Voice For Liberty

Tag: Wichita city government

  • Wichita targeted economic development should end

    Is the City of Wichita able to choose which companies are worthy of taxpayer assistance for the purposes of economic development?

    This week and next, the Wichita City Council will attempt to do this several times. It starts tomorrow with a theater owner’s request to avoid paying millions in property taxes. A food processing company is asking for similar treatment.

    Several downtown buildings are receiving special assessment financing for improvements. An ordinance allowing a downtown hotel to keep its guest tax collections for its own exclusive benefit will be voted on.

    The city will also decide whether to implement community improvement districts. These districts let a business add up to two cents on the dollar of sales tax, and keep that extra revenue for its own benefit. (One wonders why the business doesn’t simply increase its prices by two percent.)

    That’s all in one day’s work.

    The question Wichitans need to ask is simply this: Do these targeted economic development incentives work? The answer is, almost always, no.

    In 2008 the Kansas Legislative Division of Post Audit looked at the use of economic development incentives in Kansas, examining some $1.3 billion in spending over five years. In examining the literature, the auditors found: “Most studies of traditional economic development incentives suggest these incentives don’t have a significant impact on economic growth.”

    It also found: “The majority of research concludes there is a lack of demonstrated impact from the typical types of economic development assistance, and that incentives aren’t cost-effective.” The audit can be read at Economic Development: Determining the Amounts the State Has Spent on Economic Development Programs and the Economic Impacts on Kansas Counties.

    Recently Alan Cobb wrote of the harm that targeted incentives cause, using Detroit as an example: “While state and local government poured incentives into the Big Three’s trough, the marginal costs of doing business for everyone else crept up.”

    Wichita is taking the same path. Instead of competing in the market, businesses look to city hall for special treatment. When applicants ask government for special treatment at the expense of others, the economic term for that activity is rent seeking.

    The term rent, or more precisely, economic rent is somewhat unfortunate, as the common usage of the term — paying someone money for the use of an asset for a period of time — contains no sinister connotation. But economic rent does carry baggage.

    So what is rent seeking? Wikipedia defines it like this: “In economics, rent seeking occurs when an individual, organization or firm seeks to earn income by capturing economic rent through manipulation or exploitation of the economic environment, rather than by earning profits through economic transactions and the production of added wealth.”

    This explanation doesn’t do full justice to the term, because it doesn’t mention the role that government and politics usually play. The Concise Encyclopedia of Economics adds this: “The idea is simple but powerful. People are said to seek rents when they try to obtain benefits for themselves through the political arena. They typically do so by getting a subsidy for a good they produce or for being in a particular class of people, by getting a tariff on a good they produce, or by getting a special regulation that hampers their competitors.”

    It’s thought that Wichita needs to dish out economic development subsidies so that we can attract new companies to our town, or, as is often the case, retain existing companies. So we grant special tax treatment — usually through industrial revenue bonds, but also in other ways such as tax increment financing — to these companies. Or sometimes we may dispense with these cumbersome processes and simply give companies money or make loans that don’t need to be repaid.

    These benefits — representing economic rent and rent seeking behavior — are great for the lucky companies that received them. But what about considering the city or region as a whole? In that case, something different emerges. Here’s an excerpt from “Rent Seeking and Economic Growth: Evidence From the States,” Harold J. Brumm, Cato Journal, Vol. 19, No. 1 (Spring/Summer 1999):

    The present study finds the growth rate of real gross state product (GSP) per capita to be negatively correlated with the initial level of real GSP per capita, the burden of state tax structure, and — most notably — the level of rent-seeking activity in the state. On the basis of the estimates obtained for the standardized coefficients of the explanatory variables in the growth rate equation, the conclusion reached here is that rent-seeking activity has a relatively large negative effect on the rate of state economic growth. An implication of this finding is that a state government which promulgates policies that foster sustained artificial rent seeking does so at considerable expense to its economic growth.

