Voice For Liberty

Tag: Intrust Bank arena

  • Intrust Bank Arena depreciation expense ignored

    Reports that income earned by the Intrust Bank Arena is down sharply has brought the arena’s finances back into the news. The arena, located in downtown Wichita and owned by Sedgwick County, is deemed to be a success by the county and arena boosters based on “profit” figures generated during its first year of operations. But these numbers are not an honest assessment of the arena’s financial performance.

    When the numbers were presented to Sedgwick County commissioners this week, commission chair Dave Unruh said that he is “pleased that we we still are showing black ink.”

    He then made remarks that show the severe misunderstanding that he and almost everyone labor under regarding the nature of the spending on the arena: “I want to underscore the fact that the citizens of Sedgwick County voted to pay for this facility in advance. And so not having debt service on it is just a huge benefit to our government and to the citizens, so we can go forward without having to having to worry about making those payments and still show positive cash flow. So it’s still a great benefit to our community and I’m still pleased with this report.”

    The contention of Unruh and other arena boosters is that the capital investment of $183,625,241 (not including an operating and maintenance reserve) on the arena is merely a historical artifact, something that happened in the past and that has no bearing today. This attitude, however, disrespects the sacrifices of the people of Sedgwick County and its visitors to raise those funds.

    Since it is only one year old, presumably the arena could be sold for something near its building cost, less an allowance for wear and tear. If not, then the county has a lot of explaining to do as to why it built an asset that has no market value.

    But even if the arena has no market value — and I suspect that in reality it has very little value — it still has an economic cost that must be recognized, that cost being the sales tax collected to pay for it. While arena boosters dismiss this as past history, the county recognizes this cost each year, and will continue to do so for many years.

    The county, however, doesn’t go out of its way to present the complete and accurate accounting of the arena’s cost. Instead, the county and arena boosters trumpet the “profit” earned by the arena for the county according to an operating and management agreement between the county and SMG, a company that operates the arena.

    This agreement specifies a revenue sharing mechanism between the county and SMG. Based on the terms of the agreement, Sedgwick County received payment of $1,116,442 for the 2010 year. While described as profit by many — and there was much crowing over the seemingly large amount — this payment does not represent any sort of “profit” or “earnings” in the usual sense. In fact, the introductory letter that accompanies these calculations warns readers that these are “not intended to be a complete presentation of INTRUST Bank Arena’s financial position and results of operations and are not intended to be a presentation in conformity with accounting principles generally accepted in the United States of America.”

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

    Commissioner Karl Peterjohn has warned that these figures — and the monthly “profit” figures presented to commissioners — do not include depreciation expense. That expense is a method of recognizing and accounting for the large capital cost of the arena — the cost that arena boosters dismiss.

    In April Sedgwick County released that depreciation number in its 2010 Comprehensive Annual Report. The number is pretty big: $4.4 million, some four times the purported “earnings” of the arena.

    Any honest accounting or reckoning of the performance of Intrust Bank Arena must take this number into account. Unruh is correct in that this depreciation expense is not a cash expense that affects cash flow. That cash was spent during the construction phase of the arena.

    But depreciation expense provides a way to recognize and account for the cost of long-lived assets like buildings over their lifespan. It recognizes and respects the investment of those who paid the sales tax. When we follow standard practices like recognizing the cost of capital assets through depreciation expense, we’re forced to recognize that there’s a $4.4 million gorilla in the room that arena boosters don’t want to talk about.

    Using information about arena operations contained in the operations report, we can construct what an actual income statement for the arena would look like, following generally accepted business principles. According to the statement, total operating income for 2010 was $7,005,224. Operating expenses were $4,994,488. Subtracting gives a figure of $2,010,736. This number, however, is not labeled a profit in the report. Instead, the report calls it “Increase in Net Assets Arising from Operating Activities Managed by SMG.”

    An accounting of profit would have to subtract the $4.4 million in depreciation expense. Doing that results in a loss of $2,389,264. This — or something like it — is the number we should be discussing when assessing the financial performance of Intrust Bank Arena.

    Fiscal conservatives — and sometimes even liberals — often speak of “running government like a business.” As an example, Unruh’s campaign website from last year states “… as a business owner he works hard to apply good business principles to County government …”

    But here’s an example of conservative government leaders ignoring a basic business principle in order to paint a rosy picture of a government spending project. Unruh is not alone in doing this.

