Voice For Liberty

Tag: Subsidy

  • At Wichita City Council, why are some doors open, and others closed?

    Steve Compton, owner of the Eaton Steakhouse in downtown Wichita, spoke to the Wichita city council on the public agenda at its February 3, 2009 meeting.

    (The public agenda is where anyone can speak about any topic for up to five minutes.)

    Mr. Compton said he chose a bad time to start a business a year and a half ago. His business is just as important as others, he said, and he wants the city council to consider small business when making their plans as to which businesses to help. He said his business has 28 employees. He asked the city council for its support and consideration, without asking for anything specific.

    Readers of the Voice For Liberty in Wichita know that I oppose subsidy to business. Therefore, I oppose Mr. Compton’s efforts. His request, however, illustrates the problems that arise when government chooses to subsidize some firms at the expense of others. This request is sort of the opposite case of the warning that Wichita Interim City Manager Ed Flentje issued to the council last summer regarding a loan interest subsidy made to the Warren Theater: “There are in this community much larger businesses with much larger employment who may see this opening as something that will open a door for those businesses to come and say, ‘You’ve done it before, you can do it for us.’”

    Mr. Compton didn’t ask for a subsidy, but he must want something from the city. The problem is that the city — assuming it wants to — will have a hard time finding a basis on which to decline this request. That is, a basis that springs from any sense of equity, as it seems that Mr. Compton’s business doesn’t fall into any of the categories of economic development incentives Wichita has to offer.

    The city dishes out economic favors at nearly every council meeting. For example, at today’s meeting the council is granting three Wichita companies a big favor, forgiving them from paying property tax on some of their property. These actions are being taken without any discussion except for the presentation made by Allen Bell, the city’s economic development director.

    So why is the door open for some companies, but not others?

  • Bob Hanson of Greater Wichita Area Sports Commission Speaks to Sedgwick County Commissioners

    At the January 21, 2009 meeting of the Board of Sedgwick County Commissioners, Bob Hanson, President/CEO of the Greater Wichita Area Sports Commission addressed the commission.

    We have to step back and wonder why it’s necessary to occupy the time of the Sedgwick County Commissioners and the people of the county who pay attention to these meetings just so that Mr. Hanson can recite the history of his organization.

    Here’s something that Hanson said to the commissioners:

    “As you are well aware, we are certainly proud of what’s taken place in the development of the Intrust Bank arena. A big congratulations to all of you, past commissioners, and certainly the staff of Sedgwick county for the leadership you have provided for our community in development of this jewel and huge community project. I know you are aware of the important role the Sports Commission and all of our members played in bringing the arena campaign to fruition.”

    I wonder if Hanson is aware that several of the commission members who supported the downtown arena were defeated in their bids for re-election. Their support of the arena played a role in that.

    Further, the makeup of the current commission would hardly be favorable to passage of a project like the arena. For Hanson to thank the current members for their support of the arena is laughable.

    Mr. Hanson and his organization have agitated for government funding of projects that benefit their special interests. The most notable of these is the downtown Wichita arena. That arena is likely to turn out to be a huge ongoing liability for the taxpayers of Sedgwick County. But the GWASC nibbles at the taxpayer in little ways, too. This year Sedgwick County will contribute $5,000 to the GWASC, just as it has in years past.

    Tomorrow’s agenda for the Wichita City Council workshop contains an item titled “Greater Wichita Area Sports Commission 2008 Annual Report.” This will likely be a chance for city council members to be treated to the same presentation the county commissioners sat through. Looking at the city’s budget documents it isn’t possible to tell whether the city contributes to the GWASC. The “search” feature on the city’s website isn’t helpful, either. This lack of transparency is something we need to address.

    But I think it’s safe to assume that Mr. Hanson and his organization will be asking the Wichita city council for a contribution. His history of asking taxpayers to support his pet projects — rent seeking is the technical term — is known.

  • Wind power: look at costs of “boom”

    There’s been a lot of investment in Nolan County, Texas. Things are booming.

    That’s pretty much the entire point of an op-ed piece in the Wichita Eagle by Scott Allegrucci. (Money Blowing in the Wind in Texas, January 16, 2009)

    He’s the director of the Great Plains Alliance for Clean Energy, based in Topeka. This organization’s website states that “GPACE seeks to correct an imbalance in the information citizens and their elected representatives have received regarding the critical and complex energy policy decisions facing our state.”

