Voice For Liberty

Tag: Paul Gray

  • Waterwalk hotel issue receives public input

    Tuesday’s meeting of the Wichita city council featured a lengthy discussion of a proposal that in the past, might have been passed without much public discussion. Instead, some useful information emerged, and the meeting opened the possibility of more citizen input not only on this item, but also on future city initiatives.

    The issue is a proposal for a hotel in the city’s WaterWalk district. My preview of the matter, which includes the city-supplied agenda report, is at Waterwalk hotel deal breaks new ground for Wichita subsidies.

    As an example of information that was revealed at this meeting, there was concern expressed by council member Sue Schlapp that the proposed hotel might be granted a period in which it would be the only hotel in WaterWalk. Bell replied that we don’t have the answer to this question, and that this has not been addressed. Later, a representative of WaterWalk revealed that the proposed hotel had an agreement that it would be the only hotel in WaterWalk for three years and possibly up to four years.

    This is an important piece of new information, as downtown boosters continually speak of the idea of “critical mass.” The idea, I believe, is that multiple hotels may feed off the presence of each other, instead of being in competition with each other. Or it might be that if other hoteliers see this proposed hotel doing well, they’ll be induced to build one on their own. But if there will not be another hotel in WaterWalk for at least three years, that puts a damper on the formation of critical mass. Hotels, of course, could be built in other parts of downtown.

    Council member Lavonta Williams asked about the survey the city is conducting to see if the proposed hotel would harm the city-owned Hyatt Hotel: Will it look at nearby hotels that the city doesn’t own? Bell said the consultant may look at those hotels, interview their management, and may be able to offer some information as to that. But Bell said that the present agreement considers only the Hyatt Hotel.

    Council member Jell Longwell said we’re sensitive about the burden on our local taxpayers. But the taxes on the proposed hotel would fall on out-of-area taxpayers, he said. His clear implication was that taxing visitors to our city is okay. The problem is that many visitors to a city pay attention to taxes. When a $100 hotel bill blooms to $114.30 with taxes, people notice, even business travelers whose employers may pay the bill.

    (The taxes are 6% for the transient guest tax or “bed tax,” 6.3% for our present sales tax, and another 2% for the Community Improvement District tax. Then if the governor has his way, there will another 1% in Kansas sales tax, and if some downtown boosters have their way, there will be yet another 1% city sales tax to provide subsidy for downtown.)

    Council member Paul Gray answered his own question with: “why would you?” The question was why would anyone build a hotel downtown privately when there are several subsidized hotels already operating? The unlevel playing field was created long ago, he said, and it’s unlikely that anyone will develop a hotel without receiving similar benefits from the city. He also said that we’re on the hook for the bonds sold for the WaterWalk TIF district. He made reference to the “giant hole that we’ve already created with the financial obligations we’ve placed on that.”

    After citizen John Todd spoke, Longwell asked how much lead time the council should give citizens for matters like this. He said that the Wichita Eagle reported the story, adding “I thought everybody read the Eagle.” (I wonder if Longwell has noticed the layoffs at the Wichita Eagle and the poor financial performance of most newspapers as fewer people read them.)

    A search of the Eagle for stories on this topic shows a blog column from Wednesday January 6, just six days before the city council meeting where the item was to be considered. The Eagle printed stories on Friday and Sunday. These stories, however, don’t report the detailed information that some people would like to have. There’s simply not room in a newspaper, as the agenda report for this item contained ten pages of small print. Not many people are interested in such detail, either.

    (The city’s agenda packet for this meeting, which is the important source of detailed information, became available on the city’s website probably late Thursday. The pdf file indicates that it was created at 4:51 pm that day.)

    Longwell pressed Todd: “How much lead time do we need?” I have an answer for him. After I read the agenda packet Friday afternoon, I emailed Wichita public information officer Van Williams with a few questions. By Monday afternoon I hadn’t received a response. I’m not criticizing Williams, as he might have had any number of valid reasons for not replying to my questions right away. But even if he had replied Monday afternoon, that’s just a few business hours away from the meeting. That is definitely not enough time to digest a project of this scope.

