Voice For Liberty

Tag: Sedgwick county government

  • Wichita economic development initiatives to be announced

    Tomorrow the Wichita Metro Chamber of Commerce will announce, according to the Wichita Eagle, new economic development initiatives. Said to be the product of months of discussion, past history suggests that the efforts will not be fruitful for the Wichita area. The inclinations of the parties involved in this effort are for more government intervention and less reliance on economic freedom and free markets.

    Do economic development incentives work?

    Judging the effectiveness of economic development incentives requires looking for the unseen effects as well as what is easily seen. It’s easy to see groundbreaking and ribbon cutting ceremonies. It’s more difficult to see that the harm that government intervention causes.

    That’s assuming that the incentives even work as advertised in the first place. Alan Peters and Peter Fisher, in their paper titled The Failures of Economic Development Incentives published in Journal of the American Planning Association, wrote on the effects of incentives. A few quotes from the study, with emphasis added:

    Given the weak effects of incentives on the location choices of businesses at the interstate level, state governments and their local governments in the aggregate probably lose far more revenue, by cutting taxes to firms that would have located in that state anyway than they gain from the few firms induced to change location.

    On the three major questions — Do economic development incentives create new jobs? Are those jobs taken by targeted populations in targeted places? Are incentives, at worst, only moderately revenue negative? — traditional economic development incentives do not fare well. It is possible that incentives do induce significant new growth, that the beneficiaries of that growth are mainly those who have greatest difficulty in the labor market, and that both states and local governments benefit fiscally from that growth. But after decades of policy experimentation and literally hundreds of scholarly studies, none of these claims is clearly substantiated. Indeed, as we have argued in this article, there is a good chance that all of these claims are false.

    The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering their expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government — providing the foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.

    Other economists have studied tax increment financing (TIF) and have concluded that it is an overall negative factor for the entire region where it is used. Another study found that TIF districts created for retail use had a negative effect on municipal employment.

    Last week Dave Trabert wrote in the Kansas Policy Institute blog: “There’s a very simple reason that these well-intended initiatives haven’t worked: local government and their public-private partners are offering employers what they want them to have instead of what they need to create jobs. The Wichita Chamber’s own survey of business owners said taxes were too high. WIBA’s member survey identified tax and regulatory issues as their top concerns, as did the US Chamber of Commerce. Yet government and their public-private partners ignore what the customer wants because they don’t want the same things.”

    Wichita’s record on economic development

    Earlier this year Wichita Mayor Carl Brewer said that the city’s efforts in economic development had created “almost 1000 jobs.” While that sounds like a lot of jobs, that number deserves context.

    According to estimates from the Kansas Department of Labor, the civilian labor force in the City of Wichita for December 2011 was 192,876, with 178,156 people at work. This means that the 1,000 jobs created accounted for from 0.52 percent to 0.56 percent of our city’s workforce, depending on the denominator used. This miniscule number is dwarfed by the normal ebb and flow of other economic activity.

    It’s also likely that the city’s economic development efforts were not responsible for a large proportion of these jobs. But government still takes credit. Also, the mayor did not mention the costs of creating these jobs. These costs have a negative economic impact on those who pay them. This means that economic activity — and jobs — are lost somewhere else in order to pay for the incentives.

    The mayor’s plan going forward, in his words, is “We will incentivize new jobs.” But under the mayor’s leadership, this “active investor” policy has produced a very small number of jobs, year after year. Doubling down on the present course is not likely to do much better.

    There’s even confusion over whether our efforts are working. In 2005, a Wichita Eagle editorial commented on a GWEDC report: “Among the points in Thursday’s report worthy of pride was this: the observation by coalition president J.V. Lentell that he’s never seen the cooperation on economic development between the public and private sectors as good as it is now. ‘I’m here to tell you, I think it’s on track,’ Lentell said, emphatically.” (July 29, 2005)

    But in January of this year, an Eagle article listed several things Wichita needs, such as free land and buildings, money for closing deals, and a larger promotions budget. The reporter concluded “The missing pieces have been obvious for years, but haven’t materialized for one reason or another.”

    So even if we believe that an active role for government is best, we have to conclude that our efforts aren’t working. Several long-serving politicians and bureaucrats that have presided over this failure: Mayor Carl Brewer has been on the city council or served as mayor since 2001. Economic development director Allen Bell has been working for the city since 1992. City Attorney Gary Rebenstorf has served for many years. At Sedgwick County, manager William Buchanan has held that position for 21 years. On the Sedgwick County Commission, Dave Unruh has been in office since 2003, and Tim Norton since 2001. (Unruh has said he wants to be Wichita’s next mayor.)

