Voice For Liberty

Tag: Wichita city council

  • Downtown Wichita regulations on subsidy to be considered

    Tomorrow the Wichita City Council will consider policies relating to the award of subsidies for development in downtown Wichita. While the policies have the sheen of government authority, that the policies are government policies means that downtown development is certain to miss out on the benefits of free markets, capitalism, and the dispersed knowledge that only markets can generate and channel. In its place we’re left with a form of social engineering that seeks to remake Wichita in the vision of planners and their supporters.

    Perhaps the most absurd idea surrounding the revitalization of downtown Wichita is that planning and subsidy is required. The idea that government officials know what the people of Wichita would really like and can then deliver that is nonsense. Yes, there have been many meetings with downtown planners. We paid $500,000 to a firm to plan for us, and based on recent news of additional consultants being hired, that wasn’t enough. The planners dutifully solicited the opinions of citizens, which is almost always that people want more of everything. That’s natural. But citizens sitting in focus groups are not markets. They make decisions in the abstract, without the constraints of the actual world.

    One of the most absurd concepts of the plan is that the city is limited to investing only in money-losing projects. As a “minimum threshold criteria” for a project to receive city assistance, the document requires: “Economic analysis confirms that the project is infeasible ‘but for’ public investment.”

    Is investing in otherwise money-losing projects a wise course for government to follow? The fact that something is economically infeasible tells us something: people don’t want it as much as they want something else. But, thanks to our city’s politicians and bureaucrats, Wichitans will be forced to pay for it anyway. It is thought by some that there is “market failure” here, that Wichitans aren’t smart enough to know what they really want or should want. But just because people make decisions that downtown visionaries don’t approve of, that’s not market failure.

    The distinction that public dollars will go only towards things that have a “public purpose” — parking is most frequently mentioned — is really a distinction without a difference. An example might be a multi-story parking facility located between a residential building and an office building. The theory is that residents use the garage mostly at night and the office workers use it mostly during the day, so the two uses complement each other. But — aren’t we supposed to have a downtown where people live near where they work, and the whole place is walkable and transit-oriented?

    Constructing parking spaces on a surface parking lot outside of downtown is expensive, too, although not as much as in multi-story parking garages. And we’re still left with the fact that downtown developers get their parking for free is an example of the entire city subsidizing something that benefits relatively few.

    The proposed policy has a matrix that will be used to evaluate a project. Based on how well projects meet criteria, points will be awarded. A certain minimum number of points must be achieved for a project to be considered for public subsidy, and then the terms of such subsidy.

    We can sort of understand the motivations of government officials when creating policies like this. They want to let citizens know that they are dishing out subsidy in a responsible manner. They want to avoid the appearance of giveaways to the politically-favored at the expense of everyone else. Now, it looks like we’re implementing policies to route taxpayer giveaways to the bureaucratically-favored. I’m not sure if one is better than the other.

    The fact is that planning even a relatively small area such as downtown Wichita is an incredibly complex tax that is beyond the capability of government. Except — government will still try. And its regulations — that’s what this downtown plan is — will lead to something less than what downtown could be if government stepped aside. Israel Kirzner explains:

    The perils associated with government regulation of the economy addressed here arise out of the impact that regulation can be expected to have on the discovery process, which the unregulated market tends to generate. Even if current market outcomes in some sense are judged unsatisfactory, intervention, and even intervention that can successfully achieve its immediate objectives, cannot be considered the obviously correct solution. After all, the very problems apparent in the market might generate processes of discovery and correction superior to those undertaken deliberately by government regulation. Deliberate intervention by the state not only might serve as an imperfect substitute for the spontaneous market process of discovery; but also might impede desirable processes of discovery the need for which has not been perceived by the government. Again, government regulation itself may generate new (unintended and undesired) processes of market adjustments that produce a final outcome even less preferred than what might have emerged in a free market.

    Firms will still be free to develop in downtown Wichita if they forgo the subsidies that are available by conforming to the plan. I wouldn’t expect many to do so, however.

  • Hawker Beechcraft to receive subsidy from Wichita City Council

    Tomorrow the Wichita City Council will very likely live up to its part in a deal to award $2.5 million in subsidy to aircraft manufacturer Hawker Beechcraft. Sedgwick County will also be called on to contribute the same amount, and the state has agreed to chip in $40 million.

    Undoubtedly the occasion will be used by Wichita Mayor Carl Brewer and others to crow about the city’s effort to retain Hawker Beechcraft in the face of an offer from the State of Louisiana. While our local governments got what they wanted in this instance, it nonetheless provides a lesson in the futility of corporate welfare as economic development policy: Someone is usually willing to pay more. We would be much better off if we start transforming Kansas to a state where all companies are nurtured, not by bureaucratic and political oversight and government handouts, but by a low taxing and spending environment, and a reasonable regulatory regime.

    I use “got what they wanted” rather than “success,” as there are important questions surrounding the wisdom of this deal. First, there is some evidence that Hawker may need to shrink substantially in order to survive, handouts notwithstanding. See The Teetering State of Hawker Beechcraft. Besides indicting Hawker for a “bloated and inefficient production process,” the report claims the company’s pension plan is underfunded by $296 million.

    Some have called into question the validity of the competing offer. Louisiana had purportedly offered up to $400 million to attract Hawker’s 4,000 jobs. This is a cost of $100,000 per job, a very costly number, but some states have paid even more. If genuine, Kansas got a deal at only $11,250 per job.

    But: These are retained jobs, not new jobs. H. Edward Flentje explained in his analysis Brinkmanship with jobs: “But the Hawker Beechcraft deal is different, focused on saving existing jobs, not creating new jobs, and the result diverts millions in limited taxpayer funds, primarily state income tax revenues, from state coffers to a company’s benefit, simply to have an existing business stay put.”

    Flentje went on to explain the new economic development policy in Kansas and the precedent the Hawker deal sets: “The barn door has been flung open as well over 500 Kansas businesses are now eligible for state assistance, a tenfold increase over the year 2000, thanks to lawmakers. The expanding game of brinkmanship with jobs leaves state and local officials more vulnerable and can be expected to divert millions more in state tax revenues from state government’s primary obligations in response to the demands of companies that choose to play.”