    Without honest discussion of numbers like these, we make decisions based on incomplete and false information. This is especially important as civic leaders agitate for another sales tax or other taxes to pay for more public investment. The sales pitch is that once the tax is collected and the assets paid for, we don’t need to consider the cost. They contend, as is the attitude of Unruh and arena boosters, that we can just sweep it under the rug and pretend it doesn’t exist. This is a false line of reasoning, and citizens ought not to be fooled.

  • Kansas and Wichita quick takes: Friday July 1, 2011

    This Week in Kansas. On this week’s edition of the KAKE Television public affairs program This Week in Kansas, Ken Ciboski (Associate Professor of Political Science at Wichita State University), John D’Angelo (Arts & Cultural Services Manager for the City of Wichita), and myself join host Tim Brown for a discussion of arts and government funding in Kansas. This Week in Kansas airs in Wichita and western Kansas at 9:00 am Sundays on KAKE channel 10.

    Kansas taxes. A short report produced by Americans for Prosperity, Kansas shows some of the reasons why economic growth in Kansas has been sluggish: “Kansas’ state and local tax burden continues to be amongst the highest in the region.” Kansas has fewer private sector jobs than it did ten years ago. And in what should be a grave cause for alarm, Kansas was the only state to have a net loss of private sector jobs over the last year. … A table of figures illustrates that although Oklahoma kept its sales tax rate low and constant while Kansas increased its rate, tax revenue increased much more in Oklahoma. Download the report at AFP-Kansas Income Tax Policy Primer.

    Wichita sales tax. Speaking of sales tax and its harmful effect, Wichita seems to want to raise its rate. Proposals have been floated for a sales tax for economic development in general, for increased transit (bus) service, for drainage projects, and for downtown projects. Boosters cite the Intrust Bank Arena as an example of a successful project paid for by a sales tax that disappeared as promised. That’s despite the dreams of Sedgwick County Commissioner Tim Norton: “Then, as that tax was nearing its end, Norton ‘wondered … whether a 1 percent sales tax could help the county raise revenue.’ (‘Norton floats idea of 1 percent county sales tax,’ Wichita Eagle, April 4, 2007)” … Boosters of the arena promote it as a financial success, and there was the presentation to the county of a check for $1,116,442 as its share of the arena’s earnings. This figure, however, does not represent any sort of “profit” or “earnings” in the usual sense. In fact, the introductory letter that accompanies these calculations warns readers that these are “special-purpose financial statements” and “are not intended to be a presentation in conformity with accounting principles generally accepted in the United States of America.” In particular, Commissioner Karl Peterjohn has warned that these figures — and the monthly “profit” figures presented to commissioners — do not include depreciation expense. That expense is a method of recognizing and accounting for the large capital cost of the arena. In April the County released that number, and I believe it has not been reported by any news media. That may be because the number is pretty big — $4.4 million, some four times the purported “earnings” of the arena. … Without honest discussion of numbers like these, we make decisions based on incomplete and false information. Don’t look for many local government leaders and officials to talk about this number, and certainly not the Wichita Eagle editorial page.

    Koch criticism backfires — again. For those who follow the issue, it’s no surprise that Lee Fang, a reporter for the liberal think tank Canter for American Progress has come out with another attack on Charles and David Koch. Mark Hemingway of the Weekly Standard reports on this effort: “Think Progress reporter Lee Fang has a long history of being spectacularly wrong. However, there’s a seemingly unending thirst for his breathless demonization of the Koch brothers and other rants about corporate greed among the low IQ end of the liberal spectrum.” Fang disagrees with a recent U.S. Supreme Court decision, and he lambasts the litigators who brought the suit as “heavily financed by right-wing corporate money, particularly from Koch Industries and Walmart.” He also criticizes organizations for not dislosing their donors. Hemingway notes this: “In the case of the Koch brothers, they have been outspoken philosophical libertarians for decades. Their support of free speech over onerous campaign laws is entirely consistent and should not be surprising. However, in the case of Wal-Mart Fang is also astoundingly hypocritical. Because you know who else is a ‘Walton-Funded Group’? Lee Fang’s employer.” And the secret donations that Fang rails against so passionately? Hemingway again: “You know who else accepts ‘secret donations from individuals and corporations’? That’s right — the Center for American Progress.” … For another example of Fang’s reporting, see ThinkProgress and Lee Fang: wrong again.