    These people all believe in government-directed economic development. We need to hold them accountable.

    Finally, consider Wichita job growth. As shown in the accompanying chart, the growth in government employees has outstripped private sector job growth. The increase in local government employees is particularly striking.

    Wichita job growthWichita job growth. Data is indexed, with 1990 equal to 1. Source: Bureau of Labor Statistics.

    What our leaders want

    I don’t know what will be in the economic development plan, but it is possible — likely, even — that there will be a call for a tax revenue stream for economic development. In February a company location consultant told Wichita leaders “Successful communities need a dedicated stream of money for economic development.” The news story reported “He was preaching to the choir. GWEDC leaders have been saying for some time that now is the time to go to the business community and the public to make the case for more money and resources.” (Consultant: Wichita needs sites, closing fund to lure business, Wichita Eagle February 16, 2012.)

    Wichita leaders continually call for more “tools in the toolbox” for economic development. They have spoken approvingly of a sales tax for such purposes. Money, of course, is what funds the tools.

    At one time local chambers of commerce would oppose tax increases. They would promote free market principles as the way to create a positive business environment. But this year it was the official position of the Wichita Chamber that eight government subsidy programs was not enough for a downtown hotel, and that there should be a ninth.

    A few years ago Stephen Moore wrote a piece for the Wall Street Journal that that shows how very often, local chambers of commerce support principles of crony capitalism instead of pro-growth policies that support free enterprise and genuine capitalism: “The Chamber of Commerce, long a supporter of limited government and low taxes, was part of the coalition backing the Reagan revolution in the 1980s. On the national level, the organization still follows a pro-growth agenda — but thanks to an astonishing political transformation, many chambers of commerce on the state and local level have been abandoning these goals. They’re becoming, in effect, lobbyists for big government. … In as many as half the states, state taxpayer organizations, free market think tanks and small business leaders now complain bitterly that, on a wide range of issues, chambers of commerce deploy their financial resources and lobbying clout to expand the taxing, spending and regulatory authorities of government. This behavior, they note, erodes the very pro-growth climate necessary for businesses — at least those not connected at the hip with government — to prosper. Journalist Tim Carney agrees: All too often, he notes in his recent book, ‘Rip-Off,’ ‘state and local chambers have become corrupted by the lure of big dollar corporate welfare schemes.’”

    Does Wichita have the will?

    Dr. Art Hall, who is Director of the Center for Applied Economics at the Kansas University School of Business has made a convincing case that less government involvement, not more, is needed. He argues that a dynamic economy is what Kansas needs, not one where government directs taxpayer investment for economic growth.

    Hall writes this regarding “benchmarking” — the bidding wars for large employers that are the foundation of Wichita economic development, and the battle for which Wichita is likely preparing: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”

    Hall’s paper on this topic is Embracing Dynamism: The Next Phase in Kansas Economic Development Policy.

    We need to recognize that government as active investor doesn’t work. A serious problem with a plan for increased economic interventionism by government is the very nature of knowledge. In a recent issue of Cato Policy Report, Arnold King wrote:

    As Hayek pointed out, knowledge that is important in the economy is dispersed. Consumers understand their own wants and business managers understand their technological opportunities and constraints to a greater degree than they can articulate and to a far greater degree than experts can understand and absorb.

    When knowledge is dispersed but power is concentrated, I call this the knowledge-power discrepancy. Such discrepancies can arise in large firms, where CEOs can fail to appreciate the significance of what is known by some of their subordinates. … With government experts, the knowledge-power discrepancy is particularly acute.

    Relying on economic freedom and free market solutions for economic growth and prosperity means trusting in the concept of spontaneous order. That takes courage. It requires faith in the values of human freedom and ingenuity rather than government control. It requires that government officials let go rather than grabbing tighter the reins of power, as will probably be the key feature of Wichita’s new economic development plan.

    But Wichita’s mayor is openly dismissive of economic freedom, free markets, and limited government, calling these principles “simplistic.” Instead, he and most others prefer cronyism and corporate welfare. That hasn’t worked very well so far, and is not likely to work in the future.

