Voice For Liberty

Tag: Subsidy

  • Lavonta Williams: ‘You don’t have to go there’

    Do not enter signAt a Wichita City Council meeting last August, Council Member Lavonta Williams (district 1, northeast Wichita) advised taxpayers on what to do if they disagree with action taken by the council: Just don’t go there.

    The topic that day was whether the council should decide to add fluoride to the city’s water, or should it let citizens vote on the matter. Williams expressed concern that if the council were to decide to fluoridate Wichita’s water, citizens would not be able to avoid ingesting the added fluoride. They wouldn’t have a choice.

    By way of analogy, Williams counseled the concerned citizens: “Did you like the art that went down to WaterWalk? Maybe you didn’t. But you don’t have to go there.”

    She also said we don’t have to go to the apartments that were built at WaterWalk, and we don’t have to stay at the Ambassador Hotel.

    True, we can avoid these government-sponsored and subsidized places if we want to. But what Williams may have forgotten is that we can’t avoid being forced to pay for them.

    Besides that, what does it say about a government where if we disagree with its actions, we’re told “you don’t have to go there”?

  • Downtown Wichita issues not appreciated

    Once again, the Wichita Eagle editorial board misses the point regarding downtown Wichita development.

    There may be some that are opposed to downtown simply because it’s downtown, or for other silly reasons. That seems to be the focus of Rhonda Holman’s editorial today.

    But speaking from a perspective of economic freedom and individual liberty, it’s government interventionism in downtown that I object to. This is what harms Wichita, not the fact that people are living and working downtown or anywhere else, for that matter.

    The political cronyism involved in many projects in downtown Wichita is what harms our city. When government takes from one and gives to another, everyone is worse off — other than the recipients. I understand that it’s easy to look at a subsidized project — be it downtown or elsewhere — and see people working at jobs. It’s much more difficult, however, to see the harm that the government intervention causes: Prosperity and jobs are lost due to inefficient government allocation of capital through political, not market, mechanisms. In the whole, we are worse off, not better.

    If you don’t believe this — if you insist that the city government can create jobs and prosperity through its interventions, and that these have no net cost — then you have to ask why the city is not involved in more development.

    It is the principled objection to government involvement that many do not understand, including, I think, the Wichita Eagle editorial board. An example: In September 2011, after I and others started a campaign to overturn a city council decision to award a tax subsidy to the Ambassador Hotel, the hotel’s lead developer asked to meet with me. In the meeting I explained that I would oppose the city’s action if applied to any hotel, located anywhere in Wichita, owned by anyone. He said that he sensed my opposition was based on principle, and I agreed.

    The curious thing is that this seemed to puzzle him — that people would actually apply principles to politics.

    The political allocation of investment capital in Wichita leads to problems of the appearance of impropriety, if not actual impropriety. There is a small group of people that repeatedly receive large amounts of taxpayer subsidy. These people and others associated with their companies regularly contribute to the campaign funds of city council members and candidates. These council members then vote to grant these people taxpayer-funded subsidy, year after year.

    City council members also vote to award them with no-bid contracts. That’s terrible government policy. Especially when one recent contract was later put to competitive bid, and turned out to cost much less than the no-bid price. City council members, all except one, were willing to award their significant campaign contributors with an overpriced no-bid contract at taxpayer expense.

    The company that won the no-bid contract was Key Construction. Its owners and executives were the sole contributors to the campaign fund of Lavonta Williams (district 1, northeast Wichita) in 2012 as she prepared to run for reelection this spring.

    James Clendenin (district 3, southeast and south Wichita), also running for reelection this spring, and also having voted for the no-bid contract for Key, also received many contributions from Key and its executives in 2012. That company, along with person associated with one other company, were the sole source of Clendenin’s campaign funding that year.

    Doesn’t the Wichita Eagle editorial board see a problem here? Doesn’t the newsroom?

    There was a time when newspaper opinion editors crusaded against this type of behavior.

    Newspaper editorial writers ought also to be concerned about how taxpayer funds are spent. The City of Wichita, however, has established non-profit organizations to spend taxpayer funds. The Wichita Downtown Development Corporation, for example, is funded almost exclusively through taxes. Yet, it claims that it is not a public agency as defined in the Kansas Open Records Act, and therefore need not fulfill records requests seeking to bring transparency as to how the agency spends its taxpayer funds. The city, inexplicably, backs WDDC in this interpretation of law that is contrary to the interests of citizens.

    Secrecy of this type regarding taxpayer funds is not good public policy. There was a time when newspaper editors railed against government secrecy like this.

    We need a newspaper editorial board that understands principle vs. political expediency. As a first step, let’s ask for an editorial board that recognizes these abuses of citizens and is willing to talk about them.