    Tension on debt ceiling issue. In The Wall Street Journal Kimberly Strassel writes that the current debt and spending crisis may lead to an end to farm subsidies, something she described as a “sacred federal spending cow:” “For decades, the House and Senate agriculture committees have been the last redoubts of congressional bipartisanship, liberals and conservatives united in beating back any outside attempts to cut off tens of billions annually for price supports, crop insurance, weather assistance, conservation handouts and nutrition programs. The last real stab at reform was the mid-1990s Freedom to Farm bill. Most of the changes were obliterated by subsequent bailouts and new spending.” … She describes how Arizona Congressman Jeff Flake got a limit of farm subsidies through the Appropriations Committee, but House Agriculture Committee Chairman Frank Lucas used a maneuver to block Flake’s proposal. So much for that effort at reform, blocked by a Republican. Lucas’ website promotes a conservative message, with one post criticizing bailouts. But not for farmers, it seems. … Wichita’s Mike Pompeo is mentioned: “Mr. Pompeo is waiting to see what debt package emerges and says his vote will depend on whether it contains real ‘structural’ reform. But he also tells me he doesn’t intend to let parochial interests cloud his decision. ‘I came here to be a small-government guy every day, and not just when it is spending cuts in somebody else’s district,’ he says.” … Although not mentioned in this article, Tim Huelskamp, who represents the Kansas first district, has been upfront in discussing the need to reduce or eliminate farm subsides, and so far, many farmers seem to be accepting of that. Huelskamp’s district, which covers all of western Kansas (and more), is usually second on the list of congressional districts in terms of total farm subsidies received. For 2009, that figure was $369 million.

    Stossel: The Money Hole. A recent episode of John Stossel’s television program is now available on the free hulu service by clicking on The Money Hole. Writes Stossel in his introduction to the show: “We will soon spend ourselves into oblivion. But finally … movement! Budget slashing proposals from Paul Ryan, the Republican Study Committee, Ron Paul, Rand Paul and even Tim Pawlenty! But politicians and real people across the spectrum still resist change. What should government do? What’s its role? What have other countries done? The Money Hole tackles that.”

  • Stossel on politicians’ promises

    Recently John Stossel produced a television show titled Politicians’ Top 10 Promises Gone Wrong. The show features segments on government programs and why they’ve gone wrong, with a focus on the unintended consequences of the programs. Particularly illuminating are the attempts by programs’ supporters to justify their worth.

    Now the program is available to view on the free hulu service by clicking on Politicians’ Top 10 Promises Gone Wrong.

    One of the segments on the show explained the harm of Cash for Clunkers, in which serviceable cars were destroyed so that new cars could be sold. The program simply stole sales from the months before and after the program. The mistaken idea that destruction can be a way to create new wealth is held by many who should know better, and Stossel reminds us of the New York Times’ Paul Krugman, who wrote that the terrorist attacks of September 11, 2001 “could even do some economic good” as rebuilding will increase business spending. It’s the seen vs. unseen problem, Stossel and David Boaz of the Cato Institute explain. It’s easy to see people buying new cars. It was reported on television. But it’s more difficult to see all the dispersed economic activity that didn’t take place because of the programs.

    “Living wage” laws, in which people would be paid enough to live on — whatever that means — is next. While increasing wages of low-paid workers is a noble goal, increasing the cost of labor results in an entirely predictable result: less labor is demanded. Fewer people will have jobs. The Grand Canyon National Park, for example, switched to automated ticket machines. Christian Dorsey of the Economic Policy Institute, said that elimination of minimum wage laws would leave employers free to drive down wages as low as possible. But Stossel noted businesses hire employees in a competitive market, and it is that market that sets wages. Only about five percent of workers earn the minimum wage. Why do the others earn more than that? Competitive markets force employers to pay more, not laws.

    A segment on “fancy stadiums” boosting the economy holds a lesson for Wichita and the Intrust Bank Arena in its downtown. The claimed benefits of these venues rarely appear, and the unseen costs are large — “at the local bar there’s one less bartender, there was one less waitress hired at a restaurant, a movie theater that had one less theaterfull. It’s handing money from your right hand to your left and declaring I’m rich.” While Wichita’s arena seems to be doing well, it’s still well within its honeymoon period. Even then, there was a month where no events took place at the arena.