    The major problem, however, is that economic development policy in Wichita and Kansas is not moving in the right direction. We place large bets on old, established industry, when we should be looking to foster dynamism and young companies as the engine to propel the Kansas economy.

    Somewhere in Wichita or Kansas there is a small, new, unknown company that has half a dozen or so employees — maybe more, maybe less — that is working on some innovation. If we’re lucky, we have many such companies. These companies could be working on a new technology, manufacturing process, computer software, video game, internet site, food processing technology, retail concept, chemical process, restaurant idea, manufacturing methodology, agricultural process, airplane wing — we just don’t know. Many will fail. But some will succeed, and a few will, hopefully, succeed in a big way.

    But these small startup companies may not fit in to the economic development programs the city and state have. Being of entrepreneurial spirit, these people may not even think of looking to government for economic development assistance.

    Any of these new and now-small companies could become the next Microsoft, Google, Home Depot, or Pizza Hut. We just don’t know which — and it’s impossible for anyone, government bureaucrats included — to know. But these companies, when in startup phase, struggle to pay the taxes that large companies are able to escape. Being small, they may also be disproportionally impacted by regulation. They don’t qualify for the economic development programs that larger companies benefit from, and they probably couldn’t afford to devote the time and effort to apply.

    It’s not necessarily the case that a small startup aviation company is competing directly in aircraft sales with Hawker Beechcraft and is handicapped by the larger company’s government handouts. But these two companies could be competing for the same employees, for example, and that puts the smaller, unsubsidized company at a disadvantage.

    But having decided to pursue a policy of giving in to the demands of companies who threaten to leave or build elsewhere, we have a question to answer: How can we identify which companies are deserving of government subsidy? Which companies should have their tax burden softened, their treasury fattened, at the expense of others? Allocating resources and deciding what to do in the face of uncertainty is the crux of entrepreneurship. It’s something that government is not equipped to do, as its incentives and motivations are all wrong.

    For politicians, the prime motivation is to be reelected. It is rare that the time horizon of a politician extends beyond the next election. For bureaucrats, the motivation is to expand their sphere of influence and power. Neither of these motivations are compatible with entrepreneurship. Some are not compatible in any way with running a business. For example, a business firm looks at its employees as a cost that must be managed and controlled if a profit is to be made and the firm survive. But to government, spending on employees is a social benefit, and one that is paid for by someone else.

    The deal with Hawker continues and expands the same process that Kansas and other states have been using for economic development. Therein lies the problem: Kansas’ approach to economic development is piecemeal. We respond to problems, as in the case of Hawker. But the state’s response gives more companies the incentive to come up with their own “problems” that require state intervention.

    In order to succeed, Kansas needs to embrace dynamism in its approach to economic development. For more on this see Kansas economic growth policy should embrace dynamism and Embracing Dynamism: The Next Phase in Kansas Economic Development Policy.

    Deals like this with Hawker move Kansas towards towards more state-controlled economic development and away from creating a dynamic economy. We prop up the old and declining at the expense of the new and vibrant.

    And, we don’t learn. At the same meeting the Wichita City Council is considering approval of its policies for awarding economic development subsidy in downtown — another example of the very type of government planning that stifles economic dynamism and replaces it with cronyism.

  • Kansas and Wichita quick takes: Monday May 16, 2011

    Wichita City Council this week. This week the Wichita City Council handles several important issues. One is approval of the policies regarding incentives for downtown development. Then, the council will consider approval of the city’s portion of the Hawker Beechcraft deal. In order to persuade Hawker to stay in Kansas rather than move to Louisiana, the State of Kansas offered $40,000 in various form of incentive and subsidy, and it was proposed at the time that the City of Wichita and Sedgwick County each add $2.5 million. Of note is the fact that Hawker’s campus in east Wichita … oops, wait a moment — their campus is not within the boundaries of the city. Like Eastborough, Hawker is surrounded on all four sides by Wichita, but is not part of the city itself. I don’t know if this should have any consideration as to whether the city should give Hawker this grant. … Then, there’s approval of the Industrial Revenue Bonds for the Fairfield Inn in downtown at WaterWalk. The agenda material says that the hotel is now complete, so the construction loan is being refinanced with the IRBs, “which will be initially purchased by the construction loan lender and then later redeemed with the proceeds of a permanent commercial loan insured by the Small Business Administration.” The benefit of the bonds is that the hotel escapes paying $328,945 in sales tax on its furnishings, etc. The city has already issued a letter of intent to do this, so it’s likely this item will pass and someone else will have to pay the sales tax this hotel is escaping. … The complete agenda packet is at Wichita City Council May 17, 2011.

    Wichita as art curator. The controversy over spending $350,000 on a large sculpture at WaterWalk promoted one reader to write and remind me of the city’s past experience as custodian of fine art. In 2004, the city mistakenly sold a sculpture by James Rosati as scrap metal. Realizing its mistake, the city refused to complete the transaction. The buyer sued, the city lost and appealed, losing again. Estimates of the sculpture’s worth ranged up to $30,000. Editorialized Randy Scholfield at the time in The Wichita Eagle: “That the sculpture ended up in an auction of surplus junk in the first place says something about how much the city valued it or exercised proper stewardship.”

    Legislature fails to confront KPERS. This year the Kansas Legislature failed to confront the looming problem of the Kansas Public Employees Retirement System, or KPERS. A small revision was made to the program, and a study commission was created. Neither action comes anywhere near to solving this very serious problem, as described in Economist: KPERS must undergo serious reform.

    Over 30 major news organizations linked to George Soros. Business and Media Institute: “When liberal investor George Soros gave $1.8 million to National Public Radio, it became part of the firestorm of controversy that jeopardized NPR’s federal funding. But that gift only hints at the widespread influence the controversial billionaire has on the mainstream media. Soros, who spent $27 million trying to defeat President Bush in 2004, has ties to more than 30 mainstream news outlets — including The New York Times, Washington Post, the Associated Press, NBC and ABC.” … This is from the first of a four part series.