  • In Wichita, Jeff Longwell has the solution to cronyism

    Wichita City Hall SignAt a recent Wichita City Council meeting, Council Member Jeff Longwell (district 5, west and northwest Wichita) was critical of topics broached by two speakers, admonishing them to “take a different approach.”

    The speakers had mentioned votes made and actions taken by the council and the appearance of influence or linkage to campaign contributions.

    Longwell’s concern is understandable. As perhaps the most accomplished practitioner of cronyism on the council, he’s dished out millions in taxpayer subsidy to his significant campaign contributors. His acceptance of campaign contributions last summer from a Michigan construction company that had business before the council lifted cronyism to new heights.

    After that, I thought that we wouldn’t ever see a more blatant instance of the appearance of impropriety. That is, until Mayor Carl Brewer started selling his barbeque sauce at a movie theater he’s voted to grant taxpayer subsidy to, several times.

    These incidents are embarrassing for Wichita. So I can understand that Longwell doesn’t want them mentioned in public. I’m sure that’s what he would prefer.

    That’s why it’s surprising that he would speak out at a council meeting. Why call additional attention to your bad behavior?

    I think I know the answer: It is not possible to shame Longwell, Brewer, and most other council members. They believe their conduct is honest, forthright, and above reproach. They believe it is their critics who are harming the city’s reputation.

    But in many cities, the routine practice of most Wichita City Council members would be a violation of the city’s ethics code, or even of city law. An example is from Westminster, Colorado. Its charter reads:

    The acceptance or receipt by any Councillor or member of that Councillor’s immediate family, or an organization formed to support the candidacy of that Councillor, of any thing of value in excess of one-hundred dollars ($100) from any person, organization, or agent of such person or organization, shall create a conflict of interest with regard to that Councillor’s vote on any issue or matter coming before the Council involving a benefit to the contributing person, organization, or agent, unless such interests are merely incidental to an issue or question involving the common public good.

    In commenting on this ordinance, CityEthics.org noted:

    Westminster goes right to the heart of the matter — not the contribution itself, which is central to citizens’ expressions of their political preferences — but the effect of the other sort of contribution, the large contribution intended, possibly, not only to express a political preference (or not even, since often large contributions are given to both or all candidates by the same individual or entity), but also to influence the candidate.

    If the contribution was not intended to influence the candidate, then the contributor won’t mind that the candidate cannot participate or vote on any matter dealing with the contributor’s interests. In addition, the candidate will not be placed in the position of appearing to favor someone who gave him or her a sizeable contribution or — and this is certainly possible if the candidate is truly independent — having to vote against a strong supporter. It’s a win-win situation for everyone, so long as there was no intent to influence.

    In Wichita, we don’t have any laws or codes of ethics that prohibit or discourage what Westminster, Colorado does. We don’t even have many council members who think these are desirable.

    Instead, the solution preferred by Wichita’s political class is to follow Jeff Longwell’s advice: Just don’t talk about it.

    Troubling incidents involving Council Member Jeff Longwell

    In August 2011 the council voted to award Key Construction a no-bid contract to build the parking garage that is part of the Ambassador Hotel project, now known as Block One. The no-bid cost of the garage was to be $6 million, according to a letter of intent. Later the city decided to place the contract for competitive bid. Key Construction won the bidding, but for a price $1.3 million less.

    The no-bid contract for the garage was just one of many subsidies and grants given to Key Construction and Dave Burk as part of the Ambassador Hotel project. In Wichita city elections, individuals may contribute up to $500 to candidates, once during the primary election and again during the general election. As you can see in this table complied from Wichita City Council campaign finance reports, spouses often contribute as well. So it’s not uncommon to see the David and DJ Burk family contribute $2,000 to a candidate for their primary and general election campaigns. That’s a significant sum for a city council district election campaign cycle. Click here for a compilation of campaign contributions made by those associated with the Ambassador Hotel project.

    Council Member Jeff Longwell (district 5, west and northwest Wichita), in his second term as council member, led the pack in accepting campaign contributions from parties associated with the Ambassador Hotel project. For his most recent election, he received $4,000 from parties associated with Key Construction, and $2,000 from David Burk and his wife. Total from parties associated with the Ambassador Hotel project: $6,000. When Longwell ran for Sedgwick County Commission this summer, these parties donated generously to that campaign, too.

    What citizens need to know is that the Wichita City Council was willing to spend an extra $1.3 million of taxpayer money to reward a politically-connected construction firm that makes heavy campaign contributions to council members. Only one council member, Michael O’Donnell, voted against this no-bid contract. No city bureaucrats expressed concern about this waste of taxpayer money.