    A segment on the new credit card regulations, intended to protect consumers, shows that the regulations resulted in fewer people being able to get credit cards. Now these people have to go to payday lenders or pawn shops, which are much more expensive than credit cards. Arkansas once capped credit card interest at ten percent. The result was that few people in Arkansas could get a credit card, and the state became known as the pawn shop capital of America.

    Ethanol is the topic of a segment. Promised as a way to solve our energy problem, many politicians of both parties support ethanol. But we’ve come to realize the problems with government support of ethanol: rising price of food, excessive use of fertilizer and fuel to produce corn, and an awareness that ethanol is more harmful to the environment than gasoline. “But it makes us feel good,” Stossel says. In Kansas, Governor Sam Brownback is firmly in favor of government support of ethanol, which Boaz called “pound-for-pound, the dumbest program ever.”

    On the role of government in causing the housing bubble, Howard Husock said “Government exaggerates, rather than minimizes, the age-old impulse to greed. The government made it harder for bankers who wanted to do the right thing.” Stossel explained that bankers who wanted to stay with safe home loans lost out on profits they could earn selling high risk loans to Fannie Mae and Freddie Mac, the government-sponsored agencies.

    At the end, Stossel said: “And that’s the number one promise gone wrong. These guys say they’ll be fiscally responsible. And then we elect them, and they spend more. They’re spending us into bankruptcy. There must be 10,000 harmful programs, and yet they keep creating more. Why can’t we cut them?” Boaz explained: “Every one of those 10,000 programs has a lobbyist in Washington. … They always know when the bill is up before Congress, and they send political contributions, they send people to Washington to lobby. The rest of us don’t do that. … People should be more engaged, people should be better citizens. But the fact is we have lives, and there’s no way that any normal person can know about the 10,000 programs that make up the $3.5 trillion federal budget.”

    And so the programs keep growing, Stossel said, and we must pay their costs and unintended consequences forever — “Unless, there’s a new wind blowing in America. A new attitude, a new expectation that maybe Washington should do less. I hear there is. I sure hope so.”

  • Perhaps an end to legislative time-wasting

    Politico reports that the practice of issuing proclamations and similar matters during sessions of the U.S. House of Representatives may end. Says the story: “Republicans are moving to get rid of House votes on symbolic resolutions and are planning to post their internal conference rules online, two minor yet politically important changes to the party’s operating guidelines. … The GOP next Wednesday is set to adopt a new set of Republican Conference rules that will place tight restrictions on who and what the House can honor, a bid to cut time they consider wasted on the floor.”

    This would be a great step forward. Not only do these resolutions, etc. waste time, they serve as taxpayer-funded, continual advertisements for the glory of government and all its trappings. It happens not only in Washington, but in Topeka and other state capitals across the country. It happens at county commission meetings. It happens at city council meetings and school board meetings.

    At Wichita City Council meetings, there have been cases where the meaningful business of the council has not started until nearly one hour after the start of the meeting. The hour has been consumed by proclamations, awards, remarks by council members, etc.

    While this happens, citizens with business before the council wait. And wait. They’re wasting their time and money. Their attorneys, representatives, or employees may be there with them, racking up legal bills and wasting time and money while listening to the mayor or other official read proclamations.

    Sometimes this period before the start of the meeting’s meaningful business is given over to business-like activities that government owns and that compete with private sector business. For example, Sedgwick County Commission meetings feature promotion of events upcoming at the Intrust Bank Arena, which the county owns. Can you imagine being the owner of a business that competes with the arena — and almost any business involved in entertainment, sports, or leisure competes for consumers’ disposable entertainment dollars — and having to listen to these advertisements, paid for by taxpayer dollars?

    We need to dedicate these public meetings to public business. Members of Congress, legislators, council members, and school board members, and commissioners need to be respectful of citizens’ time, and of their own and that of the government staff that must attend these meetings.

  • Kansas and Wichita quick takes: Saturday October 9, 2010

    This Week in Kansas: Tomorrow on KAKE Television‘s “This Week in Kansas” Kansas Policy Institute President Dave Trabert will be a guest speaking about economic development in Kansas. This is an important topic as Kansas is in “whack-a-mole” mode as we — case by case — defend our industry from poaching by other states. This Week in Kansas airs at 9:00 am on KAKE channel 10. The Winfield Daily Courier has other notes on this upcoming episode.