    Romney seen as candidate of business, not capitalism. Timothy P. Carney in To Mitt Romney, big government is good for business: “Mitt Romney has the strongest business backing of any Republican presidential hopeful, and he carries himself as a technocratic problem solver. … Examine Romney’s dalliances with big government that have caused him such grief, and you’ll see a trend: They all are described as ‘pro-business,’ they all amount to corporate welfare, and they all reflect the technocratic mind-set you’d expect of a business consultant. Romney’s record and rhetoric show how managerialism veers away from the free market and into corporatism.” … Carney discusses Romney’s disastrous health care program in Massachusetts — which is seen as a prototype for Obamacare, his efforts to lure business to the state with subsidies, his support of ethanol subsidies, a national catastrophic insurance fund, and the Troubled Asset Relief Program.

    Programs for elderly must be cut. Robert Samuelson in The Washington Post: “When House Speaker John Boehner calls for trillions of dollars of spending cuts, the message is clear. Any deal to raise the federal debt ceiling must include significant savings in Social Security and Medicare benefits. Subsidizing the elderly is the biggest piece of federal spending (more than two-fifths of the total), but trimming benefits for well-off seniors isn’t just budget arithmetic. It’s also the right thing to do. I have been urging higher eligibility ages and more means-testing for Social Security and Medicare for so long that I forget that many Americans still accept the outdated and propagandistic notion that old age automatically impoverishes people.” … Samuelson goes on to show that many are doing quite well in old age and gets to the heart of the problem: “The blanket defense of existing Social Security and Medicare isn’t ‘liberal’ or ‘progressive.’ It’s simply a political expedient with ruinous consequences. It enlarges budget deficits and forces an unfair share of adjustment — higher taxes, lower spending — on workers and other government programs. This is the morality of the ballot box.” In other words, the elderly, which are a powerful voting bloc, have found they can vote themselves money. Concluding, he writes “Social Security was intended to prevent poverty, not finance recipients’ extra cable channels.”

    Social Security seen as unwise, financially. A video from LearnLiberty.org, a project of Institute for Humane Studies, explains that apart from the political issues, Social Security is a bad system from a purely financial view. Explained in the video is that 22 year-olds can expect to earn a 1.6 percent rate of return on their “investment” in Social Security contributions. Further, the “investment” is subject to a “100 percent estate tax.”

    Market development in Wichita. From Wichita downtown planning, not trash, is real threat: “While the downtown Wichita planners promote their plan as market-based development, the fact is that we already have market-based development happening all over Wichita. But because this development may not be taking place where some people want it to — downtown is where the visionaries say development should be — they declare a ‘market failure.’ But just because people make decisions that visionaries don’t approve of, that’s not market failure. And this is one of the most important reasons why Wichitans should oppose the downtown plan. It proposes to direct public investment away from where free people trading in free markets want public investment to be. The public investment component of the downtown plan says that people who decided not to live or work downtown are wrong, and they must now pay for others to be downtown. … We have market-based development in Wichita. We don’t need a government plan to have market-based development.”

  • Kansas and Wichita quick takes: Wednesday May 11, 2011

    Kansas Arts Commission layoffs. Kansas Governor Sam Brownback has dismissed all the employees of the Kansas Arts Commission. Earlier this year, the governor issued an order disbanding the commission, but the Senate reversed that order. The House had withheld funding for the commission, but recently reversed its position and added funding. The action by the governor, along with his line-item veto power, appears to end the life of the commission. … Government-funded arts supporters used a number of arguments and an aggressive lobbying campaign to make their case for funding. In the end, their arguments are like that of most others who plead for government funding — “the special pleading of selfish interests” that Henry Hazlitt identified. He also wrote of “… the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.” For more, see Kansas governor should veto arts commission funding, Arts supporters make case in Kansas Senate committee, and Arts funding in Kansas.

    Sculpture spending in Wichita. Yesterday the Wichita City Council voted four to three to spend $350,000 on a large sculpture at WaterWalk in downtown Wichita. The fact that the sculpture will be paid for with tax increment financing funds was used as an argument for proceeding with the expense, as the money is already allocated and can’t be used outside the TIF district. But, there’s nothing that requires the money be spent. … Council Member Michael O’Donnell said it is an “audacious” amount of money at a time of financial difficulty, and added that “I think it could set the arts back instead of propelling it forward because people would see that as a waste of government money.” He suggested tabling the idea until the economy improves as a way to “highlight fiscal responsibility that this council needs to show.” … If the benefit of the sculpture to WaterWalk is large, it seems that the WaterWalk developers would have an incentive to build it on their own. Except, being a public-private partnership, it’s sort of hard to tell where public subsidy ends and private ownership begins. … Not mentioned was the fact that the sculpture site is nearly next door to where the Wichita city manager owns a residence, and whether this requires that the spending and surrounding deliberations be handled in a special way.

    How much more can we soak the rich? Writes Jennifer Rubin: In the wake of Osama bin Laden’s killing a significant tax story did not get much notice. The Wall Street Journal reported this week that “a new congressional study concludes that the percentage of U.S. households owing no federal income tax climbed to 51% for 2009.” After presenting some figures that illustrate the progressivity of the American income tax system, she concludes: “There are legitimate arguments about how progressive our tax system should be; at what level of taxation do we risk impeding economic growth and which goals we want to promote through the tax code (e.g. family economic stability, home ownership, investment)? But we should at least be clear on the facts and our starting point. We can’t solve the debt problem by grabbing more money from the rich. And we simply don’t have, as Obama asserts, a tax system that undertaxes the rich.”

    School reform in Kansas, this year’s edition. From the Kansas Association of School Boards, on the major piece of school reform legislation this year: “HB 2191 passed 106-16. It will allow teachers to agree to extend their three-year probationary period by one or two additional years. The school board must provide a plan of assistance and give the teacher time to consider the special contract.” … Tinkering with the teacher tenure formula is all that has been accomplished this year regarding school reform. This is in a state that ranks very low among the states in policies relating to teacher effectiveness, according to the National Council on Teacher Quality.