    Then, last summer while Longwell was campaigning for the Sedgwick County Commission, campaign contributions from parties associated with Walbridge, a Michigan-based construction company appeared on Longwell’s campaign finance reports. Why would those in Michigan have an interest in helping a Wichita City Council member fund his campaign for a county office? Why should we in Wichita care if they do?

    These contributions are of interest because on July 17, 2012, the Wichita City Council, sitting in a quasi-judicial capacity, made a decision in favor of Key and Walbridge that will cost some group of taxpayers or airport customers an extra $2.1 million. Five council members, including Longwell, voted in favor of this decision. Two members were opposed.

    On July 16 — the day before the Wichita City Council heard the appeal that resulted in Key Construction apparently winning the airport contract — John Rakolta, Chairman and Chief Executive Officer of Walbridge and his wife contributed $1,000 to Longwell’s campaign for Sedgwick county commissioner.

    Then on July 20, three days after the council’s decision in favor of Key/Walbridge, other Walbridge executives contributed $2,250 to Longwell’s campaign. Besides the Walbridge contributions, Key Construction and its executives contributed $6,500 to Longwell’s county commission campaign. Key and its executives have been heavy contributors to Longwell’s other campaigns, as well as to Wichita Mayor Carl Brewer and many other Wichita City Council members.

    When asked about the Michigan contributions, Longwell stated “We often get contributions from a wide variety of sources, including out-of-town people,” according to the Wichita Eagle.

    But analysis of Longwell’s July 30, 2012 campaign finance report shows that the only contributions received from addresses outside Kansas are the Walbridge contributions from Michigan, which contradicts Longwell’s claim. Additionally, analysis of ten recent campaign finance reports filed by Longwell going back to 2007 found only three contributions totaling $1,500 from addresses outside Kansas.

  • Hawker job numbers a lesson in economic development

    Hawker 1000 exteriorIn December 2010, the State of Kansas, City of Wichita, and Sedgwick County teamed to offer economic development incentives to Wichita-based Hawker Beechcraft. The incentives were offered not to create new jobs, but to retain existing jobs.

    Economic development officials took credit for saving 4,000 jobs. Now that Hawker employment has fallen to 3,372, will we update our economic development scorecard?

    Past practice suggests we won’t. I can imagine officials arguing that after all, these jobs were preserved for between one and two years. Also, the amount of subsidy Hawker will receive is trimmed a little as a result of the reduced employment.

    In his State of the City address in January 2011, just after the Hawker deal was reached, Wichita Mayor Carl Brewer told the audience that “We responded to the realities of the new economy by protecting and stabilizing jobs in the aviation industry.”

    Later he added “The deal with Hawker Beechcraft announced last December keeps at least 4,000 jobs and all existing product lines in Wichita until at least 2020.”

    Well, not quite. Now there are 15.7 percent fewer jobs than the mayor promised. The news that Hawker will shed its business jet line means the loss of a product line, and probably more lost jobs.

    There’s no joy in reporting this news. People have been hurt. Investors have lost money. Sadly, it’s quite certain that Wichita will not learn from this sad news, as Mayor Brewer and others want to double down on the strategy of targeted economic development investment. Brewer called for a dedicated funding source for this in his State of the City address delivered yesterday.

    The danger we in Kansas, and specifically the Wichita area, face is the overwhelming urge of politicians to be seen doing something. We see this now in the call for more spending on economic development. In response to the departure of Boeing last year, 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 or retain what we have. But 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 such as Brewer, however, is to take action, usually in the form of targeted incentives to spur economic development.

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

    There’s other evidence that Wichita is not growing and prospering, compared to other cities: “The inflation-adjusted gross domestic product for the Wichita metro area declined 0.4 percent in 2010, according to initial estimates from the federal Bureau of Economic Analysis. The decline slowed from the year before, when this measure of economic growth plummeted by 7.7 percent. … Wichita’s decline came even as GDP grew by 2.5 percent nationwide in 2010. GDP increased in 304 of 366 metro areas nationwide.” (Wichita Business Journal, Wichita’s real GDP declined in 2010 amid national recovery, database shows.)

    For those who prefer pictures, charts here and here illustrate.

    The targeted economic development efforts that Wichita uses fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. This, however, does not stop governments from creating policies for the awarding of incentives. It also doesn’t stop the awarding of incentives willy-nilly without a policy, as the Wichita City Council has done for a hotel.

    This “active investor” approach to economic development is what has led to Boeing and other 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 is sure to undertake in response to the loss of Boeing: “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 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.

  • Carl Brewer: The state of Wichita, 2013

    Wichita Mayor Carl Brewer, State of the City Address, January 29, 2013Much like President Barack Obama in his recent inaugural address, Wichita Mayor Carl Brewer displayed his collectivist instincts in his “State of the City” address for 2013. His speech, as prepared, may be read here.

