe, in all states.

    So it’s a terrible situation to be in. We have expensive programs that don’t produce their intended goal, but because some very self-interested parties believe they do, we’re stuck with it.

    If Kansas and Wichita wanted to really do something to get noticed, let’s lower taxes for everyone, not just those companies who seek political favor and happen to fit into a situation where they are eligible for one or more of the various incentive plans we have. If we could do this, all companies would benefit.

    Consider the case of Steve Compton, owner of the Eaton Steakhouse in downtown Wichita, as described in my post (with video) At Wichita City Council, Why Are Some Doors Open, and Others Closed?

    Here we have an established Wichita company that is, apparently, facing tough economic conditions. What could help this company? Lower taxes would, without a doubt.

    There would be no need for an organization like GWEDC to tell us this. We wouldn’t need an army of bureaucrats to administer a program to deliver the benefit. There would be no need for Mr. Compton to make campaign contributions to the right politicians. There would be no need to have a debate in city council chambers over the merit of incentives offered to individual firms, one at a time.

    Let’s have a simple policy of lower taxes, and, of course, lower government spending. This will provide immense economic development benefits to everyone.

  • Can Wichita government investment create jobs?

    Recently the president of the Greater Wichita Economic Development Coalition wrote an op-ed that engaged in a large measure of self-congratulation, while at the same time asking for even more resources. (Vicki Pratt Gerbino: Invest in recruiting, preserving area jobs, February 15, 2009 Wichita Eagle)

    We need to examine whether activities of groups like the GWEDC are really needed and desirable.

    First, Ms. Gerbino states “To date, our public investments have returned more than $2 for each public dollar invested.” Reading this, it sounds like a great deal — local taxpayers put up $1 and get $2 back. But it doesn’t quite work out that way.

    If you read a document at the GWEDC website titled GWEDC Economic Development Activity and Performance Evaluation 1st Half 2008, you’ll learn who really wins: local governments. Here’s what this document says: “To measure public benefit, the GWEDC evaluation model estimates the streams of tax revenues …”

    That’s right. More tax revenue flows to local governments. Somehow this is supposed to be viewed as “return on investment” for the taxpayers. If government were to reduce taxes in response to this increase of revenue, that might be a good return. But that doesn’t happen.

    Some of these programs don’t recognize the cost of providing the benefit. Consider Industrial Revenue Bonds (IRB). The purpose of these bonds is tax abatement, usually property tax, but sometime sales tax too. The company that receives the abatements benefits. But unless the city reduces spending by the amount of the abatement, taxes rise for other taxpayers. This leads to a loss of economic activity — and jobs — somewhere else.

    There are 12 different types of incentive programs listed on the GWEDC’s website. Each has its own set of criteria that companies must meet. It’s likely that each of these programs has administrative overhead that must be paid for, and companies undergo costs when they apply for these programs.

    This has the result of creating two classes of companies: those that are able to take advantage of these incentives, and those who, for whatever reason, can’t use them.

    A better strategy would be to eliminate economic development incentives and the distortions that accompany them. Instead, work to reduce taxes for all companies. People across the country will notice this without an expensive advertising campaign that get lost in the noise created by all the other cities and states competing with taxpayer dollars.

    Besides, for all this economic development to make sense, you have to believe that government is the best judge as to where investment capital should be directed. There’s not much evidence to support this.