    Wichita teacher cuts. Speaking of policies that work against teacher effectiveness: USD 259, the Wichita public school district has announced that it will reduce the number of teachers next year. The district’s contract with the union requires that teachers be laid off in order of seniority, so that new teachers are let go first. If the district was able to lay off their least effective teachers first, the district could end up with a smaller, but more effective, teacher workforce. … It might seem like automatically retaining the most experienced teachers is a beneficial policy. But research tells us that longevity in the classroom is not related to teacher effectiveness. One study found results that are typical: “There appear to be important gains in teaching quality in the first year of experience and smaller gains over the next few career years. However, there is little evidence that improvements continue after the first three years.” … Identifying effective teachers is something that many school districts have trouble doing, to the point where it makes one wonder if they are really interested in knowing. Kansas, as a state, has poor policies on evaluating teacher effectiveness. … The work rules that prevent school districts from dismissing ineffective teachers first are courtesy of the teachers unions, and are another reason why these institutions are harmful to the children they purport to serve.

    Real estate to be topic at Pachyderm, followed by tours. This Friday (May 13) the Wichita Pachyderm Club features Craig Burns and Glenn Edwards of Security 1st Title Company speaking on the topic “Real Estate Transactions, Ownership, Title, and Tales From the Trenches.” Following the event will be optional tours at the Sedgwick County Courthouse for presentations by Bill Meek, Register of Deeds from 2:00 pm to 2:25 pm, Kelly Arnold, County Clerk from 2:30 pm to 2:55 pm, and Linda Kizzire, County Treasurer from 3:00 pm to 3:30 pm. … The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. … Upcoming speakers: On May 20, Rob Siedleckie, Secretary, Kansas Social Rehabilitation Services (SRS) on the topic “The SRS and Initiatives.” On May 27, Todd Tiahrt, Former 4th District Congressman on the topic “Outsourcing our National Security — How the Pentagon is Working Against Us”.

    Immigration. From LearnLiberty.org, a project of Institute for Humane Studies: “Is it true that immigration raises the U.S. unemployment rate? Is it true that immigration affects U.S. income distribution? The conventional wisdom says that both of these things are true. However, economist Antony Davies says there is evidence to suggest that they are not. Looking at the data, there is no relationship between the rate of immigration and the unemployment rate, nor is there a relationship between the rate of immigration and income inequality. Further, there is evidence to suggest that immigrants actually create more American jobs.”

  • Wichita forgivable loan action raises and illustrates issues

    Today the Wichita City Council decided to grant a forgivable loan of $48,000 to The Golf Warehouse. This subsidy was promoted by the city as necessary to properly incentivize the applicant company to expand its operations in Wichita rather than Indiana, where the company has other operations and had also received an offer of subsidy. For more information, see Forgivable loan a test for new Wichita City Council members.

    In presenting the item to the council, Allen Bell, Wichita’s Director of Urban Development said the forgivable loan was a “deal-closing” device intended to “win a competition with other locations.”

    Further discussion brought out the fact that companies often “test the waters,” asking for incentives from cities like Wichita as a location they might consider moving to, only to us that as leverage for getting more incentives back home. (Wichita has suffered at the hands of this ruse, most recently granting a large forgivable loan to a company when the city used as leverage says they did not have discussions with the company.)

    Council Member Michael O’Donnell asked if there was another form of economic development that The Golf Warehouse could have received. Bell said that in this case there wasn’t, that IRB financing with accompanying tax abatements wasn’t available for this project. As he has in the past, Bell pointed to the lack of tools in the toolbox, or “arrows in our quiver” he said today.

    When the CEO of the applicant company spoke to the council, it was easy to get the impression that this company — like the many other companies that plead for incentives and subsidy — feel that because of their past and pending investment in Wichita, they are entitled some form of incentive. When the company’s outside site selection consultant spoke, this sense of entitlement became explicit. She told how the company has made “significant investment and has employed a lot of people and kept a lot of families employed.” She said that instead of forgivable loan, this should be called an “act of goodwill.” She said the company has made a huge investment, never asking for incentives, and that the loan allows the company to continue making investment into the community.

    She also said that the offer made by Indiana amounted to twice Wichita’s offer, on a per-job basis.

    Citizens spoke against the forgivable loan. John Todd asked if this is the economic formula that has blessed our city and county with the wealth and prosperity we enjoy today.

    Clinton Coen told the council that these incentives are a bargaining tool, allowing cities to blackmail each other.

    Susan Estes asked a question that built on O’Donnell’s earlier remarks: Why would we see this forgivable loan as egregious? On the surface, we see jobs, which is good, she said. But the money to pay for this loan comes from other taxpayers, she said, and there are many companies that need help, citing the number of companies filing for bankruptcy and having tax liens filed against them. “Why I find it egregious is that we’re doing something that helps one company at a time. We really need to take an overall look at our tax policy and address the tax issue. We have one of the highest tax rates on the Plains, and that’s why we get in these situations where we have to compete. If we had a better competitive tax rate we could spare all of this.”

    Of interest for the political theater was the vote of three new council members, based on statements they made regarding forgivable loans on the campaign trail (see Forgivable loan a test for new Wichita City Council members). In making the motion to accept staff recommendation of the forgivable loan, council member Pete Meitzner said of the loan: “It is an investment, incentive, whatever you want to call it. It is not a give-away.”

    Meitzner and James Clendenin voted with all the veteran council members to approve the forgivable loan. Only O’Donnell voted consistent with how he campaigned.

    Analysis

    This item before the Wichita City Council today requires analysis from two levels.

    First, the economics and public policy aspects of granting the forgivable loan are this: It is impossible to tell whether The Golf Warehouse would not expand in Wichita if the forgivable loan was not granted. The companies that apply for these subsidies and that cite competitive offers from other states and cities have, in some cases, multi-million dollar motives to make Wichita think they will move away, or not invest any more in Wichita. Most politicians are scared to death of being labeled “anti-job,” and therefore will vote for any measure that has the appearance of creating or saving jobs.

    Particularly inappropriate is the attitude of many of these companies in that they deserve some sort of reward for investing in Wichita and creating jobs. First, companies that make investments do, in fact, deserve a reward. That reward is called profit, but it has to be earned in the marketplace, not granted by government fiat. When a company earns profits in free markets, we have convincing evidence that wealth is being created and capital has been wisely invested. Everyone — the investors certainly but also the customers and employees — is better off when companies profit through competition in free markets.

    But when government steps in with free capital, as was the case today, markets are no longer free. The benefits of capitalism are no longer available and working for us. The distortion that government introduces interferes with market processes, and we can’t be sure if the profit and loss system that is so important is working. Companies, as we saw today, increasingly revert to what economists call rent seeking — profiting through government rather than by pleasing customers in market competition.