  • Special interests will capture south-central Kansas planning

    Special interest groups are likely to co-opt the government planning process started in south-central Kansas as these groups see ways to benefit from the plan. The public choice school of economics and political science has taught us how special interest groups seek favors from government at enormous costs to society, and we will see this at play over the next few years.

    Sedgwick County has voted to participate in a HUD Sustainable Communities Regional Planning Grant. While some justified their votes in favor of the plan because “it’s only a plan,” once the planning process begins, special interests plot to benefit themselves at the expense of the general public. Once the plan is formed, it’s nearly impossible to revise it, no matter how evident the need.

    An example of how much reverence is given to government plans comes right from the U.S. Supreme Court in the decision Kelo v. New London, in which the Court decided that government could use the power of eminent domain to take one person’s property and transfer it to someone else for the purposes of economic development. In his opinion for the Court, Justice Stevens cited the plan: “The City has carefully formulated an economic development plan that it believes will provide appreciable benefits to the community.” Here we see the importance of the plan and due reverence given to it.

    Stevens followed up, giving even more weight to the plan: “To effectuate this plan, the City has invoked a state statute that specifically authorizes the use of eminent domain to promote economic development. Given the comprehensive character of the plan, the thorough deliberation that preceded its adoption, and the limited scope of our review, it is appropriate for us, as it was in Berman, to resolve the challenges of the individual owners, not on a piecemeal basis, but rather in light of the entire plan. Because that plan unquestionably serves a public purpose, the takings challenged here satisfy the public use requirement of the Fifth Amendment.”

    To Stevens, the fact that the plan was comprehensive was a factor in favor of its upholding. The sustainable communities plan, likewise, is nothing but comprehensive, as described by county manager Bill Buchanan in a letter to commissioners: “[the plan will] consist of multi-jurisdictional planning efforts that integrate housing, land use, economic and workforce development, transportation, and infrastructure investments in a manner that empowers jurisdictions to consider the interdependent challenges of economic prosperity, social equity, energy use and climate change, and public health and environmental impact.”

    That pretty much covers it all. When you’re charged with promoting economic prosperity, defending earth against climate change, and promoting public health, there is no limit to the types of laws you might consider.

    Who will plan?

    The American Planning Association praised the Court’s notice of the importance of a plan, writing “This decision underscores the importance for a community to have a comprehensive development plan formulated through a democratic planning process with meaningful public participation by everyone.”

    But these plans are rarely by and for the public. Almost always the government planning process is taken over and captured by special interests. We see this in public schools, where the planning and campaigning for new facilities is taken over by architectural and construction firms that see school building as a way to profit. It does not matter to them whether the schools are needed.

    Our highway planning is hijacked by construction firms that stand to benefit, whether or not new roads are actually needed.

    Our planning process for downtown Wichita is run by special interest groups that believe that downtown has a special moral imperative, and another group that sees downtown as just another way to profit at taxpayer expense. Both believe that taxpayers across Wichita, Kansas, and even the entire country must pay to implement their vision. As shown in Kansas and Wichita need pay-to-play laws the special interests that benefit from public spending on downtown make heavy political campaign contributions to nearly all members of the Wichita City Council. They don’t have a political ideology. They contribute only because they know council members will be voting to give them money.

    In Wichita’s last school bond election, 72 percent of the contributions, both in-kind and cash, was given by contractors, architects, engineering firms and others who directly stand to benefit from new school construction, no matter whether schools are actually needed. The firm of Schaefer Johnson Cox Frey Architecture led the way in making these contributions. It’s not surprising that this firm was awarded a no-bid contract for plan management services for the bond issue valued at $3.7 million. This firm will undoubtedly earn millions more for those projects on which it serves as architect.

    The special interest groups that benefit from highway construction: They formed a group called Economic Lifelines. It says it was formed to “provide the grassroots support for Comprehensive Transportation Programs in Kansas.” Its motto is “Stimulating economic vitality through leadership in infrastructure development.”

    A look at the membership role, however, lets us know whose economic roots are being stimulated. Membership is stocked with names like AFL-CIO, Foley Equipment Company, Heavy Constructors Association of Greater Kansas City, Kansas Aggregate & Concrete Associations, Kansas Asphalt Pavement Association, Kansas Contractors Association, Kansas Society of Professional Engineers, and PCA South Central Cement Promotion Association. Groups and companies like these have an economic interest in building more roads and highways, whether or not the state actually needs them.