    Gray then asked Todd how much vetting does the public do on a project like this? The answer to this is: not enough, as the city has a recent history of problems with its development partners. In December 2008 the city was about to enter into an agreement with a developer when Dion Lefler of the Eagle uncovered very troubling facts about the developer’s past dealings. See Wichita city hall: more evidence of lax procedures for a summary.

    Then-city council member Sharon Fearey — now a candidate for the Sedgwick County Commission — was disappointed that the Eagle uncovered these facts and reported them. See Sharon Fearey doesn’t appreciate the Wichita Eagle for the story and video.

    Since then Wichita has a new city manager, and the city has said it has new procedures in place for investigation of the backgrounds of potential business partners. Other problems remain, however. Last month Wichita Eagle editorial writer Rhonda Holman wrote about missing or incorrect information provided to the city council:

    Worse, when the council approved the Big Dog deal on a 5-2 vote, its members reportedly were unaware that the company had hired an investment banker to explore a possible sale or merger. Plus, city documents about Big Dog listed its employment at 115 when the number actually has dwindled to 30 to 40 (from a 2005 high of 336).

    A policy meant to guide the use of tax abatements and other tools doesn’t work well if decisions are based on faulty information.

    Going back to 2004, we have evidence that city council members were not familiar with even the most basic facts about our economic development programs. The article “Tax break triggers call for reform” published in the Wichita Eagle on August 1, 2004 reported this:

    Public controversy over the Genesis bond has exposed some glaring flaws in the process used to review industrial revenue bonds and accompanying tax breaks.

    For example, on July 13, Mayans and council members Sharon Fearey, Carl Brewer, Bob Martz and Paul Gray voted in favor of granting Genesis $11.8 million in industrial revenue bond financing for its expansion, along with a 50 percent break on property taxes worth $1.7 million.

    They all said they didn’t know that, with that vote, they were also approving a sales tax exemption, estimated by Genesis to be worth about $375,000.

    It’s not like the sales tax exemption that accompanies industrial revenue bonds was a secret at the time. An easily accessible web page on the City of Wichita’s web site explains it.

    Regarding the present case, Schlapp said she would have liked to have known about the exclusivity period earlier. That’s just one example of something not contained in the agenda packet that is important for citizens and council members to know, and we didn’t know that before this meeting.

    Gray also noted the history of some of the people at the council meeting who opposed the project, adding that he didn’t see them changing their minds. That attitude represents a simplistic view of the way public policy ought to be formed.

    An issue like this has many facets. Some could possibly have merit, and some certainly are harmful. A discussion like what took place at this meeting can provide a forum for exploring these issues, and perhaps eliminating the bad in favor of the good. The fact that some might still be opposed to the project doesn’t negate this.

    In the end, the council voted unanimously to defer this matter until its February 2 meeting.

  • Wichita city council discusses economic development incentives

    Last week a Wichita company that’s expanding made an application for industrial revenue bonds and accompanying property tax abatements. The company’s application wasn’t timely, and for that reason is not likely to receive the requested help. The discussion surrounding the item provides insight into city council members’ ideas about the role of the city in economic development.

    Industrial revenue bonds, or IRBs, are not a loan from the city, and the city does not make any guarantee that the bonds will be repaid. The primary benefit to the recipient of IRBs is that the property purchased with the bonds will generally be exempt, in whole or in part, from property taxes for some period. Also, the company may not have to pay sales tax on the property purchased with the bonds.

    The agenda report for this item is at Request for Letter of Intent for Industrial Revenue Bonds, Michelle Becker, Inc. (District V).

    In introducing the item, the city’s economic development chief Allen Bell said that because the project has already started construction, it falls outside the guidelines for the city’s IRB program. The construction is 85% to 90% complete.

    A question by council member Sue Schlapp established that if the company had made application before the building was started, the application would have been approved as routine.

    She also asked that if we approve this action today, will we have to go back and look at other businesses that are in the same place? Wichita City Manager Bob Layton asked that the council establish guidelines that if a project has already started, a project is not eligible for this type of assistance.

    There was also some discussion about whether this company would move away from Wichita if the tax abatement was not granted. Since the building is already under construction, Bell said this is evidence that the company is intending to stay in Wichita. “It’s difficult to think of an incentive as something that’s given after the fact,” he said.