    Entrepreneurship, of which Wichita has a proud tradition, is replaced by a check from city hall.

    Wichita’s own Charles Koch explained the harm of government interventionism in his recent recent Wall Street Journal op-ed: “Government spending on business only aggravates the problem. Too many businesses have successfully lobbied for special favors and treatment by seeking mandates for their products, subsidies (in the form of cash payments from the government), and regulations or tariffs to keep more efficient competitors at bay. Crony capitalism is much easier than competing in an open market. But it erodes our overall standard of living and stifles entrepreneurs by rewarding the politically favored rather than those who provide what consumers want.”

    A forgivable loan — despite Council Member Meitzner’s claim to the contrary — is a cash payment to business, which Mr. Koch warns against.

    The focus on job creation is also a confounding factor that obscures the path to true wealth and prosperity for Wichita. When companies ask the city, county, and state for subsidy and incentive, they tout the number of jobs and the payroll that will be created. But jobs are a cost, not a benefit, to business and most firms do all they can to minimize their labor costs just as they seek to minimize all costs. For Wichita to prosper, we need to focus on productivity and wealth creation, not merely employment.

    The actions of the city council today keep Wichita on its path of piecemeal economic development and growth. Movement to a system that embraces economic dynamism, as advocated by Dr. Art Hall and as part of Governor Sam Brownback’s economic development plan for Kansas, is delayed. Economic development in Wichita keeps its present status as a sort of public utility, subject to policy review from time to time, as was mentioned today by the city manager.

    Politically, Wichitans learned today the value of promises or statements made by most candidates while campaigning. Most candidates’ promises along with $3.75 will get you a small cappuccino at Starbucks — if you don’t ask for whipped cream.

    Particularly interesting is the inability of politicians to admit they were wrong, or that they made a mistake, or that they were simply uninformed or misinformed when they made a campaign promise or statement. It was refreshing to hear Republican presidential candidate Tim Pawlenty, when he was in Wichita a few weeks ago, forthrightly admit that he was wrong about his initial position on cap-and-trade energy policies. City council members Clendenin and Meitzner could not bring themselves to admit that their votes today were at odds with their statements made while campaigning. This lack of honesty is one of the reasons that citizens tune out politics, why they have such a cynical attitude towards politicians, and perhaps why voter turnout in city elections is so low.

    As one young Wichitan said on her Facebook page after sharing video of the three new council members today, obviously referring to city council district 2’s Pete Meitzner: “How to use your mouth: 1. Campaign under the guise that you are a fiscal conservative. 2. Insert foot.”

  • Kansas and Wichita quick takes: Monday May 9, 2011

    Airfares down in Wichita. A city press release announces: “Wichita Mid-Continent Airport had the country’s 11th largest airline fare decrease since 2000 and now ranks 43rd in average fare of the 100 busiest airports, according to research by the federal Bureau of Transportation Statistics (BTS).” The program’s major source of funding is $5 million per year from the state. Currently, it is not known whether this funding will be in the budget the legislature is working on. … The program is controversial for claims of economic benefit that appear overstated. There is a way to pay for the program that shouldn’t be controversial. When government provides services that benefit everyone, such as police protection, most people agree that taxes to pay for these services should be broad-based. But we can precisely identify the people who benefit from cheap airfares: the people who buy tickets. Wichita could easily add a charge to tickets for this purpose. The mechanism is already in place.

    Wichita City Council this week. A speaker on the public agenda will speak about restoring Joyland. Undoubtedly, the goal of the speaker will be to obtain public funds for this project. … City staff is recommending that the council deny a request for Industrial Revenue Bond financing by Pixius Communications LLC. As always, the benefit of the IRB financing to the applicant is the property tax and possible sales tax abatements that accompany the program. The city does not lend money, and does not guarantee that the applicant will repay the bonds. The reason staff is recommending not to approve the application is that Pixius is a service business, and under current policy, a service business must generate a majority of its revenues from outside the Wichita area. Pixius does not, and is asking the city to waive this policy for their benefit. … Separately, Pixius is applying for low-cost financing of renovations to the same building though the facade improvement program. The city has performed its “gap” analysis and has “determined a financial need for incentives based on the current market rates for economic rents.” This is another example of government investing in money-losing businesses. … Then The Golf Warehouse in northeast Wichita asks for a forgivable loan from the city as part of a larger package of incentives and subsidy. This item will prove to be a test for several council members who campaigned against these loans. … Council members will receive a quarterly financial report and view an “artistic concept” for WaterWalk.

    Joyland topic of British tabloid. The British tabloid newspaper Daily Mail, in its online version, has a story and video about Wichita’s closed Joyland amusement park. For those who remember the park in its heyday, this is a fascinating — if not bittersweet — look at the park’s current condition. The headline of the article (“New images of an abandoned theme park reveal desolation in America’s heartland”) makes a connection between the deterioration of Joyland and the economic condition of America, a false impression which several comment writers corrected. … I don’t think the closing of Joyland has anything to do with public policy. Businesses come and go all the time as tastes and generations change.

    Educational freedom to be discussed in Wichita. This week Kansas Policy Institute and The Friedman Foundation for Educational Choice will be discussing what other states have done to increase student achievement through reforms based on educational freedom and creating a student-centric focus. KPI and FFEC recently launched the “Why Not Kansas” initiative to educate Kansans on the need to reform the state’s K-12 educational system to allow Kansas schools to continue to improve. Speakers at the event will be Dave Trabert, president of Kansas Policy Institute, and Leslie Hiner, vice president of programs and state relations at The Foundation for Educational Choice. The event is Thursday, May 12 at 10:30 am, at the Central Wichita Public Library Auditorium. RSVP is requested by email to James Franko or by calling 316-634-0218.

    Do you want to live in the world of Atlas Shrugged? From LearnLiberty.org, a project of Institute for Humane Studies: “In her masterpiece of fiction, Atlas Shrugged, Ayn Rand emphasizes three key classical liberal themes: individualism, suspicion of centralized power, and the importance of free markets. In this video, Prof. Jennifer Burns shows how Rand’s plot and characters demonstrate these themes, principally through innovative entrepreneurs who are stifled by laws and regulations instituted by their competitors. In the world of Atlas Shrugged, free markets and individual liberty have been traded away for equality and security enforced by the government. Burns ends by reviving Rand’s critical question: do you want to live in this kind of world?” … The video is six minutes in length.