    In simple terms, rent seeking activity harms economic growth.

    This study also states: “The private returns of rent seekers come from the redistribution of wealth, not from wealth creation. The tax that rent seeking imposes on the productive sector reduces the output growth rate by reducing the incentives of entrepreneurs to produce and innovate.”

    This study looked at state governments and their activities, but there’s reason to suspect that the findings apply to cities and counties, too.

    So should we simply give up and not grant preferential tax treatment and other subsidies to companies to induce them to locate in Wichita? No. Instead, as I’ve outlined in Wichita universal tax exemption could propel growth, we should offer preferential tax treatment to all new investment in Wichita.

    A broad policy like this, where everyone benefits, eliminates the harmful effects of rent seeking. All companies can benefit, not only those that fit into certain categories or make special pleadings to politicians or bureaucrats. All companies can plan with certainty on receiving the benefit — there won’t be the risk whether the city council and bureaucrats will approve the benefit.

    This is the type of policy we should follow to increase economic growth in Wichita.

  • Wichita Warren Theater IRB a TIF district in disguise

    On Tuesday the Wichita City Council will consider an economic development incentive for a local business. The process the city is using to grant this incentive bypasses the scrutiny that accompanies the formation of TIF districts while providing essentially the same benefit.

    The proposal provides Industrial Revenue Bond financing to American Luxury Cinemas, Inc., d.b.a. 21st Street Warren Theatre, a company owned in part by Wichita theater operator Bill Warren. Under the city’s IRB program, no city money is lent to Warren, and the city does not provide any guarantee that the bonds will be repaid.

    Instead, the benefit of the IRB to Warren is that he will escape paying property taxes on the new theater. Also, he will likely avoid paying sales taxes on purchases made with the bond money. (The city-supplied material doesn’t mention the sales tax exemption, but this incentive is commonly granted, and mention of it was likely omitted by mistake from the agenda report.)

    This project is a TIF district in effect. It has the same economic benefit to the applicant. But the way this deal is structured means it doesn’t have to go through the normal approval process of a TIF district. Specifically, the Sedgwick County Commission will not have a chance to consider approval of these incentives. That approval would probably not be granted.

    The process being used also allows the city to bypass the 30 day notice of a public hearing required for formation of a TIF district.

    In a TIF district, the city borrows money and spends it immediately for the benefit of the TIF district. What the city spends money on isn’t important, as long as it’s spent on things that the owners of the property in the TIF district would have to pay for themselves, if not for the city. This is important to remember, as defenders of TIF districts say that the city money is spent “only on infrastructure,” as if most developers don’t have to pay for their own infrastructure.

    As improvements to property in the TIF district are made — buildings being built or renovated, etc. — the property taxes on the property go up. This increase in the tax payments — that’s the increment in TIF — goes to pay off the borrowed money that was spent on the TIF district.

    Since the TIF district spending was for the exclusive benefit of of the TIF district applicant, and the increased property taxes are paying off the bonds that provided that spending, TIF districts, in effect, let the applicants keep the increase in their own property taxes for their exclusive benefit.

    Whenever anyone else improves their property and has to pay higher taxes, those taxes go to fund the general operations of government.

    (If this sounds confusing and complicated, it is. It is confusing by design. A while back I told the council: “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.”)

    In the Warren deal that the council will consider on Tuesday, no TIF district is being created. But because the property is in the IRB program, property taxes will be forgiven. Warren is agreeing to make payments equal to the present tax bill on the property (plus a small annual increase).

    The net effect is that the Warren group will not pay property taxes on the value of the new project. It’s the same economic effect as a TIF district, without the scrutiny that accompanies formation of a TIF district.

    Some city politicians and bureaucrats — particularly Mayor Carl Brewer, council member Jeff Longwell, and the city’s economic development chief Allen Bell — have complained that the city doesn’t have enough “tools in the toolbox” when it comes to dishing out economic development incentives.