    Opening, the mayor said “Wichita has overcome great challenges in the past and will overcome these as well, but we’ll need to work together.”

    Near the close, the mayor said “THE TIME FOR ACTION IS NOW! We have reached a point where we MUST come together as a community, and create a plan that defines our priorities and the City we are to become.” And then: “For all of our differences, I have never doubted this community’s ability to come together and protect what matters most.” (The capitalization is in the mayor’s prepared text.)

    But what’s really important to Wichita is economic development. Regarding that, Brewer said this:

    As we struggle to compete for new businesses and new jobs, especially in light of job losses in aviation, we must face the reality that we are competing with other cities that offer economic incentives for business development and expansion. If we want to be IN the game, we need to PLAY the game, but we have no dedicated funding source for economic development. If we’re serious about finding new jobs for our people — and I am — we must change this scenario as soon as possible. Where will those incentive dollars come from? (Capitalization, again, is from the original.)

    The idea of a dedicated funding source for economic development is something that many in Wichita would support. Many would oppose it, too. But instead of just lobbing rhetorical questions (Where will those incentive dollars come from?), the mayor should give us some answers. Or, at least make a specific proposal. Does the mayor recommend a sales tax increase? Or allocating specific levels of property tax to economic development? (The city is doing this on a temporary basis.) Or asking the state legislature to fund Wichita’s economic development, as we insist the legislature fund our airline subsidy program?

    Whatever it is, Mayor Brewer, give us some specific ideas as to how you want to raise this money, and how you would spend it.

    It’s that spending, I think, that people in Wichita have concern over. The cumulative record of Brewer, the city council, and city bureaucratic staff hasn’t inspired trust and confidence. Giving the city additional dollars to spend on economic development is not a wise investment.

    For example, the mayor says that subsidizing downtown development is good economic development strategy. But we see the mayor and nearly all council members voting to give an overpriced no-bid contract to their significant campaign contributors. This happened despite the company’s large cost overruns on previous no-bid contracts awarded by the city. Is that good economic development practice?

    We see the city council sitting in a quasi-judicial role, adjudicating the award of an airport construction contract when one of the parties is a significant campaign contributor. In fact, Key Construction — the company that prevailed in that decision — through its principals and executives, was the sole source of campaign funds raised by Lavonta Williams (district 1, northeast Wichita) in 2012 as she prepared to run for reelection this spring.

    Key’s executives also contributed heavily to James Clendenin (district 3, southeast and south Wichita) last year. He’s running this spring, too.

    At the time this airport contract was being handled, Council Member Jeff Longwell (district 5, west and northwest Wichita) was campaigning for the Sedgwick County Commission. Campaign finance reports revealed contributions from parties associated with Walbridge, a Michigan construction company. Why would those in Michigan have an interest in helping a Wichita City Council member fund his campaign for a county office? Would the fact that Walbridge is a partner with Key Construction on the new airport terminal, and that Longwell would be voting on that contract, provide a clue?

    Or: A movie theater owner and business partners contribute to the mayor’s (and other) campaigns. Mayor and council vote to give a no-interest and low-interest loan and tax breaks to theater owner and his partners. Mayor goes into barbeque sauce business. Mayor’s barbeque sauce is now sold at movie theater.

    Doesn’t Carl Brewer see anything wrong with this? Don’t his advisors tell him that this creates the appearance of impropriety? Does the mayor consider whether these actions make a positive impression on those who might want to invest in Wichita?

    We see the city awarding economic development incentives that were not necessary for the project to proceed. It took a special election to teach the mayor and council that lesson. By the way, that unneeded and rejected incentive was awarded to the significant campaign contributors of Mayor Brewer and most council members.

    We see the city taking credit for building up the tax base, yet giving away tax revenue in the form of property tax abatements, IRBs, tax increment financing, and STAR bonds.

    The bureaucratic missteps: The Southfork TIF district is just the latest example.

    The lack of respect for citizens’ right to know how taxpayer funds are spent is another troubling aspect of Brewer’s tenure as mayor. None of the words “accountability,” “transparency,” or “open government” were mentioned in the mayor’s address this year, as they have been in the past. No sense in calling attention to an area where the city has failed, I suppose.

    All this is done in the name of economic development and jobs. But Wichita is underperforming Kansas and the nation in these areas. Under Brewer’s leadership, however, we are overachieving in the advancement of cronyism and its ills.

    The record indicates that our officeholders, and those who advise them, are not worthy of our trust, and certainly not more taxes for economic development.