    If that’s really GPACE’s goal, Mr. Allegrucci didn’t advance it in this piece. That’s because he promotes the benefits of spending on wind energy without considering the true cost of wind energy. Further, he ignores the tremendous subsidy poured into wind energy production.

    Last year the Texas Public Policy Foundation released a report titled Texas Wind Energy: Past, Present, and Future. This report contains information about the realities of wind power. It provides the balance that GPACE says it seeks to provide but fails to deliver in Mr. Allegrucci’s op-ed.

    For example, did you know that every bit of wind power that’s produced receives a subsidy? Last year, as the subsidy was about to expire, wind power advocates warned that without the subsidy, wind power production would cease. No new plants would be built. It’s these subsidies that have created the growth in Nolan County that Allegrucci writes about. These subsidies produce some peculiar incentives. From page 25 of TPPF’s report:

    The financial handouts available to wind developers are so generous that, in Texas, many wind-energy producers “will offer wind power at no cost or even pay to have their electricity moved on the grid, a response commonly referred to as ‘negative pricing.’ Wind providers have an incentive to sell power even at negative prices because they still receive the federal production tax (PTC) credit and renewable energy credits.”

    Directing subsidies of any type into a concentrated area produces the results described by Allegrucci in this county. There’s nothing remarkable about that. But what about the rest of Texas? From the executive summary of the TPPF report:

    The distinction between wind and wind energy is critical. The wind itself is free, but wind energy is anything but. Cost estimates for wind-energy generation typically include only turbine construction and maintenance. Left out are many of wind energy’s costs — transmission, grid connection and management, and backup generation — that ultimately will be borne by Texas’ electric ratepayers. Direct subsidies, tax breaks, and increased production and ancillary costs associated with wind energy could cost Texas more than $4 billion per year and at least $60 billion through 2025.

    It’s a common error, assuming that since no one owns the wind, wind power is free once the turbines are built. That’s far from the case, though. Page 23 tells us this:

    The true cost of electricity from wind is much higher than wind advocates admit. Wind energy advocates ignore key elements of the true cost of electricity from wind, including: (i) The cost of tax breaks and subsidies which shift tax burden and costs from “wind farm” owners to ordinary taxpayers and electricity customers. (ii) The cost of providing backup power to balance the intermittent and volatile output from wind turbines. (iii) The full, true cost of transmitting electricity from “wind farms” to electricity customers and the extra burden on grid management.

    The reality is that the boom in Nolan County is being paid for by electricity customers throughout Texas. Not by their choice, too.

    When considering wind power, balance requires us to consider these factors. The illustration that a concentrated area experiences a boom from a subsidized, expensive, and unreliable source of power doesn’t paint a picture of sound public policy.

  • More Subsidy for Downtown Wichita Developers

    Today’s Wichita Eagle reports that Wichita’s “Minnesota Guys,” formally known as Real Development, are seeking yet another subsidy as they work in downtown Wichita. The article in the Eagle is HUD loan sought for downtown Wichita apartment plan.

    In this case, the subsidy sought is a loan guarantee from the U.S. Department of Housing and Urban Development. Some readers say that a loan guarantee is not really a subsidy, as the government isn’t lending or giving Real Development any money. But it’s a subsidy nonetheless.

    A loan guarantee will let Real Development borrow at a lower interest rate than it could without the guarantee. That is a benefit that pays off year after year, as long as the loan is in effect. It also puts the United States taxpayer at risk, as if Real Development defaults on the loan, the U.S. Treasury must pay.

    Judging the risk of default for this loan is difficult. But if this application is approved, we’re stuck with this risk.

    The development receiving this subsidy has also received other subsidies, according to the Eagle: “They got the city of Wichita to agree to spend $3 million to buy Exchange Place and the Bitting Building, and give it to them. The city is also committed to spend up to $6.2 million for a parking deck along Douglas.”

    When the Minnesota Guys came to town a few years ago, they didn’t ask for subsidy, at least according to my research. I wrote to them, commending their position and asking why. Quoting from my letter: “If, as I believe, you have not sought help from our local government, I salute you, and I am very interested as to why.” No one responded to my query.