    This applicant has been the recipient of economic development incentives, including a TIF district formed for its benefit. When that business was failing, the city created a special tool for Warren’s benefit: a no-interest and low-interest loan.

    Here we see another new tool being created — the formation of what is, in effect, a TIF district without accompanying scrutiny.

    Warren IMAX Theater Project

  • Will the real robber barons please stand up?

    By Helen Cochran.

    At the April 13th meeting of the Wichita City Council a request from downtown developer Real Development will be made for an additional $2.2 million taxpayer subsidy for its condo project Exchange Place, located at Douglas and Market. With two weeks to go before this public hearing there is still time for council members to read The Myth of the Robber Barons by Burton Folsom. Folsom’s easy-to-read 134-page narrative lays out the case for entrepreneurship in America and can be read in one evening. It’s a history lesson worth reading by all.

    Folsom highlights two kinds of business developers: “political entrepreneurs” and ‘market entrepreneurs.” And while Folsom focuses on the larger-than-life entrepreneurs of the nineteenth and early twentieth century, the lessons gleaned have far reaching implications and relevance, even on a local level.

    According to Folsom, “political entrepreneurs” are those that seek government/taxpayer subsidy, public private partnerships, protective tariffs, special privileges, etc. Folsom makes a sound case that economic development fueled by political intervention invariably fails and undermines the very ideology it purports to serve.

    On the other hand “market entrepreneurs” are those that obtain their successes by producing a product that is better and of more value to the consumer, unbridled by the government controls and restrictions that come with subsidy. No one can argue that it is the market entrepreneurs that create the wealth in this country.

    Despite the anti-business rhetoric spewed by most historians and reinforced in school curriculums across this country, Folsom offers concrete evidence that the likes of Commodore Vanderbilt, John D Rockefeller, Andrew Mellon, the Scrantons of Pennsylvania, James J. Hill, and Charles Schwab should be revered because of the consumer benefits achieved when free markets are allowed to flourish without government involvement. Folsom contrasts these successes with failure-after-failure of those in the same respective industries that received government subsidy. Government cannot do it better and most certainly cannot do it cheaper.

    In Wichita, Real Development is one of several downtown “political entrepreneurs.” What was originally a $27.8 million project with an approved $9.3 million subsidy from the City of Wichita is now a $51.5 million project seeking an additional $2.2 million subsidy from the City. Real Development boasts that with approved additional City subsidy they will be able to qualify for a $30 million loan from the U.S. Department of Housing and Urban Development — a government guaranteed loan. This “guarantee” is none other than you and me. Our taxpayer dollars are lost if this project fails.

    According to Goody Clancy, the City’s downtown development consultant, there is a market for downtown development in Wichita. Specifically, Goody Clancy consultants found that downtown Wichita demand for residences is 1,000 units over the next five years.

    If such a market truly exists where are the market entrepreneurs and why are they not clamoring to develop? Why are local banks not willing to loan these political entrepreneurs money without a government guarantee? Michael Elzufon, one of the principals of Real Development, states this is a “low risk deal.” Yes, it’s a low risk deal for Elfuzon but I suggest it is a very high-risk deal for the taxpayer.

    The Wichita City Council, as with as many city councils nationwide, continues to insist that economic development in downtown Wichita requires government subsidy. Fear mongering becomes a tactic used when justifying subsidies offered to private enterprise to locate or expand here: “Everyone else is offering them” or “If we don’t subsidize, Company X will go elsewhere or relocate” or “Without subsidy this won’t happen.” Millions of taxpayer dollars have been invested in the name of economic development or downtown revitalization and when projects fail, millions more are spent in an attempt to salvage the project.

    Development succeeds when market entrepreneurs perceive a need and are willing to risk their own capital for success. Anything short of that has historically failed.

    The Myth of the Robber Barons is a must read for anyone interested in the writing on the wall but especially for those with the power to commit taxpayer money to projects that are better left to market entrepreneurs.