    After last year’s State of the City speech, I noted “Wichita’s mayor is openly dismissive of economic freedom, free markets, and limited government, calling these principles of freedom and liberty ‘simplistic.’ Instead, his government prefers crony capitalism and corporate welfare.”

    I also wrote: “Relying on economic freedom, free markets, and limited government for jobs and prosperity means trusting in free people, the energy of decentralized innovation, and spontaneous order. A government plan for economic development is the opposite of these principles.”

    This year, the outlook for economic freedom and limited government in Wichita is gloomier than ever before. The door for those who wish to profit through cronyism is wide open. We’ll have to hope that, somehow, Wichita can learn to thrive under this regime.

  • Economic development in Wichita: Two tales

    Tonight as Wichita Mayor Carl Brewer delivers his State of the City address, Wichitans will want to remember past addresses, statements, admonitions, and projections from the mayor.

    Here’s one for the record book: In his 2008 address, Brewer promised specific development at the struggling Waterfront development, which is heavily subsidized. Beaming with pride, Brewer said to the audience: “And, great strides are being made at Wichita Waterwalk. The topping out ceremony for Waterwalk Place is scheduled for this Thursday and I invite everyone to this event. I am pleased to announce two more national tenants that will be a part of the WaterWalk restaurant and entertainment development. … I am pleased to announce two more national tenants that will be a part of the WaterWalk restaurant and entertainment development. Joining Saddle Ranch Chop House will be Funny Bone Comedy Club and Wet Willies restaurant and daiquiri bar. These are just a couple of the fun and exciting tenants that will help make WaterWalk — Wichita’s Next Great Gathering Place.” (The repeated sentence is still in the original text, after five years, so it must mean something.)

    Five years later, none of these establishments have started construction at Waterwalk. In fact, no restaurant or entertainment venue has. We still subsidize it, though. That hasn’t changed.

    Here’s another — and more substantial — example of a deal pitched to Wichitans as a unique situation. Something too good for Wichita to pass on.

    In 2010 Wichita movie theater owner Bill Warren proposed building an Imax theater in west Wichita. When the Wichita City Council considered this matter …

    Wait. Stop right there. Why, if someone wants to build a movie theater, does the city council have to be involved? We’ll see.

    The city staff’s agenda report for the item stated “The proposed new IMAX Theater will provide a regional tourism/entertainment attraction that is expected to draw visitors from throughout Kansas and parts of Missouri, Oklahoma, Texas and Nebraska.” This so impressed Wichita politicians and bureaucrats that they approved Warren’s request for Industrial Revenue Bonds. The effect of these bonds is that American Luxury Cinemas, Inc. escapes paying property taxes on the new theater, estimated by the city to be $136,099 each year. The company also avoided paying an estimated $630,000 in sales taxes, according to the city document.

    So with Wichita having this unique attraction that will spur people to drive all the way to Wichita from Texas to watch movies, I was surprised, just one year later, to see the Wichita Business Journal report that Warren might open a similar Imax theater in Moore, Oklahoma. That’s between Wichita and Texas.

    Recall that just one year earlier Warren received economic development incentives from the city based partly on the singular nature of the proposed theater in the region. At that time Wichita city officials said the Wichita theater would be a “major tourism attraction,” drawing from as far away as Texas. But with another Warren IMAX built in suburban Oklahoma City, I think we can now acknowledge that we were mislead by someone. As political head of Wichita, that would be Mayor Carl Brewer.

    When Warren applied to the Wichita City Council for favored tax treatment for the Wichita theater, Mayor Brewer bought into the myth that there can be only one Warren IMAX theater in the region when he said: “A lot of other cities want this IMAX … they’re on the internet watching this city council meeting to see what we’re going to do because they’re going to make a bid for this IMAX.”

    Evidently the mayor couldn’t imagine that there could be more than one IMAX theater in the region.

    By the way, Warren received incentives from the Moore City Council, too. Minutes from a council meeting report on “the proposed agreement between the City of Moore/Moore Economic Development Authority and Oklahoma Warren Theatres is a sales tax rebate agreement for the construction and operation of an IMAX Theatre to be located directly north of the existing Warren Theatre. … The ending date is set for December 2019 or when the agreed upon rebate amount of $2 million is reached, whichever comes first. The rebate will be made up of 100% of the City’s 3% sales tax, excluding the ½ cent sales tax added on for the purpose of residential roads and public safety.”

    warren-theater-brewers-best-bbq-sauce-small

    Well, at least that city isn’t shortchanging residential roads and public safety to pay for movie theaters.

    I wonder: Do the Warren theaters in Oklahoma sell Mayor Brewer’s barbeque sauce, as is the case in Wichita?

    Inquiring minds want to know.