    The planners themselves are a special interest group, too. They need jobs. Like most government bureaucrats, they “profit” from increasing their power and sphere of influence, and by expansion of their budgets and staffs. So when Sedgwick County Commissioner Jim Skelton asks a professional planner questions about the desirability of planning, what answer does he think he will get? It’s not that the planners are not honest people. But they have a vested economic and professional interest in seeing that we have more government planning, not less.

    And we have evidence that planners watch out for themselves. It is not disputed that this planning grant benefits Regional Economic Area Partnership (REAP). Sedgwick County Commissioner Richard Ranzau says that John Schlegel, Wichita’s Director of Planning, told him that “acceptance of this grant will take REAP to another level, because right now they are struggling, and this will help plot the course for REAP.” He said that REAP, which is housed at the Hugo Wall School of Public Affairs at Wichita State University, needs to expand its role and authority in order to give it “something to do.”

    We see that REAP is another special interest group seeking to benefit itself. In this case, our best hope is that REAP engages in merely make-work, that the plan it produces is put on a shelf and ignored, and that the only harm to us is the $1.5 million cost of the plan.

    By the way, did you know that Sedgwick County Commissioner Dave Unruh, who voted in favor of the plan that benefits REAP, is now chairman of REAP? Special interest groups know how to play the political game.

  • Municipal stormwater regulation on White House agenda

    Some scoff at those who raise warnings about overreaching federal regulation. But even though the national economy is suffering and we are drowning in debt, the administration of President Barack Obama can find time to meddle in the regulation of municipal stormwater.

    Following is an email from NACo, the National Association of Counties, to county commissioners, presumably across the nation. The email, which presumes that “green” stormwater management practices are most desirable, asks for suggestions from commissioners to present at a national conference on the topic, hosted by the White House.

    The agenda for the conference is White House Conference Municipal Stormwater Infrastructure: Going From Grey to Green. Following is the email commissioners received.

    From: Julie Ufner [mailto:jufner@naco.org]
    Subject: Green Infrastructure Information Request

    Next week, I will be representing NACo at the White House’s Stormwater Infrastrucutre [sic] event. The White House asked participants to be prepared to discuss the questions below. If you have any comments or responses to the questions, please feel free to forward those responses no later than COB on Wednesday, September 19th.

    1. What do you see as the most significant barriers to the wider use of green infrastructure practices to manage municipal stormwater?

    2. What steps should federal agencies, communities, or others take to promote the use of green infrastructure practices in municipal stormwater management?

    3. Are there specific infrastructure practices, or categories of practices, that you believe are most effective, provide the greatest benefits, or are most easily implemented?

    4. Are there funding strategies for municipal green infrastructure that you have employed and would recommend?

    Thank you in advance for any comments you may have.

    Julie Ufner
    Associate Legislative Director
    Environment, Energy and Land Use
    National Association of Counties
    202-942-4269
    jufner@naco.org

  • NetApp economic development incentives: all of them

    Tomorrow the Wichita City Council will consider economic development incentives designed to secure new jobs in Wichita at NetApp. Few Kansans, however, are probably aware of the entire scope of the incentive package and the harm it causes.

    NetApp is asking both the City of Wichita and Sedgwick County to provide an economic development incentive to the company in exchange for bringing jobs to Wichita. The proposed amount is $312 per year per job from each body, for up to five years. City documents indicate that NetApp’s intent is to create 418 new jobs, and the maximum grant is capped at $418,000 from each body.

    City documents also calculate the benefit-cost ratio, which is given as 3.93 to one. When considering benefit-cost ratios, we also need to realize that the “benefits” in the calculation are in the form of increased tax revenue paid to the city, county, etc. There is no consideration of actually rewarding the taxpayers that pay for — and assume the risk of — economic development incentives. Furthermore, these benefits are not like profits that business firms earn. Instead, they are in the form of taxes that government takes.

    In one sense, this proposed incentive is a refreshing change. Instead of using programs like industrial revenue bonds, community improvement districts, EDX, tax increment financing, sales tax bonds, forgivable loans, and other programs, the city and county are proposing cash. Instead of confusing programs where the economic costs are difficult to understand — and sometimes hidden from public view — the city and county will simply pay cash.

    But what Wichita and Sedgwick County will pay is just a small portion of the total incentives NetApp is likely to receive. City documents often detail the incentive programs contemplated by the Kansas Department of Commerce. But the city documents for this item, as well as publicly available county documents, don’t mention these.