  • Kansas historic preservation tax credits: the hearing

    On Wednesday, the Taxation Committee of the Kansas House of Representatives heard testimony on HB 2496, which would expand the historic preservation tax credit program. This program provides tax credits to qualified historic preservation projects. I testified at the hearing, and my written testimony is at Kansas historic preservation tax credits should not be expanded.

    The idea of tax credits confuses some people. Some may confuse credits with a tax deduction. Some may believe that tax credits are given out at no cost to the state. But in fact, the tax credits are quite costly. As I told the committee members, if the state grants a tax credit, and then does not reduce state spending by the amount of the tax credit, other taxpayers in Kansas have to make up the difference.

    That’s one of my core reasons for opposing the tax credits. Since the state does not — and is not likely to — reduce spending by the amount of credits granted, the result is a transfer of money from Kansas taxpayers to the recipients of the credits. But even if the state did reduce its spending, the result would still be a implied decision by the state that it can better decide how to spend money than its citizens can.

    Besides this, the arguments of those in favor of the historic preservation tax credits are self-serving and in some cases misleading. Some of the conferees are involved in projects that were to receive tax credits. They are not happy now that they may not get them.

    Other conferees were local units of government such as Dale Goter, lobbyist for the City of Wichita. Wichita has a big stake in the tax credits, as the renovation of the Broadview Hotel is on hold because the developers may not receive the tax credits. The developers and the city claim that the project is not economically feasible without the tax credits. We don’t really know whether this is true. When government subsidy is available, people have a way of designing project budgets in a way the requires the subsidy. Why would someone turn down free money?

    It should also be noted that the tax credits the Broadview developers are seeking — perhaps $3 million to $4 million — are on top of many millions in subsidy the city has already approved.

    The arguments of other conferees must be questioned. Brenda Spencer of Wamego, who owns a preservation consulting business, told of a project in Leavenworth that will house a company employing 400 people. This results, she said, in an annual payroll of $26 million, with resultant tax dollars flowing to the state and local government.

    The problems with this illustration of the purported success of the historic preservation tax credit program are these: Would the jobs not have been created unless there was a historic property to house the workers? Could the workers work somewhere that wouldn’t require tax credits? These jobs: are they new jobs? Were the workers formerly unemployed, or did they leave other jobs to work in the historic building? To the extent that happened, the jobs, with their tax payments to the state, can’t be counted as new.

    Christy Davis, owner of another preservation consulting firm, testified that since 2001, the tax credit program has leveraged $264 million in private dollars, which she said is a 400% return on investment for the state. The problem with this analysis (it was made by others, too) is that it assumes that none of the projects would have proceeded if not for the tax credits. It credits the program as being the only reason why this activity took place. This is undoubtedly false.

    Further, this analysis treats the state as though it were the owner of these properties. That isn’t true, either.

    Davis also testified that since work on historic buildings is 50% more labor intensive than new construction, the tax credit program has the effect of a jobs creation program. I doubt that the developers of historic preservation projects see creating a lot of jobs as a benefit. To business, workers are a cost to be controlled, not a benefit to be expanded. If the state wants to view historic preservation as a jobs creation program — meaning that more jobs are better than fewer jobs — let the state mandate that, say, power tools can’t be used on these projects. Then even more workers will be needed.

    Can we also agree that owners of firms that profit from a government program qualify as a special interest?

    Goter, Wichita’s lobbyist, also stated in his written testimony: “The return on investment for the public dollar spent on historic renovation is totally recovered in a 10 year span from increased property taxes alone. That return is shared by local and state governments through their respective mill levies.”

    This statement reveals the flaw in the reckoning used by government in making economic development calculations. To government, the return is in the form of increased tax revenue. Many citizens don’t view things the same way. For government to make an investment of taxpayer funds just so it can receive even more tax revenue is appealing to government bureaucrats and politicians who want to expand their sphere of influence and control. But not so much for everyone else.

