Voice For Liberty

Tag: Intrust Bank arena

  • Wichita downtown arena contract seems to require Sedgwick County approval

    Sedgwick County, owner of the Intrust Bank Arena (the downtown Wichita arena), has a five-year contract with SMG that outsources the management of the arena.

    Yesterday, SMG announced a 10.5 year lease with the Wichita Thunder hockey team. Terms of the deal weren’t disclosed, and SMG is resisting their release, as explained in Wichita Eagle reporting referred to in my post Wichita downtown arena open records failure.

    But this much is clear: SMG has committed to a contract that lasts longer than their contract with the county.

    Sedgwick County could choose to renew SMG’s contract, of course. The contract also contains a provision where if the county receives at least $1,700,000 from the profit sharing agreement with SMG, the contract automatically renews.

    But it seems like SMG is getting a little ahead of itself.

    It also appears that the lease contract SMG made with the Thunder requires approval by Sedgwick County.

    The management agreement between Sedgwick County and SMG grants authority to SMG to negotiate contracts without county approval, but there is an exception: “… if any such license, agreement, commitment or contract other than those involving the license, lease or rental of the Facility in the ordinary course has a term that extends beyond the remaining Management Term or, if this Agreement has been renewed, the Renewal Term, such license, agreement, commitment or contract must prior thereto be approved in writing by the County (which approval shall be at the County’s sole discretion, not to be unreasonably withheld) …”

    (The management term referred to is five years.)

    So it seems that this contract, extending beyond the management term as it does, is subject to Sedgwick County approval.

    There’s more from the SMG-Sedgwick County agreement: “SMG and the County will have joint approval rights (which approval right shall be at each party’s sole discretion, not to be unreasonably withheld) for all major revenue streams that can impact the profitability of any Facility, including ticketing, sponsorships, food and beverage, and tenant leases with terms of one year or greater.”

    The Thunder is certainly a major revenue stream for the arena. In fact, they’re the anchor tenant. The lease, at 10.5 years, is much longer than the one year mentioned.

    So there’s another clause of the contract that seems to indicate that Sedgwick County has approval rights for this lease agreement.

    Here’s a question: can Sedgwick County give its approval to a contract that SMG will not let the county see?

  • Wichita downtown arena open records failure

    Yesterday, the company that manages the Intrust Bank Arena (the downtown Wichita arena) announced a lease with the arena’s flagship tenant, the Wichita Thunder hockey team. But we don’t know the details of the lease. Unbelievably, some Sedgwick County Commissioners and managers are okay with that.

    The Wichita Eagle article Details of Intrust Bank Arena contract with Thunder are a secret reports the details.

    I believe that the Eagle will be successful in pursuing a copy of the lease agreement from SMG (the company managing the arena for Sedgwick County) under the Kansas Open Records Act. Here’s why:

    The KORA states that “‘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.”

    Although immediately next comes an exception, excluding “Any entity solely by reason of payment from public funds for property, goods or services of such entity.”

    I believe the exception is meant to prevent a company who, say, sells pencils to the county from being subject to KORA.

    But the relationship between SMG and the county is different. Sedgwick County has outsourced the management of the arena to SMG. The county is paying SMG, too. According to the contract, $8,000 per month at this time.

    The county and SMG have a broad nondisclosure agreement in their contract, although this can’t override the KORA.

    Besides the legalities of this, SMG and Sedgwick County need to find a way where this lease agreement can be made available to the public. I recently obtained a copy of the existing lease agreement between the Thunder and the county in anticipation of comparing it with the new agreement, the one shrouded in secrecy.

    If SMG decides to keep this contract secret, it will be a public relations disaster for them.

    It’s also a strike against the Sedgwick County managers who negotiated the contract with SMG that contains this provision, and against the commissioners who voted for it. Sedgwick County Commissioner Tim Norton seems to be the prime apologist for the secret contract.

    Let’s hope that SMG changes their mind soon and releases the contract.

  • Downtown Wichita (Intrust) arena groundbreaking

    On Tuesday December 4, 2007, Sedgwick County hosted the formal groundbreaking ceremony for the downtown Wichita arena. While local government leaders and news media hailed the event as a transforming event in the history of Wichita, this writer does not share their enthusiasm.