    A June letter from the Department of Commerce to NetApp lays out the potential benefits from the state. As detailed in the letter, the programs with potential dollar amounts are:

    • Promoting Employment Across Kansas (PEAK), up to $7,705,535
    • Kansas Industrial Training with PEAK, up to $160,800
    • sales tax savings of $6,880,000
    • personal property tax exemption, $11,913,682
    • High Performance Incentive Program (HPIP), $8,500,000

    The total of these is $35,160,017.

    PEAK allows companies to retain 95 percent of their Kansas payroll withholding tax for a period. According to the Department of Commerce document, this effectively allows NetApp to retain an estimated 4.9 percent of what it pays these employees. See Kansas PEAK program: corporate welfare wrapped in obfuscation.

    The nearly $12 million in personal property tax exemption arises from a 2006 law whereby the state no longer taxes business equipment and machinery for all companies. This is not a targeted incentive for NetApp; it is something that all companies in Kansas benefit from.

    The document also informs NetApp that it should qualify for the High Performance Incentive Program (HPIP), which offers a 10 percent tax credit on the qualified net, new capital investment.

    I wonder: If the city and county recalculated their benefit-cost ratios, this time including the cost of the portion of the Kansas Department of Commerce incentives paid for by Wichita and Sedgwick County residents, what would the investment look like?

    Kansas is not the only state that NetApp is receiving millions from. North Carolina is victim, too.

    Today’s Wall Street Journal carries an article written by Charles G. Koch, chairman of the board and CEO of Wichita-based Koch Industries that warns of the rise of cronyism and the harm it causes (Charles G. Koch: Corporate cronyism harms America).

    NetApp appears to have mastered the process that Charles Koch warns of: “We are on dangerous terrain when government picks winners and losers in the economy by subsidizing favored products and industries. There are now businesses and entire industries that exist solely as a result of federal patronage. Profiting from government instead of earning profits in the economy, such businesses can continue to succeed even if they are squandering resources and making products that people wouldn’t ordinarily buy.”

    NetApp is not the only economic development incentive the council will consider tomorrow. As each program is approved, as more economic development is directed by government, we risk another harm that Koch warns of: “Put simply, cronyism is remaking American business to be more like government. It is taking our most productive sectors and making them some of our least.”

  • Kansas counties decline sustainable communities planning

    Two of the five Kansas counties that were asked to participate in a sustainable communities planning grant have decided not to join the effort. Of the five counties (Sedgwick, Butler, Reno, Harvey and Sumner), Butler and Sumner county commissioners voted against participation.

    The REAP sustainable communities planning process is designed to, in the words of REAP, “create a long-term regional plan for ensuring the health and productivity of our local economy. The grant will support community engagement to identify common values and goals, followed by local and regional efforts to enhance economic development, connect people with jobs, reduce housing and transportation costs, ensure public safety, and use of limited public funds efficiently in the years ahead.”

    Critics of government planing processes such as this are concerned that the planning process would subject us to additional control by the federal government. These are the so-called strings that are thought to accompany federal grants.

    (For those who are interested in what strings look like, here’s an example of one that is relatively innocuous. A HUD document titled Program Policy Guidance OSHC-2012-01 explains “Applicants that reach a certain qualifying score under the Regional Planning Grant Program or the Community Challenge Grant Program will receive PSS designation. PSS designation provides your entity access to bonus points for selected other HUD grant programs, technical assistance, and other capacity building opportunities that will strengthen future efforts to apply to the program.” REAP has been awarded this status, as it complied with this “string.”)

    When the Wichita City Council deliberated its endorsement of and participation in this program, Council Member James Clendenin (district 3, southeast and south Wichita), asked a series of questions of Joe Yager, chief executive officer of REAP, as to whether these concerns were true. Yager said no, there are no strings accompanying the grant. But what about after the planning process is over in three years? Will the plan be forced upon us, Clendenin asked?

    Yager answered no, that local governing bodies would have to vote to implement any of the ideas or programs that resulted from the plan. Nothing will be forced upon us, nothing is mandated, he said. We wold simply have a “toolkit” of things to use.

    This view or attitude — that local elected officials will protect us from the harmful elements that will emerge from the plan — is dangerously naive. First, in his short time in office, Clendenin has regularly voted for expansions of government planning, power, and spending. He doesn’t stand out from most other council members, not even the Republican members (except for one), as they also regularly vote for these things.

    Second, we know that after the plan is complete there will be the argument that since we have the plan, that since we spent three years and $2.2 million on the process, we might as well go ahead and implement it.