    We can now confidently place Real Development in the crony capitalist column. Its principals — Michael Elzufon and David Lundberg — have become adept at working the halls of government power for taxpayer subsidy. The danger that Wichita faces is that since these developments are built with capital raised from politicians rather than markets, their roots are shallow.

  • Wichita TIF districts mean central government planning

    As the City of Wichita moves towards more government subsidy and planning instead of entrepreneurship, we should make sure we know what we’re relying on. An article by Steven Greenhut from the July/August issue of The Freeman: Ideas on Liberty provides some useful background and advice.

    The article is here: Central Planning Comes to Main Street. Following are a few excerpts:

    The theory is that the city deserves the new tax dollars because its efforts are improving the supposedly blighted area. But the reality is quite different. Cities don’t often use TIF to fix up blight, but to increase their tax base. Often they engage in what is called “growth capture” — city planners wait until a stable or depressed area is starting to bounce back on its own. They then brand the area “blighted” and use that as an excuse to capture the new values and transfer the gain from the old owners, who held onto the properties during the lean years, to new developers who savor the prospect of getting prime property for far-below-market rates.

    This concept of “growth capture” is what’s happening in Wichita. Assessed valuations of property surrounding the arena have already risen. The area appears on an upward path on its own. Why the need for a TIF district, then?

    “Does the tax abatement method meet with success?” asked Michael LaFaive of the Mackinac Center for Public Policy in a 1999 article. “Not as much as if local officials simply would keep taxes low in the first place. CRC [Citizens Research Council of Michigan] found that economic growth takes place in jurisdictions where taxes are low and which consequently grant fewer abatements.”

    Yes, let’s have low taxes overall, instead of just for favored developers working in politically-favored areas. Or, as John Todd said, think of what could happen if there was a TIF district city-wide.

    Local economic planning, especially the creation of redevelopment project areas, actually slows down neighborhood improvement. Once an area is deemed a redevelopment area, property owners stop investing in their properties because they are not sure that they will ultimately reap the benefit of the investment. They become subjects of the central planners who will make the main decisions that affect the economic vitality of the area.

    This is another important point. Individual projects in the TIF district must be planned in a way that will be able to gain approval of government planners. This happened in Tuesday’s Wichita city council meeting, where the first project in a TIF district known as C.O.R.E was brought before the council for approval. How many developers want to work with city bureaucrats looking over their shoulder?

    There’s much more valuable insight in this article.

  • Wichita Center City South Redevelopment TIF District Testimony

    From John Todd.

    Update: Watch John’s testimony on YouTube here.

    Testimony delivered by John Todd before the Wichita City Council on December 2, 2008 in opposition to the proposed Tax Increment Financing (TIF) plan for the Center city South Redevelopment District located generally around the new Intrust Bank Arena.

    In 2004, proponents of the new Intrust Arena were assuring voters that their approval of the new arena would provide the “economic boost” and the “synergy” needed for effective downtown redevelopment without the need for increased property taxes. No mention was made at that time of the need for additional taxpayer subsidies for downtown development.

    In recent testimony before the City Council, I heard a staff member advise the Mayor and this City Council that county property appraisals in the area adjacent to the new Intrust Area had increased more than 10% in the prior year. Does this proposed TIF District sound like a blighted and declining area headed for economic stagnation? Or is it time for private developers to seize this development opportunity our Mayor envisions, and of course without the need for risking the taxpayer’s wallet that is a common element in private/public partnerships?

    Since the parcels of land around the new Intrust Arena appear to be owned by dozens of small private property and business owners, private developers will need to assemble the parcel(s) they need for development through voluntary exchange rather than through government’s involuntary and coercive taking of property by either the threat of eminent domain or the actual use of eminent domain. Street improvements, if needed for the project(s), should be paid for by the private developers or through the use of special assessment financing. Can anyone believe that city and/or county planners failed to plan for the street improvements needed for the new arena and a method of paying for them prior to beginning construction of the arena? (Note: In addition to the nearly $12 million TIF proposal for streets, a last minute change added an additional $10 million the TIF for a parking garage.) Also, I believe the original Arena project the voters approved in 2004 included $14 million dollars for a parking garage.