    A question by council member Paul Gray established that there have not been many cases where companies have asked for tax breaks retroactively, according to Bell’s answer. Bell also said that he didn’t think that approving the current application would spur an avalanche of similar requests.

    Gray also noted that we can create economic disparities between companies by granting incentives, so how do we justify doing this? Bell’s answer was that an important consideration is bringing business from out of state instead of taking business away from other local companies.

    Layton added that an important consideration is whether the project can more forward without public assistance.

    Council member Jeff Longwell remarked that “we really don’t have that many tools in our toolbox for emerging businesses.” Bell agreed.

    In later discussion, Longwell said “I hate to penalize this emerging company … I should have got them in on this process long before we did and we wouldn’t even be having this argument. So I suppose I am at fault in part of this delay.”

    Gray said that because we’re not competing against another community for this company — the normal use of incentives — he can’t support this application.

    Council member Janet Miller said that the appropriate time to look at incentives is, as the manager said, when we think a company can’t move forward without the incentive. She also noted that we’re being asked to approve an action for which we’re going to soon have a policy against.

    Schlapp, indicating a desire to approve the incentive, asked for justification: “We have a company here that doesn’t need an incentive but wants an incentive … can somebody justify that?”

    Longwell said it’s not as simple as a need and a want. He said the applicant is a smart, well-managed company. But we shouldn’t use the qualifier of helping only the companies that couldn’t succeed without the city’s help. “Why not reward some some of those companies that are very well managed and run smart and have the ability to grow even more with our help than without it?” Again he referred to the lack of tools for emerging businesses. “We ought to be helping these types of companies that we think can truly prosper even more with our help … I think they fully warrant our help because they’re successful …”

    Mayor Carl Brewer said that we have a proven track record of trying to help businesses and to get businesses to come to our area. He agreed with Longwell in that we need additional tools to use for economic development, as other communities have been competing successfully. We don’t have the same tools that other communities have, he said.

    Longwell suggested the city visit with the applicant about her financing. He made a motion to defer this item. Council member Williams asked about the impending completion of the project, since it’s scheduled to be completed at the end of December. The answer from the manager was that with regard to IRBs, the project would not be eligible after it’s complete. The motion passed with Council member and Vice-mayor Jim Skelton opposed.

    Analysis

    What’s striking about the discussion are these two things:

    First, many council members and some city staff believe that the city doesn’t have enough “tools in the toolbox” for shoveling incentives on companies for economic development purposes. Evidently the ability to grant exemptions from property taxation — and not only the city’s property tax levy, but also that of the county, school district, and state — along with the ability to make outright gifts of money is not enough.

    Second, many council members and some city staff believe that they can determine which companies are worthy of incentives.

    According to city manager Layton, the city is going to revisit its economic development policies soon. This would be a good time for Wichita to come up with ideas that would benefit all companies, not only those that fall within guidelines that the council or city staff creates. My suggestion, explained in Wichita universal tax exemption could propel growth, is to give all new capital investment a tax abatement for a period of five years.

    At the state level, there has been some discussion about the costs of tax abatements or exemptions. In a recent debate in Wichita, Kansas Secretary of Revenue Joan Wagnon used the term “tax expenditures” to describe these giveaways of the state’s income. The idea is that if the state (or other governmental body) didn’t create tax abatements or exemptions, revenue to the government would be higher. Her debate opponent Alan Cobb said it’s wrong to term these tax giveaways as “expenditures,” as the money belongs to the people first, a position I agree with.

    There is the related issue of these tax abatements or exemptions really being appropriations of money that, if processed through the normal process of legislative hearings, etc., would be noticed for what they are. In Wichita city government we don’t have hearings quite like the Kansas Legislature, but the idea is the same: if this company had asked for a grant from the city for $22,253 (that’s the value of the first year of the requested tax abatement, with a similar figure for the following nine years, less $2,500 a year to the city for administrative fees), citizens — news media too — would quite likely look at this matter differently. Presented as industrial revenue bonds — just what are those anyway? — and a tax abatement, well, it all seems so … so innocent, so municipal.