  • Wichita STAR bonds project not good for capitalism

    Tomorrow the Wichita City Council considers approval of the project plan for a STAR bonds project in Wichita.

    The formation of the district has already been approved. This action by the council will consider the development plan and the actual authorization to spend money.

    If approved, the city will proceed under the State of Kansas STAR bonds program. The city will sell bonds and turn over the proceeds to the developer. As bond payments become due, sales tax revenue will make the payments.

    It’s only the increment in sales tax that is eligible to be diverted to bond payments. This increment is calculated by first determining a base level of sales for the district. Then, as new development comes online — or as sales rise at existing merchants — the increased sales tax over the base is diverted to pay the STAR bonds. Estimates are that annual revenue available for the bonds will be over $5,000,000.

    For this district, the time period used to determine the base level of sales tax is February 2011 through January 2012. A new Cabela’s store opened in March 2012, and it’s located in the STAR bonds district. Since Cabela’s sales during the period used to calculate the base period was $0, the store’s entire sales tax collections will be used to benefit the STAR bonds developer.

    (There are a few minor exceptions, such as the special CID tax Cabela’s collects for its own benefit.)

    Which begs the question: Why is the Cabela’s store included in the boundaries of the STAR bonds district?

    With sales estimated at $35 million per year, the state has been receiving around $2 million per year in sales tax from this store. But after the STAR bonds are sold, that money won’t be flowing to the state. Instead, it will be used to pay off bonds that benefit the project’s developer.

    Some questions

    Curiously, the city doesn’t provide a cost-benefit study for this project. This is the usual mechanism the city relies on as justification for investments in economic development projects.

    Often developers ask government for incentives because they claim the project is not economically feasible without assistance. Is that the case with this development? If not, why the need for subsidies?

    And if taxpayer subsidy is required for this development, we need to ask what it is about Kansas that discourages this type of business investment.

    STAR bonds should be opposed as they turn over tax policy to the private sector. We should look at taxation as a way for government to raise funds to pay for services that all people benefit from. An example is police and fire protection. Even people who are opposed to taxation rationalize paying taxes that way.

    But STAR bonds turn tax policy over to the private sector for personal benefit. The money is collected under the pretense of government authority, but it is collected for the exclusive benefit of the owners of property in the STAR bonds district.

    Citizens should be asking this: Why do we need taxation, if we can simply excuse some from participating in the system?

    Another question: In the words of the Kansas Department of Commerce, the STAR bonds program offers “municipalities the opportunity to issue bonds to finance the development of major commercial, entertainment and tourism areas and use the sales tax revenue generated by the development to pay off the bonds.” This description, while generally true, is not accurate. This STAR bonds district includes much area beyond the borders of the proposed development, including a Super Target store, a new Cabela’s store, and much vacant ground that will probably be developed as retail. The increment in sales taxes from these stores — present and future — goes to the STAR bond developer. As we’ve seen, since the Cabela’s store did not exist during the time the base level of sales was determined, all of its sales count towards the increment.

    STAR bonds, or capitalism?

    In economic impact and effect, the STAR bonds program is a government spending program. Except: Like many spending programs implemented through the tax system, legislative appropriations are not required. No one has to vote to spend on a specific project. Can you imagine the legislature voting to grant $5 million per year to a proposed development in northeast Wichita? That doesn’t seem likely. Few members would want to withstand the scrutiny of having voted in favor of such blatant cronyism.

    But under tax expenditure programs like STAR bonds, that’s exactly what happens — except for the legislative voting part, and the accountability that sometimes follow.

    Government spending programs like STAR bonds are sold to legislators as jobs programs. Development, it is said, will not happen unless project developers receive incentives through these spending programs. Since no legislator wants to be seen voting against jobs, many are susceptible to the seductive promise of jobs.

    But often these same legislators are in favor of tax cuts to create jobs. This is the case in the Kansas House, where many Republican members are in favor of reducing the state’s income tax as a way of creating economic growth and jobs. On this issue, these members are correct.

    But many of the same members voted in favor of tax expenditure programs like the STAR bonds program. These two positions cannot be reconciled. If government taxing and spending is bad, it is especially bad when part of tax expenditure programs like STAR bonds. And there’s plenty of evidence that government spending and taxation is a drag on the economy.

    It’s not just legislators that are holding these incongruous views. Secretary of Commerce Pat George promoted the STAR bonds program to legislators. Governor Sam Brownback supported the program.

    When Brownback and a new, purportedly more conservative Kansas House took office, I wondered whether Kansas would pursue a business-friendly or capitalism-friendly path: “Plans for the Kansas Republican Party to make Kansas government more friendly to business run the risk of creating false, or crony capitalism instead of an environment of genuine growth opportunity for all business.” I quoted John Stossel:

    The word “capitalism” is used in two contradictory ways. Sometimes it’s used to mean the free market, or laissez faire. Other times it’s used to mean today’s government-guided economy. Logically, “capitalism” can’t be both things. Either markets are free or government controls them. We can’t have it both ways.