    The building of this arena is government interventionism at its worst. Stakeholders in the arena, such as Bob Hanson of the Greater Wichita Area Sports Commission, demonstrate the harm of rent seeking, as they seek to obtain, at taxpayer expense, a large and expensive playhouse for their pleasure. Supporters dressed their arguments for the arena in the language of public goods and economic development. But Henry Hazlitt and others have explained that the money spent on the arena is money that wasn’t spent somewhere else, with the attendant loss of jobs and economic activity somewhere else. (See my review of Economics in One Lesson and Prepare for Sales Tax-Induced Job Effects Now, also printed in The Wichita Eagle.) As local governments consider an expensive plan for development of the surrounding area, that money — just like the money collected through the sales tax — is money that citizens won’t be spending somewhere else of their own choosing.

    Even the most basic economic arguments given for the arena were flawed. I found out that the estimated operating budget for the arena was defective, as officials were not aware of, or did not care to disclose, the proper government accounting standards the arena would be required to use. (See Arenas’ Financial Statements Not Complete and WSU Study on Downtown Wichita Arena Not Complete.)

    Government, too, is not qualified to build and own assets like this arena. Consider the status of the Kansas Coliseum, which having opened in 1978 is only 29 years old. Yet three years ago we were told that it required extensive renovation for continued use, that poor condition being the stick used to promote the downtown arena. (Century II, not much older, is often described in the same terms.) So can you spot the irony in Sedgwick County Commission Chairman Dave Unruh’s statement at the groundbreaking? “I think probably most everyone here…will have a story they can tell their children and grandchildren on how they had a part in changing the profile and character of our community.” If this new arena suffers the same fate as the Coliseum, one generation from now we’ll be building another.

    Further, government and its officials are not allowed to campaign for the arena as they did. Kansas Attorney General Opinion 93-125 states: “…public funds may not be used to promote or advocate the position of a governing body on a matter which is before the electorate.” If you examine news media accounts of the debate before the election in November 2004, you will see that our local government officials and their quasi-governmental surrogates were working in full force for the passage of the arena and its tax, in direct violation of this regulation. See Government Funds Promoting Downtown Wichita Arena.

    Finally, by building a government arena, we lose the opportunity to have a privately-owned arena. A private arena, you say? Wouldn’t it have to be owned by greedy capitalists, only seeking to exploit our town just to earn a profit? But in the absence of government coercion or intervention, a business can earn a profit only by meeting customers’ needs, and doing that efficiently. Governments and their bureaucrats do not have this powerful motivating factor. The absence of the computation of profit and loss means that we will never know whether the resources spent on the arena were spent wisely. See A Public or Private Downtown Wichita Arena, Which is Desirable?.

  • Wichita News Media Coverage of Downtown Arena Issue

    On the November 2, 2004 ballot the voters of Sedgwick County approved an additional one percent sales tax to fund an arena in downtown Wichita.

    I opposed the taxpayers funding an arena for this reason: Proponents claimed that the arena would pay for itself (and be a good ting for Wichita) through various forms of economic benefit, both direct and spillover. But I found no research that supported this claim, except for one report prepared by the Center for Economic Development and Business Research at Wichita State University. I was able to find, however, much research that showed that these facilities rarely provide the promised benefit. Therefore, to ask all the taxpayers to pay for something that benefits just a few is not right.

    The Wichita news media, in my opinion, did a woeful job covering the issues relating to the arena. In particular, it seemed as through the Wichita Eagle had as its corporate mission the passage of the arena tax. The Eagle did print many letters and “Opinion Line” comments that oppose the arena, and they still do even today. But the clear editorial stance was to press for passage of the arena tax.

    As an illustration of the bias on the Eagle’s editorial page, consider this example: Mr. Phillip Brownlee, opinion editor for the Eagle, wrote an editorial that said the true cost of the Kansas Coliseum renovations would be $122 million instead of $55 million because of interest costs. I wrote a letter that said that since some of this money wouldn’t have to be paid until the distant future, we should consider the effects of the time value of money and inflation. Mr. Brownlee wrote to me and said that I was correct, and my letter was published.

    At the time I assumed that Mr. Brownlee, probably having majored in journalism in college, wasn’t aware of the time value of money and things like that. After the election, though, someone told me, and I confirmed by reading his biography on the Eagle’s website, that Mr. Brownlee was a certified public accountant in a previous career. A person with that type of education and experience certainly does know about the time value of money. We have to ask, then, why Mr. Brownlee would disregard such an important factor when editorializing.

    Eagle reporter Mr. Fred Mann, in an article titled “Arena’s financial impact cloudy” published on September 5, 2004, provided good information about the doubts surrounding facilities such as these. This article, however, appeared nearly two months before the election, and I saw little coverage of these issues again. I uncovered much other research (most of it is posted in my blog) and supplied it to reporters at the Eagle, but they didn’t act on it.