    Who are the real robber barons? In summarizing a chapter from his book How Capitalism Saved America: The Untold History of Our Country, From the Pilgrims to the Present, Thomas J. DiLorenzo explains the false lessons of capitalism and government that we have been taught:

    “The lesson here is that most historians are hopelessly confused about the rise of capitalism in America. They usually fail to adequately appreciate the entrepreneurial genius of men like James J. Hill, John D. Rockefeller, and Cornelius Vanderbilt, and more often than not they lump these men (and other market entrepreneurs) in with genuine “robber barons” or political entrepreneurs.

    Most historians also uncritically repeat the claim that government subsidies were necessary to building America’s transcontinental railroad industry, steamship industry, steel industry, and other industries. But while clinging to this “market failure” argument, they ignore (or at least are unaware of) the fact that market entrepreneurs performed quite well without government subsidies. They also ignore the fact that the subsidies themselves were a great source of inefficiency and business failure, even though they enriched the direct recipients of the subsidies and advanced the political careers of those who dished them out.

    Political entrepreneurs and their governmental patrons are the real villains of American business history and should be portrayed as such. They are the real robber barons.

    At the same time, the market entrepreneurs who practiced genuine capitalism, whose genius and energy fueled extraordinary economic achievement and also brought tremendous benefits to Americans, should be recognized for their achievements rather than demonized, as they so often are. Men like James J. Hill, John D. Rockefeller, and Cornelius Vanderbilt were heroes who improved the lives of millions of consumers; employed thousands and enabled them to support their families and educate their children; created entire cities because of the success of their enterprises (for example, Scranton, Pennsylvania); pioneered efficient management techniques that are still employed today; and donated hundreds of millions of dollars to charities and nonprofit organizations of all kinds, from libraries to hospitals to symphonies, public parks, and zoos. It is absolutely perverse that historians usually look at these men as crooks or cheaters while praising and advocating “business/government partnerships,” which can only lead to corruption and economic decline.

  • Forgivable loan a test for new Wichita City Council members

    This week the Wichita City Council will consider a request for a forgivable loan that will put the campaign rhetoric of three newly-elected council members to test.

    At issue is The Golf Warehouse in northeast Wichita. The company proposes to expand its existing facility in Wichita rather than in Indiana, where the company has existing facilities with excess capacity. To lure the company to expand in Wichita, the state of Kansas is offering grants totaling $275,000. The company also seeks a forgivable loan from the City of Wichita for $48,000, and another forgivable loan of the same amount from Sedgwick County for a total package worth $371,000. If the company meets employment and wage goals, the forgivable loans do not need to be repaid. Details of the proposal may be seen at Wichita City Council agenda packet, May 10, 2011, starting on page 40.

    While campaigning for their offices, each of the three candidates — now council members — spoke negatively of forgivable loans. At a campaign event in February (transcripts below), James Clendenin (district 3, south and southeast Wichita) spoke of how the need for a loan to be forgiven reflects poorly on a company’s financial performance. His remarks look more to the past history of a company rather than to the future, and that’s not the focus of the city’s forgivable loan program. It does not forgive loans that were made in the past. Instead, it makes new loans that will not need to be repaid if performance goals are met — in effect, grants of money.

    District 4’s (south and southwest Wichita) new council member Michael O’Donnell spoke plainly against this form of incentive, saying “I do not believe in forgivable loans.” He exhibited insight regarding the spiraling nature of economic development incentives, saying that because the city gives out subsidies and incentives, everyone wants them. It sets a “terrible precedent,” he said, adding that it is “completely irrational.”

    Pete Meitzner, who represents district 2 (east Wichita), said “I am not for forgivable loans.” He noted the contradiction inherent in the terms “forgivable” and “loan,” calling them “conflicting terms.”

    If Meitzner sticks by his campaign rhetoric against forgivable loans, it may make for an awkward moment at Tuesday’s council meeting. That’s because the applicant company is located in Meitzner’s district, and custom dictates that he, as representative for the district the company is located in, make the motion in favor of granting the loan — a forgivable loan that he has said he is “not for.” If Meitzner acts in office as he campaigned, he will make a motion denying the applicant’s request.

    The other four members of the council usually have a favorable attitude toward these forgivable loans and other economic development subsidies and incentives. My suspicion is that at least two of the new members will be persuaded that this loan is necessary, and they will abandon their campaign musings. O’Donnell’s insight will be shown to be true, and more companies will ask for subsidy and incentive from the city, county, and state. Rent seeking — again — will be the economic development policy of the City of Wichita.

    From a meeting of Republican Women United on February 12, 2011, in response to a question about the City of Wichita and forgivable loans:

    James Clendenin: “If a company is not doing well, and they need a loan forgiven, we need to find out why they want this loan forgiven. If we’re gonna forgive a loan, are they going to continue their bad habits, the things that got them in this situation? So we need to examine those things when we’re considering that.”

    Michael O’Donnell: “I do not believe in forgivable loans. I feel that if it wouldn’t pass muster with a financial institution, then the City of Wichita should not take the taxpayers money to give to these companies. That sets a terrible precedent. And once you start, it’s a slippery slope, because everybody’s going to be attracted to it. Because they should. Any businessman should be going to the City of Wichita and asking for loans, because they continue to give it out. It’s completely irrational.”

    Pete Meitzner: “Forgivable loans is kind of a … I’m surprised that’s even a word, it’s kind of a conflicting term anyway. I am not for forgivable loans. I think the city and businesses have a number of tools when they’re challenged. Our city was founded — it’s a great city — based on aircraft manufacturing, oil and energy industries, entrepreneurial spirit that went nationwide and worldwide, and small businesses. If we as a city need to use our tools, but we need to embrace those people to feel accepted, and a freedom to grow their businesses. And if they’re struggling, and struggling with their bank, I don’t mind helping being an advocate to help these businesses do whatever they can to continue to flourish. Some of that might be us getting out of the way. Rewriting regulations, less stringent. It’s okay for us to get out of the way and allow them to flourish. I think we need to use any of the tools that we possibly can have beside a term forgivable loan.”