    A few more observations:

    Council member Jeff Longwell’s confession of being at fault for the lateness of this company’s application should be remembered by voters in the next election, should he decide to seek to retain his current post, or — as some have told me — he seeks the mayorship of the city.

    There’s also Longwell’s use of the term “reward,” in that the city should “reward some some of those companies that are very well managed and run smart.” I’d like to remind him and the rest of the council that the free enterprise system contains a very powerful reward mechanism for companies that do well: profit. That alone is sufficient.

    Coverage from the Wichita Eagle is at Wichita City Council puts off tax breaks for accounting firm.

  • Lord’s Diner debate focused on wrong issues

    At today’s meeting of the Wichita City Council, an item no longer on the agenda still caused some controversy.

    The Lord’s Diner, a charitable organization, had proposed buying a city-owned building at 21st and Grove and making a second site for their effort to feed Wichita’s poor.

    Opposition from community groups, however, drove the Lord’s Diner to withdraw its plans.

    In today’s meeting, council members Sue Schlapp and Paul Gray spoke in favor of the Lord’s Diner’s plans on the basis of its charitable and humanitarian activity.

    Council member Lavonta Williams, who represents the district where the proposed site exists, responded without mentioning the community’s real objection to the plan: they don’t want the type of people the Lord’s Diner serves congregating in the vicinity of the proposed location.

    Mayor Carl Brewer spoke of how this has been a complicated issue. Council members must do the right thing, he said, which may not be the same as what the community wants. He said he recognizes the need to feed everyone, and there are people all over town that need help: “These are people who cannot help themselves.”

    He said that people in key leadership positions said things that were “very bitter, very venomous,” and that citizens should “charge it to the mind and not the heart,” adding that “some people take desperate measures to be able to get what they want.” He asked that citizens not judge an entire community by the actions of a few.

    The mayor said he sees an opportunity, and he urged everyone to work together.

    What hasn’t been mentioned in the debate over this matter is that the proposal by the Lord’s Diner is a lawful use of the property. If we want to have a system that respects private property rights, that’s the only thing that matters.

    Wichita Eagle reporting is at City takes Lord’s Diner proposal off table after diner pulls its offer. An informative blog post by Brent Wistrom is at Council members vent as Lord’s Diner plan sinks.

  • Wichita city council: more travel on tap

    At tomorrow’s meeting of the Wichita City Council, approval of more travel is on the agenda.

    Tomorrow’s agenda item is this: “Approval of travel expenses for Mayor Brewer, Council Member Schlapp, Council Member Gray, and Council Member Williams to attend the NLC Congress of Cities in San Antonio, Texas, November 10-15, 2009.” This is all the information that is available.

    The reaction of citizens to council member Janet Miller’s junketeering to France has been overwhelmingly against this type of wasteful travel. Now we have four members of the council traveling for five days to a National League of Cities event.

    What is the value of this conference? Citizens might be excused for assuming that an organization with such a lofty name acts only in the interest of citizens. In reality, the NLC is a special interest group, and its interests are not always in line with citizen concerns. For example, this position paper outlines its stance on the use of eminent domain for economic development. It’s a position, as you can imagine, in favor of cities’ rights to take property for economic development.

  • At Wichita city council, special pleading of selfish interests

    At yesterday’s meeting of the the Wichita City Council, a matter was presented to the council that provided an illustration of basic economic principles that are foreign to the council.

    A condominium homeowners association asked for special assessment tax financing to make repairs to the building. My remarks that I delivered at the meeting were based on my post In Wichita, waiving guidelines makes for bad policy.

    David M. Bryan, a Wichita attorney and resident of the building, represented the the homeowners association that is asking for the special assessment financing. He spoke after I did. His wife accompanied him to the podium.

    Bryan’s case for help was based on factors that — besides being irrelevant — show just what a fiasco this matter is. It also illustrates just how selfish these condominium owners are in expecting the city to bail them out of their problem.

    First, he says that he and the other condo owners represent one of the goals of downtown redevelopment. “We all took that leap of faith and bought the lofts” when the building was still under construction.

    He didn’t know what tuckpointing was when he moved in to this building, and he and the other residents didn’t know that this [the need for repair] was going to happen.