    Other people in Wichita’s news business appeared to lack basic factual information about the arena vote. As part of its election night coverage, one prominent Wichita television news anchor interviewed Mr. Karl Peterjohn of the Kansas Taxpayers Network. Mr. Peterjohn mentioned something about how now the story moves to the Kansas Legislature. The news anchor expressed surprise to learn that the ballot issue was merely an advisory referendum instead of a binding resolution, and that the legislature would have to pass a law allowing Sedgwick County to raise its sales tax. A Wichita television news personality being so poorly informed about such a basic factual matter tells us that we shouldn’t expect important news reporting from our television stations.

    KSN Television had a panel show a week before the election. The members of the panel were Wichita Mayor Carlos Mayans, Sedgwick County Commissioner Ben Sciortino, and Wichita Downtown Development Corporation President Ed Wolverton. Each has been quite clear and outspoken in their support of the proposed downtown arena. I do not remember the media panel members asking very many tough questions. I wrote to several people at KSN pleading for some balance either on the guest panel or the media panel.

    I supplied most local television stations and radio stations with some of the research that I found. This was information that could be verified independently if the reporters chose to do so. It made a compelling case against taxpayer-funded facilities like the proposed downtown Wichita arena. Nearly everyone I showed it to wondered why this information wasn’t being reported. But I had difficulty gaining the attention of anyone in the Wichita new business.

    One exception is Mr. Erik Runge of KWCH Television. He interviewed me, independently verified some of my research, interviewed someone else with an opposing view, and prepared three different segments that were broadcast about a week before the election. I thought he did a good job.

    I also appeared as an arena opponent on the radio show “Sports Daily” on KFH Radio. I had heard the hosts advertise for someone to appear on their show as an arena opponent. I applied and appeared for 30 minutes.

    Why did the Wichita news media do such a poor job covering the arena tax issues? I do not know. But it is easy to be swept up in the excitement of a new facility. The arguments that arena supporters used seem to make sense until you investigate their truthfulness. It took a lot of effort to uncover contradictory evidence. I suspect that many didn’t look very hard and therefore never found what I did, or if they did find it, since it said what they didn’t want to hear, they ignored it.

  • Prepare for sales tax-induced job effects now

    Collecting the sales tax to pay for the downtown Wichita arena may produce unintended consequences.

    A paper titled “An Assessment of the Economic Impact of a Multipurpose Arena” by Ronald John Hy and R. Lawson Veasey, both of the University of Central Arkansas, (Public Administration & Management: An Interactive Journal 5, 2, 2000, pp. 86-98) looked at the effect of jobs and economic activity during the construction of the Alltel Arena in Pulaski County, Arkansas. This arena cost $50 million. It was funded in part by a one percent increase in the county sales tax for one year (1998). The sales tax generated $20 million.

    In the net, considering both jobs lost and jobs gained due to sales tax and construction effects, workers in the wholesale and retail trades lost 60 jobs, and service workers lost 52 jobs. There was a net increase of 198 jobs in construction.

    The fact that jobs were lost in retail should not be a surprise. When a sales tax makes nearly everything sold at retail more expensive, the supply curve shifts to the left, and less is demanded. It may be difficult to estimate the magnitude of the change in demand, but it is certain that it does change.

    Workers in these sectors, should the sales tax increase take effect, may want to reconsider their career plans. How many retail and service workers can make the transition to construction work is unknown. It is certain, however, that when workers lose their jobs it imposes benefits costs on the government — and the taxpayers.

    The population of Pulaski County in 2000 was 361,474, while Sedgwick County’s population at the same time was 452,869, so Sedgwick County is a somewhat larger. Our sales tax will last 2.5 times as long, and our proposed arena is about three times as expensive. How these factors will impact the number of jobs is unknown, but I feel that the number of jobs lost in Sedgwick County in retail and services will be larger that what Pulaski County experienced.

    It is interesting to note that the authors of this study, while measuring a positive net economic impact for the Alltel Arena, make this conclusion:

    “The primary reason for this positive economic impact is that the state of Arkansas contributed $20 million to the construction of the arena. As a result, the economic impact of building the arena in Pulaski County is greater than it would be if the county had funded the arena by itself. A vast majority of the jobs that will be created will be in the service sector that frequently offers lower wages than jobs in other sectors of the economy.”

    The proposed downtown Wichita arena does not have the advantage of having 40% of its cost paid for by outsiders. It may be that we feel even more strongly the negative impacts of the sales tax.