    Sue Schlapp: Wichita Eagle Opinion Line Extra today: “At a past Wichita City Council meeting, council member Sue Schlapp got on her soapbox about needing less government in our lives. Then last week she turned around and voted for the community improvement district tax for the Broadview Hotel. Is this talking out of both sides of her mouth?” I’m glad someone other than I has noticed this.

    Dave Unruh campaign billboardDave Unruh campaign billboard

    Unruh’s record on taxes: A reader sent in this photograph of a Dave Unruh billboard supporting his run for reelection to the Sedgwick County Commission, noting the irony of the “Lower Taxes” message. The reader may have been referring to Unruh’s support of a solid waste management fee (a tax by another name), his vote in August 2006 to increase the county mill levy, and his enthusiastic support of the tax for the downtown arena, now known as the Intrust Bank Arena. The vote for a tax increase in 2006 was in part to build the National Center for Aviation Training, said to be necessary to keep Wichita aviation companies in Wichita. Nonetheless, Cessna, Bombardier Learjet, and recently Hawker Beechcraft have found it necessary to shake down the state and local government for even more corporate welfare. Still, I don’t recommend voting for Unruh’s opponent Betty Arnold, who recently wondered where was the government stimulus for USD 259, the Wichita public school district, on which board she serves. Evidently Arnold doesn’t realize that nearly every dollar the Wichita schools spend is government money.

    Arnold’s website missing: By the way, Google can’t find a website supporting Betty Arnold’s campaign, which says a lot right there.

    Goyle and Pompeo: Tomorrow Kansas fourth Congressional district candidates Democrat Raj Goyle and Republican Mike Pompeo debate at Congregation Emanu-El at 7011 E. Central in Wichita. State of the State KS reports: “The debate will be moderated by KAKE-TV’s Tim Brown from This Week In Kansas and will focus on both local economic, political and foreign policy issues facing the U.S. The debate is free and begins at 10:40 am. A brunch will be served before the debate for $7.” It appears that Reform party candidate Susan Ducey and Libertarian Shawn Smith will not appear. The two minor party candidates made credible appearances on a recent KWCH televised forum.

    Goyle video, polls: Speaking of Goyle, video of Goyle endorsing presidential candidate Barack Obama in Texas has surfaced. And, more bad polls for Goyle.

  • Kansas sales tax increase starts today

    Today Kansans will face an added tax burden on retail purchases, as the statewide sales tax rate goes up by one cent per dollar. Touted by its backers like Kansas Governor Mark Parkinson as a “one percent” increase in the tax, it is actually an increase of (6.3 – 5.3) / 5.3 = 18.9 percent.

    In some parts of the state, the combined rate will soar to over ten percent. The City of Lawrence is considering whether to require businesses to post signs advising — or warning– shoppers of the sales tax they’ll pay in stores.

    The debate over the sales tax and the harm it causes was fueled by two studies that were often viewed as competing with each other, but really didn’t. One looked at the harmful effects of the tax for just one year and concluded that while the sales tax would destroy private sector jobs, a reduction in state spending would cause even more harm. Naturally, tax and spending advocates latched on to this study.

    The other looked at a longer period of time and considered actual consumer response to increased taxes. It, not surprisingly, found that the sales tax would be very harmful.

    The first study, besides looking at just one year, also shows evidence of faulty thinking. This study, produced by Wichita State University professor John D. Wong, contains this paragraph in its conclusion:

    Second, the revenue enhancement scenario spreads the negative effects throughout the state, both geographically and across all 2.8 million residents. The effect on any individual and on any business is minor. In contrast, the spending reduction scenario severely affects a small number of state residents and businesses — state employees and those private-sector businesses that serve state employees and state government directly. The likelihood of a business failing under this scenario is much greater than in the tax increase scenario. A business failure will have a ripple effect across the economy.

    In this paragraph we can find several examples of faulty economic thinking.

    For example, as Kansas consumers will now have less discretionary income and may dine at restaurants less often, it’s possible that restaurants might close. More likely, however, the restaurant manager will find he doesn’t need as many employees to serve the diminished customer base, so a waiter loses his job.

    These job losses, affecting just one or two people at a time and spread across the state, won’t create a business failure, as Wong mentions. There won’t be newspaper or television stories. But for the people directly harmed, I’m sure they won’t view the effect as “minor,” as Wong writes.

    And Wong may have forgotten that each lost job produces a little ripple of its own.