    Then, there will be the future grants and undoubtedly increased local spending required to implement the plan. There is now research that looks at the effect of federal grants on future local spending. In their research paper titled Do Intergovernmental Grants Create Ratchets in State and Local Taxes? Testing the Friedman-Sanford Hypothesis economists Russell S. Sobel and George R. Crowley concluded this: “Federal grants often result in states creating new programs and hiring new employees, and when the federal funding for that specific purpose is discontinued, these new state programs must either be discontinued or financed through increases in state own source taxes.”

    The authors cautioned: “Far from always being an unintended consequence, some federal grants are made with the intention that states will pick up funding the program in the future.” See Federal grants increase future local spending.

    Sedgwick County Commissioner Richard Ranzau has researched the sustainable development movement, and has written a paper explaining what he found.

    Randal O’Toole, Senior Fellow at the Cato Institute, has written extensively on government planning, especially regarding land use and transportation. His op-ed on this topic follows:

    The vast majority of Americans, surveys say, aspire to live in a single-family home with a yard. The vast majority of American travel — around 85 percent — is by automobile. Yet the Obama administration thinks more Americans should live in apartments and travel on foot, bicycle, or mass transit.

    To promote this idea, the administration wants to give the south central Regional Economic Area Partnership (REAP) the opportunity to apply for a $1.5 million grant to participate in “sustainable communities.” Also sometimes called “smart growth,” the ideas promoted by these programs are anything but sustainable or smart. (As members of REAP, the governing bodies for both Wichita and Sedgwick County endorsed this grant.)

    The urban plans that come out of these kinds of programs typically call for:

    • Redesigning streets to increase traffic congestion in order to discourage people from driving;
    • Increasing subsidies to transit, bike paths, and other “alternative” forms of travel even though these alternatives are used by few people;
    • Denying owners of land on the urban fringes the right to develop their property in order to make single-family housing more expensive;
    • Subsidizing high-density, developments that combine housing with retail shops in the hope that people will walk to shopping rather than drive;
    • Rezoning neighborhoods of single-family homes for apartments with zoning so strict that, if someone’s house burns down, they will have to replace it with an apartment.

    My former hometown of Portland, Oregon has followed these policies for two decades, and the results have been a disaster. In their zeal to subsidize transit and high-density developments, the region’s officials have taken money from schools, libraries, fire, and police, leaving those programs starved and in disarray.

    Since 1980, Portland has spent more than $3 billion building light-rail lines. Far from improving transit, the share of commuters taking transit to work has fallen from 9.8 percent in 1980 to 7.5 percent today, mainly because the region cut bus service to pay for the trains. Traffic congestion quadrupled between 1984 and 2004, which planners say was necessary to get people to ride transit.

    The region’s housing policies made single-family homes so expensive that most families with children moved to distant suburbs where they can afford a house with a yard. Residents of subsidized high-density housing projects drive just about as much as anyone else in the Portland area, and developers have learned to their sorrow that if they follow planners’ guidelines in providing less parking for these projects, they will end up with high vacancy rates.

    Despite these problems, Portland has received lots of positive publicity. The reason for this is simple: by forcing out families with children, inner Portland is left mainly with young singles and childless couples who eat out a lot, making Portland a Mecca for tourists who like exciting new restaurants. This makes Portland a great place to visit, but you wouldn’t want to live there unless you like noisy, congested streets.

    The idea of “sustainable communities” is that planners can socially engineer people into changing their travel behavior by redesigning cities to favor pedestrians and transit over automobiles. Beyond the fact that this is an outrageous intrusion of government into people’s lives, it simply doesn’t work. Such experts as University of California economist David Brownstone and University of Southern California planning professor Genevieve Giuliano have shown that the link between urban design and driving is too weak to make a difference.

    To protect livability and avoid unsustainable subsidies to transit and high-density development, Wichita, Sedgwick County, and other REAP members of south central Kansas should reject the $1.5 million grant offered by the federal government.

  • Wichita-area economic development policy changes proposed

    The City of Wichita and Sedgwick County are considering a revision to their economic development policies. Instead of promoting economic freedom and a free-market approach, the proposed policy gives greater power to city bureaucrats and politicians, and is unlikely to produce the economic development that Wichita needs.

    A new feature of the proposed policy implements property tax forgiveness for speculative industrial buildings, with a formula that grants a higher percentage of tax forgiveness as building size increases. And, in a stroke of pure bureaucratic central planning, the ceilings of these buildings must be at least 28 feet high.