  • Kansas and Wichita quick takes: Monday May 2, 2011

    Shale gas to be topic in Wichita. This Friday (May 6) the Wichita Pachyderm Club features Malcolm C. Harris, Sr., Ph.D., Professor of Finance, Division of Business and Information Technology, Friends University, speaking on the topic: “Shale gas: Our energy future?” Harris also blogs at Mammon Among Friends. … “Shale gas” refers to a relatively new method of extracting natural gas, as reported in the Wall Street Journal: “We’ve always known the potential of shale; we just didn’t have the technology to get to it at a low enough cost. Now new techniques have driven down the price tag — and set the stage for shale gas to become what will be the game-changing resource of the decade. I have been studying the energy markets for 30 years, and I am convinced that shale gas will revolutionize the industry — and change the world — in the coming decades. It will prevent the rise of any new cartels. It will alter geopolitics. And it will slow the transition to renewable energy.” … Critics like the Center for American Progress warn of the dangers: “The process, which involves injecting huge volumes of water mixed with sand and chemicals deep underground to fracture rock formations and release trapped gas, is becoming increasingly controversial, with concerns about possible contamination of underground drinking water supplies alongside revelations of surface water contamination by the wastewater that is a byproduct of drilling.” … Upcoming speakers: On May 13, Craig Burns and Glenn Edwards of Security 1st Title Co. on the topic “Real Estate Transactions, Ownership, Title, and Tales From the Trenches.” On May 20, Rob Siedleckie, Secretary, Kansas Social Rehabilitation Services (SRS) on the topic “The SRS and Initiatives.” On May 27, Todd Tiahrt, Former 4th District Congressman on the topic “Outsourcing our National Security — How the Pentagon is Working Against Us”.

    Wichita City Council this week. On Tuesday the Wichita City Council will decide whether to spend $316,000 on capital improvements to the Wichita Ice Center. Improvements will include “HVAC system upgrades, new flooring, signage, interior and exterior painting, upgrades to the locker room facilities, ice skates, and a new point of sale system that will track program revenues and attendance.” This spending was already agreed to in a contract with the new managers of the facility, so approval seems certain. … On the consent agendas one item proposes to spend $36,087 on study, design and bid services to replace the passenger loading bridges at the Wichita airport. In 2003 the city budgeted $4 million for this project, but it was put on hold due to plans for a new terminal building. Now the city wants to go ahead and replace the existing bridges. Being on a consent agenda, this item will receive no discussion unless a council members wants to “pull” it for individual discussion.

    Williams on the role of race in economics. Thomas Sowell reviewing a new book by Walter E. Williams, Race and Economics: How Much Can Be Blamed on Discrimination?: “Walter Williams fans are in for a treat — and people who are not Walter Williams fans are in for a shock – when they read his latest book, Race and Economics. It is a demolition derby on paper, as Professor Williams destroys one after another of the popular fallacies about the role of race in the American economy. … In recent times, we have gotten so used to young blacks having sky-high unemployment rates that it will be a shock to many readers of Walter Williams’ Race and Economics to discover that the unemployment rate of young blacks was once only a fraction of what it has been in recent decades. And, in earlier times, it was not very different from the unemployment rate of young whites. The factors that cause the most noise in the media are not the ones that have the most impact on minorities. This book will be eye-opening for those who want their eyes opened. But those with the liberal vision of the world are unlikely to read it at all.” … An interview with the author is available at Lew Rockwell interviews Walter Williams on his two new books.

    Spending cuts preferred to taxes. A survey of Kansas voters conducted on behalf of the Kansas Chamber of Commerce found widespread support for cutting spending rather than raising taxes as the way to balance the Kansas budget. Support was also found for cutting state worker salaries, or reducing the number of state employees. See Kansas Chamber finds voters favor cuts, not tax increases to balance budget.

    Except some prefer taxes. A coalition of groups is advocating for more revenue so that Kansas government can spend more. Some of the groups in the coalition advocate for those who truly can’t help themselves. But it’s no coincidence that the spokesman for the group is Mark Desetti, who is the lobbyist for Kansas National Education Association (KNEA), the state’s teachers union. Other school spending advocacy groups are prominent members of this coalition. Fortunately, many are starting to realize that the aims of school spending advocates like the teachers unions are not in the best interest of students, as shown below.

    Teacher evaluation systems. Brookings Institution: “Of all the things that are under the control of policymakers and schools, teacher quality is at the top of the list in terms of impact on student achievement, and so there is a great interest in evaluating teacher performance.” Says Russ Whitehurst, director of the Brown Center on Education Policy: “If you’re unlucky enough to get a bad teacher three years in a row, you’re basically ruined — that’s 30 percentile points, it’s hard to recover from that. So we know that teachers are important, and we know that for the first time for reasons other than intuition.” Brookings is working on systems to evaluate the systems that school districts use to evaluate teachers, so that state and federal money can be distributed fairly, as a way to incentivize good teacher evaluation systems. … According to National Council on Teacher Quality, Kansas ranks very low among the states in policies relating to teacher effectiveness. For example, the report states: “Fails to make evidence of student learning the preponderant criterion in teacher evaluations.” … The prospects for reform in teacher evaluation and quality in Kansas are not good. Proposals that would improve Kansas in this regard have not been discussed — at least meaningfully — in this year’s session of the Kansas legislature. For example, this year the Legislature spent quite a bit of time on a policy where the period before teachers are awarded tenure could be increased from three to five years in certain circumstances. This is what qualifies as “school reform” in Kansas. Remember, Kansas ranks very low in policies that promote teacher quality. Tinkering with the policy on teacher tenure is not going to improve our teacher quality, as tenure is a system that ought to be eliminated. In Kansas the teachers union is Kansas National Education Association (KNEA), and it works overtime to block meaningful reform of our state’s schools.