    He said that he thinks the building represents a sound and good investment in downtown redevelopment, and that the building is part of what the city council wants to accomplish.

    Conventional financing for these repairs would, Bryan said, require personal guarantees by all residents, and that would prevent the individual units from being sold unless the entire loan was paid off.

    (In my testimony, I made the point that the amount that each condominium owner needs to pay to fix the building is on the order of what it would cost to paint a conventional house of the same value as these units. There’s also a defect in the ownership structure of this building if there is no way to pay for repairs like the present situation, as things like this are foreseeable.)

    Council member Paul Gray, speaking from the bench, expressed concern that approval of this request sets a precedent for other condominium buildings in Wichita to make the same request that this building has made.

    In the end, council member Lavonta Williams made the motion to approve the financing. All members except Gray voted for it. Vice-Mayor Jim Skelton was not present.

    After the council voted, Mrs. Bryan gave Wichita economic development director Allen Bell a pat on the back, and Bell and Mr. Bryan shared a congratulatory handshake. You can see these things by attending the meetings in person.

    It appears that the city’s desire for downtown redevelopment is an unsustainable goal that can’t be maintained without continued subsidy. The message is this: When a downtown development gets in financial trouble, make a beeline to city hall. This was the case last year when the Warren Theater received a no- and low-interest loan from the city, propping up the city’s ill-conceived investment in a TIF district benefiting that theater.

    Recently we learned that rehabilitation of a downtown hotel is on hold because historic tax credits — that is, outright gifts to developers — are on hold because the state can’t afford to grant them.

    Now, buildings that need small repairs that can be deemed to be part of the city’s plan for downtown redevelopment are eligible for special assessment financing.

    I don’t think the council is aware of the corrosive effect of these special favors. No news media reported this story. It is a small amount of money that is involved in this case. This matter is emblematic, however, of an activist city council and city staff who believe they can direct economic investment in Wichita better than its citizens can on their own.

    While listening to Bryan make his case, I thought this is an illustration of the lessons Henry Hazlitt taught us in his classic work Economics in One Lesson. The first chapter may be read at One Lesson, which I excerpt here:

    Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics, or medicine — the special pleading of selfish interests.

    While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. …

    In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups.

  • Wichita City Arts tech studio proposed

    Randy Roebuck, in a presentation at the Wichita city council workshop, promoted the idea of a “digital oasis” in Wichita. It would be a place where people can go to get free help with technologies such as cell phones and computers.

    He told of how an Apple Genius Bar does things like this. Council member Jim Skelton asked who runs an Apple Genius Bar? Apple Computer Corporation, of course.

    Later council member Paul Gray continued with questions based on Skelton’s. Why not an Apple Genius Bar in Wichita? Why is the city competing with private business? City officials insist they are not trying to compete with private business. Instead, it’s a resource for training and education.

    Council member Jeff Longwell said this idea is “on the right path,” as long as it doesn’t cost a lot.

    Lavonta Williams said this will attract a different group of people to downtown Wichita. She said it’s something we need.

    Mayor Carl Brewer mentioned that not everyone who would want to use a facility like this might not be able to afford its cost. He didn’t mention that someone else should pay for them, but that’s what this program will do.

    “It’s part of creating an environment where we have everything that anybody could possibly want. … If the private sector’s really wanting to get out there and they’re willing to invest their dollars and they want to start their business, we should let them.”

    This illustrates the mayor’s — and several other council members’ — vision of an expansive city government, providing for citizen needs all the way through arts, entertainment, and now computer tech support.

    Then there’s the mayor’s language that we (Wichita city government) should let the private sector do something. I really hope the mayor misspoke here.

    This is a bad idea. It seems to me that there may be people in Wichita city hall with too much time on their hands if they have time to come up with ideas like this.

    View the video of the portion of the city council workshop where this presentation was made by clicking on Wichita city council workshop, March 24, 2009.

    The slides shown to the council members aren’t available on the city’s website, to my knowledge. I captured them from video, and they may be viewed by clicking on Wichita City Arts tech studio presentation.

    Read Wichita Eagle reporting by clicking on Cyber Alliance plans to offer free technical training. reporting on KWCH is at Wichita Considers “Digital Oasis”.