    The truth is that we don’t have a free market — government regulation and management are pervasive — so it’s misleading to say that “capitalism” caused today’s problems. The free market is innocent.

    But it’s fair to say that crony capitalism created the economic mess.

    But wait, you may say: Isn’t business and free-market capitalism the same thing? Not at all. Here’s what Milton Friedman had to say: “There’s a widespread belief and common conception that somehow or other business and economics are the same, that those people who are in favor of a free market are also in favor of everything that big business does. And those of us who have defended a free market have, over a long period of time, become accustomed to being called apologists for big business. But nothing could be farther from the truth. There’s a real distinction between being in favor of free markets and being in favor of whatever business does.” (emphasis added.)

    Friedman also knew very well of the discipline of free markets and how business will try to avoid it: “The great virtue of free enterprise is that it forces existing businesses to meet the test of the market continuously, to produce products that meet consumer demands at lowest cost, or else be driven from the market. It is a profit-and-loss system. Naturally, existing businesses generally prefer to keep out competitors in other ways. That is why the business community, despite its rhetoric, has so often been a major enemy of truly free enterprise.”

    The danger of Kansas government having a friendly relationship with Kansas business is that the state will circumvent free markets and promote crony, or false, capitalism in Kansas. It’s something that we need to be on the watch for. The existence of the STAR bonds program lets us know that a majority of Kansas legislators — including many purported fiscal conservatives — prefer crony capitalism over free enterprise and genuine capitalism.

    The problem

    Government bureaucrats and politicians promote programs like STAR bonds as targeted investment in our economic future. They believe that they have the ability to select which companies are worthy of public investment, and which are not. It’s a form of centralized planning by the state that shapes the future direction of the Kansas economy.

    Arnold King has written about the ability of government experts to decide what investments should be made with public funds. There’s a problem with knowledge and power:

    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.

    Despite this knowledge problem, Kansas legislators are willing to give power to bureaucrats in the Department of Commerce who feel they have the necessary knowledge to direct the investment of public funds. One thing is for sure: the state and its bureaucrats have the power to make these investments. They just don’t have — they can’t have — the knowledge as to whether these are wise.

    What to do

    The STAR bonds program is an “active investor” approach to economic development. Its government spending on business leads to taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form.

    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 Kansas and many of its cities employ: “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. Government spending on specific companies through programs like STAR bonds 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 all levels of government 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.

    Public Hearing Considering the Adoption of a STAR Bond Project Plan for the K-96 Greenwich Star Bond Projec… by

  • Wichita’s Lux applies for more business welfare

    Tomorrow the Wichita City Council considers yet another layer of business welfare for The Lux, a luxury real estate development in downtown Wichita. This project, despite having already received millions in assistance from taxpayers, is not economically viable, according to city documents.

    The Lux has already received the benefit of Industrial Revenue Bonds, the purpose of which, despite their name, is to relieve the Lux from paying sales taxes.

    If approved for historic preservation tax credits, the Lux could receive several millions in tax credits, which are equivalent to a cash grant. It’s likely to be approved.

    These programs and actions result in taxpayers paying for the lifestyle choices of a relative few.

    The assistance program the council will consider tomorrow is relatively benign. The city will allow the Lux to tap up to $1.7 million in special assessment financing. The amount owed becomes a lien in the property, and the risk of the city not being paid back is small. But this action puts our city deeper in debt, and that’s a problem.

    Additionally, Wichita is taking on risk that the project’s bankers are not willing to take, even though they would also have a claim on the building if it fails. Even if the bank would loan, its interest rate would be higher than what the city charges on special assessment financing. This lower interest rate is likely the real reason for the developers claiming the need for this program.

    What’s the matter with Wichita?

    We have to wonder why so many projects in downtown Wichita require massive doses of taxpayer subsidy. Here’s what city documents tell us:

    “The Office of Urban Development has reviewed the economic (gap) analysis of the project and determined a financial need for incentives exists based on the current market. The project lender, Intrust Bank, has advised that the bank cannot increase the loan amount, leaving a gap in funding sources that is filled by the City’s facade program.”

    When the city is willing to fill in financing gaps, you can be sure that gaps will be created.

    When other taxpayers have to bear the cost of incentives for the Lux and its owners, other spending and investment is reduced. While the spending on incentives is concentrated and easy to see — there will be groundbreaking and ribbon-cutting ceremonies to make sure we don’t miss it — the missing spending and investment is dispersed. The missing spending and investment is difficult to see. But it is every bit as real as this project.