    The policy requires that projects have an estimated ratio of public benefits to public costs of at least 1.3 to 1, although there are factors that allow exceptions. This ratio should be met for both the city’s general fund, and its debt service fund. This — if the city actually enforces this — would be a welcome change. But within the last year, the city ignored a large negative cost-benefit ratio for the Ambassador Hotel, and instead used a positive ratio for the city’s general fund. See Fact checking the Wichita Ambassador Hotel campaign.

    Wichitans also need to realize that the “benefits” in the calculation are in the form of increased tax revenue paid to the city, county, etc. There is no consideration of actually rewarding the taxpayers that pay for — and assume the risk of — economic development incentives.

    There is also the curious focus on jobs that pay above-average wages. But what about workers who don’t have the skills to earn above-average wages? Shouldn’t they be able to benefit from the city’s economic development efforts?

    There is also the focus on exports: “A ‘Value-Added Job’ produces goods and/or services that are sold predominately outside of the MSA. Importing wealth into the community through value added jobs grows the local economy. Whereas non-value-added jobs typically re-circulate wealth within the community.” This is reminiscent of mercantilism, an economic strategy where exports are prized and imports are discouraged. It ignores the benefit that Wichitans receive from trading with themselves.

    There are also targeted industries and a list of eligible business activities.

    Clawbacks — the recovery of incentives if a company fails to live up to its agreed-to goals — are important in the new proposed policy. But the city has had clawbacks in effect, in the form of personal guarantees from TIF developers, for example. But last year the city decided not to enforce that agreement, and instead refinanced the debt at credit risk to the city.

    The record on economic development

    Earlier this year Greater Wichita Economic Development Coalition issued its annual report on its economic development activities for the year. The shows us that power of government to influence economic development is weak. In its recent press release, the organization claimed to have created 1,509 jobs in Sedgwick County during 2011. According to the Bureau of Labor Statistics, the labor force in Sedgwick County in 2011 was 253,940 persons. So the jobs created by GWEDC’s actions amounted to 0.59 percent of the labor force. This is a very small fraction, and other economic events are likely to overwhelm these efforts.

    In his 2012 State of the City address, Brewer took credit for creating a similar percentage of jobs in Wichita.

    Rarely mentioned are the costs of creating these jobs. These costs have a negative economic impact on those who pay these costs. This means that economic activity and jobs are lost somewhere else in order to pay for the incentives.

    Also, at least some of these jobs would have been created without the efforts of GWEDC. All GWEDC should take credit for is the marginal activity that it purportedly created. Government usually claims credit for all that is good, however.

    Danger going forward

    The danger we in the Wichita area face is the overwhelming urge of politicians to be seen doing something. For example, in response to the departure of Boeing, Wichita Mayor Carl Brewer called for the community to “launch an aggressive campaign of job recruitment and retention.”

    It is likely that we will become susceptible to large-scale government interventions in an attempt to gain new jobs. Our best course would be to take steps to make Kansas and Wichita an inviting place for all firms to do business. The instinct of politicians and bureaucrats, however, is to take action, usually in the form of targeted incentives as a way to spur economic development.

    We’ve seen the disappointing results — not only with Boeing, but also in a report showing that Wichita has declined in economic performance compared to other areas.

    These targeted economic development efforts fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. In the case of the Wichita and Sedgwick County policy, do we really know which industries should be targeted? Are we sure about the list of eligible business activities? Is 1.3 to 1 really the benchmark we should seek, or we be better off and have more jobs if we insisted on 1.4 to 1 or relaxed the requirement to 1.2 to 1?

    This lack of knowledge, however, does not stop governments from creating policies for the awarding of incentives. This “active investor” approach to economic development is what has led to companies escaping hundreds of millions in taxes — taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form.

    Embracing Dynamism: The Next Phase in Kansas Economic Development Policy

    Professor Art Hall of the Center for Applied Economics at the Kansas University School of Business is critical of this approach to economic development. In his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy, Hall quotes Alan Peters and Peter Fisher: “The most fundamental problem is that many public officials appear to believe that they can influence the course of their state and local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering expectations about their ability to micro-manage economic growth and making the case for a more sensible view of the role of government — providing foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.”