    Furthermore, when these job losses are aggregated over the state, there will be an impact. How much? Well, the sales tax is estimated by Wong to bring in $350 million, so we can use that as an estimate of the amount of money Kansans don’t have to spend at their own direction and discretion anymore.

    (Wong notes that some of the sales tax will be paid by visitors to our state. Welcome to Kansas!)

    We also see in the paragraph one of the primary problems with government taxation and spending. John Stossel explains:

    The Public Choice school of economics calls this the problem of concentrated benefits and dispersed costs. Individual members of relatively small interest groups stand to gain huge rewards when they lobby for government favors, but each taxpayer will pay only a tiny portion of the cost of any particular program, making opposition pointless.

    In this case the special interest groups include school spending advocates and state government employees. They believed they were fighting for their jobs. School spending advocates believed they were fighting for the children, too. But we ought to step back and consider the value of some of these jobs, and whether the services provided — education, for example — couldn’t be better provided in the marketplace rather than by government.

    Also, we should note that school teachers and state government employees are represented by unions that spend millions advocating for their members each year. Waiters and others who will lose their jobs one at a time don’t have such representation.

    So we had the powerfully-motivated special interests on one side. Then we had Governor Parkinson telling us not to worry, that in Wichita people didn’t even notice the one cent per dollar sales tax used to pay for the Intrust Bank Arena.

    When you add in newspaper editorial writers like the Wichita Eagle’s Rhonda Holman, who today wrote that “No one relished raising sales taxes right now” and praised the arena sales tax, there you have the entire argument made.

    Despite Holman’s claim, many people salivated at the idea of an increased sales tax, or any other tax. The governor viewed the tax increase as his legacy.

    We also need to dismiss the claims of massive cuts to the Kansas budget. Recently Kansas Senate President Stephen Morris mentioned these, writing “… very difficult decisions were made to cut or reduce the $6 billion state budget by roughly $1.5 billion …”

    For most people, a cut of $1.5 billion from a $6 billion budget means the state will spend $4.5 billion. But the spending bill passed by the legislature calls for spending $5.6 billion in fiscal year 2011, which starts on July 1, 2010.

    Today the Eagle’s Holman makes a similar claim, mentioning “$1 billion in recent cuts to state services.”

    These “budget cut” numbers make sense only when you look at planned spending, not actual spending. Even then you have to add up these phantom cuts over a period of years to get to the claims of Parkinson, Morris, Holman and other big-government spending advocates.

    As the chart shows, actual spending has declined slightly, but is projected to rise during the fiscal year that starts today.

    Kansas general fund spending

    Over the years, we see that state spending in Kansas has risen rapidly, while at the same time our population in Kansas grows very slowly.

    For the sales tax and spending increases to make economic sense, you have to believe that state government can spend money more wisely than its people can. Given the special interest group fingerprints all over this budget, that’s not going to happen.

    What is the future of this sales tax? It’s scheduled to decline by 0.6 cents per dollar in three years, the remaining 0.4 cents per dollar to be used for transportation. But these taxes have a habit of failing to disappear on schedule. The supplemental note for the bill that last increased Kansas sales tax contains this: “The state sales and compensating (use) tax rate would be increased from 4.9 to 5.3 percent, effective June 1, 2002. The rates would then be reduced to 5.2 percent on June 1, 2004; and to 5.0 percent on June 1, 2005.”

    As of yesterday the sales tax was was still 5.3 percent. The two scheduled reductions never took place. Sometimes promises from the Legislature don’t mean very much.

  • Wichita’s Intrust Bank Arena shrouded in mystery

    Okay, maybe that’s a little over-hyped, but when arena cheerleader Rhonda Holman of the Wichita Eagle starts to question the operations of Intrust Bank Arena in downtown Wichita, there must be something going on.

    Holman’s column of yesterday complained of lack of transparency in the arena’s operations: “But with hindsight, and with the Intrust Bank Arena open three months and generating revenue, it’s more clear all the time that county leaders gave away too much oversight authority to SMG, leaving citizens in the strange and frustrating position of having too little hard information about how their $206 million investment is doing.”

    The sudden departure of arena manager Chris Presson under circumstances that can only be described as alarming will add to the concern of citizens. Well, not all citizens. Some arena boosters simply don’t care how much of a burden the arena may become to county taxpayers, as long as they have their arena.