    One doesn’t have to look very far around our city to see and appreciate the success of our many risk-taking private developers who through their knowledge of the market and their problem solving abilities, plus most importantly the investment of their own money, continue to expand our tax base, create jobs, and enhance our quality of life. Perhaps these are the people you need to call on to bid on downtown development work without the need for a massive public subsidy?

  • Late Changes Don’t Inspire Confidence in Wichita Government

    At today’s Wichita City Council meeting, Councilmember Jim Skelton revealed that the plan for the downtown Wichita arena TIF district had changed. A provision for up to $10 million in parking was added.

    I had looked at the agenda report less than 24 hours before the start of the meeting. The plan for parking spending was not mentioned. I looked right now, and yes, it’s there.

    There’s a problem when things change so quickly. Citizens can’t prepare themselves on such short notice. That’s a problem for openness and transparency in government.

    This problem is in addition to the apparent uncertainty as to what’s needed for this TIF district to succeed.

    The TIF district passed, with all city council members voting in favor.

  • Downtown Wichita Arena TIF District Still a Bad Idea

    Say no to expansion of the Center City South Redevelopment tax increment financing (TIF) District.

    Remarks to be delivered at the December 2, 2008 meeting of the Wichita City Council. Watch the video here.

    Mr. Mayor, Members of the Council:

    It is the case the the City of Wichita is proposing to limit this TIF district spending to things like streets, intersections, landscaping, and lighting. But these are still things that developers working outside of TIF districts generally have to pay for themselves.

    This is the real function of TIF districts: TIF developers get to use their own property taxes to pay for things that non-TIF developers have to pay for out-of-pocket, or through special tax assessments on top of their regular property taxes. This is accomplished through a confusing arrangement that hides the reality and size of the subsidy given to TIF developers. I’ve come to realize that this confusion serves a useful purpose to this council, because if the people of Wichita knew what was really happening, they’d be outraged.

    The proposed TIF district, while smaller than previously proposed, is still large. Very large. Has anyone calculated what share of the retail and restaurant trade in Wichita would have to be captured by this district in order for it to be successful?

    Has anyone performed a market study to see if obtaining this market share would be feasible? And if feasible, what effect would this have on existing business and development in Wichita? Specifically, what effect would this have on other development in downtown, such as Old Town and Waterwalk? We’ve seen that when city-subsidized business is in financial trouble, this council is willing to fund a bailout.

    We’re at a point, Mr. Mayor, where entrepreneurs may not be willing to work in Wichita without a taxpayer subsidy, or at least not in competition with subsidized development. I am aware of a commercial development in Wichita that has been canceled because of Wichita’s tax environment. Some developers have told me that they are reconsidering whether to do any more business in Wichita simply because of our property tax environment. This situation has recently worsened, as we voted ourselves a large tax increase last month. At the state level, spending cuts or tax increases loom as the state’s budget situation deteriorates.

    Then, consider reporting in the Wichita Eagle this summer, which found this: “City and county tax records show that nearly $159 million in public money has been spent on Wichita’s tax increment financing districts, to get roughly $150 million worth of new development.” That’s not a good deal for city taxpayers.

    Also, evidence of the effectiveness of TIF districts for cities as a whole is not good. A study from the Institute of Government and Public Affairs at the University of Illinois finds that “cities, towns, and villages that had TIF districts actually grew more slowly than municipalities that did not use TIF.”

    Finally, Mr. Mayor, you’ve referred to some people as the “naysayers.” I don’t know if you were talking about me. It would be presumptuous of me to think so. But I don’t say “nay” to development, even to downtown development. What I say “no” to is taxpayer-subsidized development, planned and managed by government.

    Saying “no” to that, in turn, lets us say “yes” to the rich diversity of human individuality instead of a collectivist vision driven by government bureaucracy. It means saying “yes” to free people cooperating voluntarily through free markets. That is what is disappearing as more and more of our city’s development is subsidized and managed by government.

  • Broad-based Economic Development Will Work Best for Kansas

    Alan Cobb of Americans For Prosperity — Kansas argues that instead of micro-management of economic development efforts, Kansas should aim for a businesses climate that’s good for everyone. See Yes, but it’s only $1.3 billion.

    We should heed this advice locally in Wichita.