    In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers that Wichita and other cities engage in: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”

    In making his argument, Hall cites research on the futility of chasing large employers as an economic development strategy: “Large-employer businesses have no measurable net economic effect on local economies when properly measured. To quote from the most comprehensive study: ‘The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.’”

    There is also substantial research that is it young firms — distinguished from small business in general — that are the engine of economic growth for the future. We can’t detect which of the young firms will blossom into major success — or even small-scale successes. The only way to nurture them is through economic policies that all companies can benefit from. Reducing tax rates is an example of such a policy. Abating taxes for specific companies through programs like IRBs and other economic development programs is an example of precisely the wrong policy.

    We need to move away from economic development based on this active investor approach. We need to advocate for policies — at Wichita City Hall, at the Sedgwick County Commission, and at the Kansas Statehouse — that lead to sustainable economic development. We need political leaders who have the wisdom to realize this, and the courage to act appropriately. Which is to say, to not act in most circumstances. Wichita and Sedgwick County are moving in the wrong direction.

  • Wichita Eagle voter guide available

    For the voter guide for the November 2012 elections, click here.

    The Wichita Eagle voter guide is now available online.

    This guide may be used in two ways: you can enter your address, and the system will show you information about the candidates that will appear on your ballot. Or, you can browse all the races and candidates.

    The information in this guide is provided by the candidates (except for a brief description of each office), and there is no editorial comment. Some of this information will probably appear in a printed version of the newspaper, but not for contests like precinct committeeman and committeewoman.

    Access the voter guide by clicking on Wichita Eagle voter guide.

  • Skelton, Sedgwick County Commissioner, censured by party

    Yesterday evening the Sedgwick County Republican Party censured a Sedgwick County Commissioner for supporting a Democrat in an upcoming election.

    Treatha Brown-Foster, who is chair of Kansas Black Republican Council, offered a resolution critical of Jim Skelton.

    The resolution read: “Whereas, Jim Skelton, an elected Republican official in Sedgwick County, who has benefited from the support of the Sedgwick County Republican Party, has publicly supported a Democratic candidate over a Republican candidate for election to the Sedgwick County Commission. Be it resolved that Jim Skelton be censured for this action.”

    The resolution was met with applause. The motion was seconded and the vote to approve it was unanimous.

    In June Skelton expressed his support in a Wichita Eagle article for incumbent Tim Norton over challenger Ben Sauceda. Norton is a Democrat; Sauceda is a Republican. The two face no primary challenges, and will meet in the November 6th general election.

    In January Skelton joined with fellow Republican Commissioner Dave Unruh to elect Norton as commission chair. Despite Republicans holding a four to one majority, the commission is chaired by a Democrat.

  • Political cronyism has become the way

    “A society whose businesses engage in cronyism instead of serving people will not be prosperous, and in America it is clear that cronyism is becoming a more common choice,” writes Sam Patterson at EconomicFreedom.org.

    Cronyism is the practice of seeking business success through government rather than through markets. The difference is that business succeeds in the market by providing goods and services that people are willing to buy. Political cronyism, on the other hand, results in people being forced to buy from, or to otherwise involuntarily subsidize, certain business firms that have succeeded in the political arena.

    In Kansas, despite the fiscal conservatism of Kansas Governor Sam Brownback and many members of the legislature, political cronyism thrives. An example is the increased powers given to the Kansas PEAK program (Promoting Employment Across Kansas). A more recent example is the vote to extend the STAR bonds program. Both programs provide business firms a way to obtain money isolated from market forces. Instead, applicants must meet the guidelines of a government program.

    In Wichita and Sedgwick County, cronyism is firmly established as economic development policy. It’s little wonder that our policies are failing and we are losing people and income to other states.

    Cronyism Undermines the Beneficial Role of Business in Society

    By Sam Patterson

    The role that business plays in society is straightforward — businesses produce goods and services that people consider beneficial. If a business can do that while wisely using resources, it makes a profit. Successful businesses benefit society by producing goods or services which improve people’s lives, and are then rewarded with profit. Those profits enable businesses to innovate or offer more goods and services, further improving people’s lives. Businesses must cater to the needs of society or they will find that they are not rewarded with profit and may well no longer exist.

    At least, that’s how it works in a free market. There is another path for businesses to make profit other than providing valuable products. It’s called cronyism. Cronyism occurs when a business colludes with government officials to create unfair legislation and/or regulations which give them benefits they could not have otherwise obtained voluntarily.

    Continue reading at Cronyism Undermines the Beneficial Role of Business in Society.