    Misguided efforts to improve capitalism. From Eamonn Butler: Ludwig von Mises — A Primer on how efforts by government to intervene in markets fail: Indeed, our efforts to manipulate the market economy, and make it conform to a particular vision, are invariably damaging. Capitalism is superbly good at boosting the general standard of living by encouraging people to specialise and build up the capital goods that raise the productivity of human effort. But when we tax or regulate this system, and make it less worthwhile to invest in and own capital goods, then capitalism can falter. But that is not a “crisis of capitalism,” explains Mises. It is a crisis of interventionism: a failure of policies that are intended to “improve” capitalism but in fact strangle it. One common political ideal, for example, is “economic democracy” — the idea that everyone should count in the production and allocation of economic goods, not just a few capitalist producers. But according to Mises, we already have economic democracy. In competitive markets, producers are necessarily ruled by the wishes of consumers. Unless they satisfy the demands of consumers, they will lose trade and go out of business. If we interfere in this popular choice, we will end up satisfying only the agenda of some particular political group. A more modest notion is that producers’ profits should be taxed so that they can be distributed more widely throughout the population. But while this shares out the rewards of success, says Mises, it leaves business burdened with the whole cost of failure. That is an imbalance that can only depress people’s willingness to take business risks and must thereby depress economic life itself.

  • Kansas and Wichita quick takes: Monday April 25, 2011

    American exceptionalism. This Friday (April 29) the Wichita Pachyderm Club features Kenneth N. Ciboski, Ph.D, Associate Professor of Political Science at Wichita State University. He will speak on the topic “American Exceptionalism: How and Why Are We Different From Europe?” The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. … Upcoming speakers: On May 6, Dr. Malcolm C. Harris, Sr., Professor of Finance, Friends University on the topic “Shale gas: Our energy future?” On May 13, Craig Burns and Glenn Edwards of Security 1st Title Co. on the topic “Real Estate Transactions, Ownership, Title, and Tales From the Trenches.” On May 20, Rob Siedleckie, Secretary, Kansas Social Rehabilitation Services (SRS) on the topic “The SRS and Initiatives.” On May 27, Todd Tiahrt, Former 4th District Congressman on the topic “Outsourcing our National Security — How the Pentagon is Working Against Us”.

    Wichita City Council this week. As this week is the fourth Tuesday of the month, the Wichita City Council considers only consent agenda items. This agenda has two acquisition of property by eminent domain, one for improvements to East 13th Street, and another for land involved in the aquifer recharge project in Harvey County. … There will also be council member appointments, and with three new council members on board, there could be a number of these. … A workshop will follow to present updates to the downtown Wichita public incentive policy. A Wichita Eagle story reported on this, but raised more confusion than answers. For example, the story reports the proposal will include “A private-to-public capital investment ration [sic] of 2-to-1.” This differs from the Goody Clancy plan for downtown Wichita, which calls for a five to one ratio.

    The Great American Bailout. Tim Huelskamp, a new member of the United States Congress from the Kansas first district, warns of the seriousness of the problem the country faces with the budget and debt: “This past Monday, Standard & Poor’s (S&P) announced that it was cutting its outlook on the U.S. from “stable” to “negative,” increasing the likelihood of a potential downgrade of America’s credit rating. This should be a dire wake-up call to Washington that the time is now to address federal red ink. For all of America’s greatness, it is embarrassing that the United States may become a credit risk.” He details the rising amount of national debt, and also the increasing percentage that is held by foreign countries. … Soon we will be faced with the decision to raise our national debt limit. Huelskamp says the only way he could support increasing the ceiling is there is also a “serious and meaningful compromise that makes substantial and real cuts to the deficit and debt.” He also supports a balanced budget amendment to the Constitution.

    “Not yours to give rally” in Topeka. Next Thursday (April 28) a coalition of groups is holding a rally at the Kansas Capitol building. The event starts at 10:00 am and lasts until 2:00 pm. The lineup of speakers and topics includes Rep. Charlotte O’Hara: “Federal control of the state through the state budget,” Larry Halloran (Wichita South Central 9-12 Group): “Government Charity, the Constitution and the Rule of Law,” Dave Trabert (Kansas Policy Institute): “Kansas Budget Policy and Spending Habits,” Rep. Kasha Kelley: “House Budget,” Richard D. Fry (Patriots Coalition ): “Govt. Lawlessness and Implementing Obama Care,”Angelo Mino (Born in Ecuador – MADE in America): “Reason to Become a New Born American,” Derrick Sontag (Americans for Prosperity): “History of a Growing Kansas Budget,” and Rep. Lance Kinzer: “Court of Appeals Legislation.” … AFP is sponsoring a free bus trip from Wichita for this event. The bus will leave Wichita at 7:00 am, and should be back by 6:00 pm. The bus trip is free but reservations are required. For more information on the bus trip contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415.

    Kansas Bioscience Authority benefits from exemptions. The Kansas Bioscience Authority has benefited from exceptions to the Kansas Open Records Act written for its own benefit. Kansas Watchdog reports.

    The presidency in liberal society. Eighteen months before the election, presidential politics consumes a lot of energy. Conservatives complain that President Obama is already in full campaign mode. Liberals poke fun at Republicans for, well, for a lot of reasons. But with a properly limited government, we should care very little who is our president. Lew Rockwell explains in this excerpt from a speech titled “An American Classical Liberalism”: Every four years, as the November presidential election draws near, I have the same daydream: that I don’t know or care who the president of the United States is. More importantly, I don’t need to know or care. I don’t have to vote or even pay attention to debates. I can ignore all campaign commercials. There are no high stakes for my family or my country. My liberty and property are so secure that, frankly, it doesn’t matter who wins. I don’t even need to know his name. In my daydream, the president is mostly a figurehead and a symbol, almost invisible to myself and my community. He has no public wealth at his disposal. He administers no regulatory departments. He cannot tax us, send our children into foreign wars, pass out welfare to the rich or the poor, appoint judges to take away our rights of self-government, control a central bank that inflates the money supply and brings on the business cycle, or change the laws willy-nilly according to the special interests he likes or seeks to punish. His job is simply to oversee a tiny government with virtually no power except to arbitrate disputes among the states, which are the primary governmental units. He is head of state, though never head of government. His position, in fact, is one of constant subordination to the office holders around him and the thousands of statesmen on the state and local level. He adheres to a strict rule of law and is always aware that anytime he transgresses by trying to expand his power, he will be impeached as a criminal.