    In fact, this missing spending and investment is more valuable than government spending on this project. That’s because when people spend and invest on their own, they choose what is most important to them, not what is important to politicians and bureaucrats. This is a special problem in Wichita, where the mayor and city council members have a history of awarding over-priced no-bid contracts to their campaign contributors.

    Sometimes these subsidies are justified by the claim that renovating historic buildings is more expensive than new construction. If that’s true, we have to recognize that investing in, or living in, a historic building is a lifestyle choice. The people who make these choices should pay themselves, just like we expect others to pay for the characteristics of the housing they choose. Likewise, building a home with granite kitchen counter tops and marble floors in the bathrooms is more expensive than a plainer home. These premium features are chosen voluntarily by the homeowner, and it is right and just that they alone should pay for them.

    We should recognize historic buildings for what they are: a premium feature or amenity whose extra cost should be born solely by those who chose to own them or rent them. There’s no difference between these premium features and choosing to live in a historic building. Those who desire them choose them voluntarily, and should pay their full cost. Forcing everyone to subsidize this choice is wrong. It’s an example of a special interest gone wild. But in Wichita we call this economic development.

    I wonder: After the Lux receives its millions in grants in the form of tax credits — which it is quite likely to receive — will it still have a gap at that time?

    Fortunately for taxpayers the Lux does not qualify for the facade improvement grant program.

  • Wind tax credit promotes expensive electricity

    Conservative and free-market groups are asking Congress to oppose extending the Production Tax Credit for production of electricity from wind.

    The letter, presented below, is designed for representatives from states that don’t have a Renewable Portfolio Standard, which is a policy or law that requires a certain amount of electricity to be produced from renewable sources, which is primarily wind in most places. Kansas has an RPS, and Governor Sam Brownback actively supports maintaining this standard, which will require that more Kansas electricity be produced from wind. Kansas Policy Institute has found that RPS will result in higher electricity costs, fewer jobs, and less investment in Kansas. Its summary is at The Economic Impact of the Kansas Renewable Portfolio Standard, and the full report is here.

    The letter points out that the PTC has the effect of transferring subsidy from states without RPS to those states, like Kansas, that do.

    December 12, 2012
    Dear Members of Congress:

    We write to urge your opposition to extending the wind Production Tax Credit (PTC). Created in 1992 by the Energy Policy Act, the PTC has far outlived its usefulness. Moreover, as a member of Congress serving a state that does not have a renewable energy mandate, you should be aware that the PTC essentially transfers taxpayer dollars from your constituents and subsidizes the states with such mandates. Renewable energy mandates force utilities to buy politically-favored forms of energy such as wind, while your state has wisely chosen to allow the most abundant and affordable forms of energy to be purchased by consumers and industries.

    The wind PTC provides a tax credit of 2.2 cents per kilowatt-hour, and lasts for ten years for anyone receiving it. With the wholesale price of electricity frequently ranging from 2.5 to 4.5 cents per kilowatt-hour, the PTC is worth a large percentage of the total price. This makes the wind industry one of the most heavily subsidized forms of energy. In 2010, federal subsidies paid $56 for every megawatt hour of wind energy compared to $0.64 for coal and natural gas electricity.

    Despite having this generous subsidy for two decades, wind only produces 3 percent of America’s electricity. This corporate dependence on federal subsidies not only harms the taxpayers who finance the PTC, it also creates an improper incentive for wind companies to focus on obtaining lucrative subsidies rather than long-term sustainability and competitiveness. It is time the wind energy industry stood on its own and continued funding by the federal government will only hurt cost-effective energy sources as well as American taxpayers.

    Lastly, for the twenty-one states that do not have a renewable energy mandate in place — states like your own — the stakes are much higher. Under the structure of the PTC, the bulk of the tax credits flow to those states that have the most wind generation capacity and those happen to be states with an RPS. This is because the PTC helps to disguise the true cost of the mandate. Extending the wind PTC ensures that your constituents will continue to subsidize wind power in other states that have made political decisions to force consumers to buy more expensive and less reliable forms of energy — like wind.

    Reliable, affordable, and ‘always on’ electricity is critical to get our economy back on track. The wind PTC promotes unreliable and expensive energy to the detriment of dependable and cost-effective forms of electricity generation. By taking a principled stand against the PTC, you help taxpayers in your own state and ensure more cost-effective electricity generation overall. We urge you to allow this wasteful subsidy to expire, as planned, at the end of the year.

    Freedom Action
    Competitive Enterprise Institute
    American Conservative Union
    American Energy Alliance
    Heritage Action
    American Commitment