    The lack of transparency at the arena and some county commissioner’s lack of concern about this important issue has been the subject of articles on this site. See Wichita downtown arena open records failure, Wichita downtown arena contract seems to require Sedgwick County approval, and Sedgwick County keeps lease agreement secret.

  • In Sedgwick County, is there slack time?

    As reported in the Wichita Eagle, the Sedgwick County Commission decided to reimburse the county for time its employees spent working on arena-related matters. The money will come from the sales tax that was collected to build the Intrust Bank Arena in downtown Wichita. The amount of money the commission decided to transfer is $1.6 million, although according to the Eagle, the total cost could reach $2.6 million.

    Here’s something of concern to me in the story: “But he [Sedgwick County chief financial officer Chris Chronis] pushed for the money to remain in the arena and pavilions’ operating and maintenance reserve fund, which last month had just less than $14 million, because taking money out of the fund would drain it four years earlier than expected — in 2024.”

    Evidently the county has financial projections for the arena all the way out to 2018, and possibly beyond. That is a very long time into the future, and any projections about the performance of the arena over this period would be based on assumptions that can’t be estimated with anything approaching certainty.

    Projections with this precision made about events so far in the future surrounded by so much uncertainty remind me of the saying that economists use a decimal point to show they have a sense of humor.

    Back to the present: Commissioner Dave Unruh told the Eagle that the county did not hire any new staff to perform work that has an estimated value of $2.6 million. My question is this: Is this evidence that there was $2.6 million of slack time in county employee’s schedules? How were they able to get this vast amount of work accomplished? Perhaps after the arena work that has occupied $2.6 million of staff time is complete, we could hire out this staff to earn revenue for the county, as it seems they will have time on their hands.

    Regarding the contention that voters in 2004 were promised that no property tax money would be used on the arena, Unruh was quoted by the Eagle as saying: “I do think that we made a very strong commitment that all the sales tax money would be used for the arena and pavilions.”

    It seems that now Sedgwick County voters have a new concern: When politicians make a promise, do we have to ask them if this is a regular commitment or a very strong commitment? Or are there other types of commitments that we don’t know about?

  • Tax increases will cost Kansas jobs, economic freedom

    As Kansas struggles to deal with a budget deficit, Democrats and some Republicans are proposing tax increases, particularly an increase — temporary, they say — in the sales tax. A common argument advanced is that an extra one cent tax on every dollar spent will hardly be noticed. The one cent tax used to build the Intrust Bank Arena in downtown Wichita is cited as an example of a sales tax used for the common good of the people.

    Besides the fact that it’s way too early to judge the success (or not) of the arena, sales taxes do hurt.

    My post from 2004 Prepare for sales tax-induced job effects now described job losses in Little Rock due to the sales tax that paid for that city’s arena. In this example, the job losses were smaller than the number of jobs created by construction. This is partly because the sales tax lasted just one year, and more importantly, the state of Arkansas paid for 40% of the arena’s cost. In other words, the entire state subsidized the construction job gains in Little Rock. Still, jobs in retail and service industries were lost.

    If the state of Kansas raises its sales tax, we won’t have the luxury of a huge inflow of out-of-state money to duplicate the effect observed in Little Rock from the inflow of out-of-city money. Instead, it’s certain that a sales tax increase will negatively affect private sector jobs and our state’s economic growth and future.

    As evidence, a 1996 study by the Federal Reserve Bank of Atlanta found that state and local taxes negatively affect a state’s growth rate, and that this effect of taxation is sizable. This study looked at all taxes.

    Specifically considering sales taxes, a 1998 study by the Beacon Hill Group looked at the effect of a half-cent increase in Ohio’s sales tax. The study “found that an increase in the state sales tax rate from 5% to 5.5% would result in the loss of at least 49,000 jobs and would leave Ohio’s stock of capital at least $4.4 billion smaller.” The authors concluded there was a 90% certainty that this result would occur.

    More recently, a 2009 proposal to increase Washington’s sales tax from 6.5% to 6.8% was analyzed by the Evergreen Freedom Foundation. Its conclusion was that the tax increase “would cost the private sector approximately 6,800 jobs and result in less disposable income for Washington residents.

    A sales tax increase will provide funding for more public sector jobs at the expense of private sector jobs. The result is a loss of economic freedom as individual choice is replace by spending controlled by the legislature and government bureaucrats. Does anyone believe that government spends as wisely as people spend their own funds? I don’t.