    For me a lesson I learned from the hearing is how easily those who consider themselves fiscal conservatives can become derailed by programs like this. Olathe Representative Arlen Siegfreid, a member of the Taxation Committee as well as Speaker Pro Tem of the Kansas House of Representatives, offered written and oral testimony in favor of this bill.

    Support of this bill is at odds with his stated positions. On his personal website, under the heading “Fiscal Responsibility” appears this sentence: “However, particularly in times of economic peril, sometimes the ‘wants’ we’ve fertilized with ample resources grow to become ‘needs’ and our well intentioned investments in promising ideas and programs become the dangerous government growth that each candidate swears to defend against at all costs on the campaign trail.”

    The historic preservation tax credit program, as reported in an audit recently completed by the Legislative Division of Post Audit, has grown tremendously from its initial cost. The audit, titled Kansas Tax Revenues, Part I: Reviewing Tax Credits, identifies the historic preservation tax credit as a program that the legislature may want to re-evaluate, as the program is significantly more expensive than originally planned. The fiscal note that accompanied the tax credit legislation when passed in 2001 and revised in 2002 reported an estimated annual cost of $1 million. In 2007, the actual cost was $8.5 million.

    This is an example of a government spending program growing out of control — the type of “dangerous government growth” Siegfreid mentioned above.

    Siegfreid’s website also states: “My subsequent re-elections affirm that notion, and I’m now more committed than ever to reducing the strain government and it’s [sic] failed policies are placing on individual taxpayers — and our local businesses.”

    As mentioned above, when the state grants tax credits, other Kansas taxpayers have to pay more taxes to make up the shortfall in revenue. This is an example of the type of strain Siegfreid says he is against.

    Finally, Siegfreid has authored a tax simplification bill, stating that “Kansas tax policy is too complicated.” Tax credits are an example of increasing complexity of the state’s tax code.

  • Detroit, corporate welfare and Wichita’s future

    The following op-ed from Americans for Prosperity Foundation’s Alan Cobb appeared in today’s Wichita Eagle (the unedited version is below).

    I agree with Cobb. Wichita definitely has a problem with its economic development strategies. Instead of low taxes that will benefit everyone, the Wichita city council and Wichita city hall bureaucrats insist on dishing out subsidies to companies nearly every week. I’ve shared my ideas with the council in testimony like Wichita universal tax exemption could propel growth and articles like Wichita’s economic development strategy: rent seeking.

    Still, there are some council members who, along with Mayor Carl Brewer and some city staff, feel city the doesn’t have enough “tools in the toolbox” for shoveling incentives on companies for economic development purposes.

    Recently The Eagle printed an article by Molly McMillin, a well-respected aviation and business reporter.

    The question asked throughout the article is one that Wichita leaders and citizens have been asking for some time: What can we do to prevent Wichita from falling into the hole that is Detroit?

    A simple answer is to continue throwing money and other goodies to keep the aviation companies. A better answer is we need to get rid of the notion that our elected officials and others have so much forethought to know what will or won’t be successful in 20 or 50 years. They don’t.

    Detroit became the modern tragedy it is, not just because of global competition, poor products or poor management at the Big Three. Other sectors of the Michigan economy weren’t there to pick up the slack, when the auto industry floundered. Michigan put too much focus on the auto industry, to the detriment of the overall business and economic climate.

    While state and local government poured incentives into the Big Three’s trough, the marginal costs of doing business for everyone else crept up.

    It‘s the classic example of the seen vs. the unseen. We see the new factory Pontiac builds. We don’t see the businesses that reduce their size, close or just move. The irony is we will still see the Pontiac factory after it is closed and boarded up.

    For each tax dollar given to the auto industry, one is taken one away from entrepreneurs trying to create the next GM, Ford, Google or Apple. This may not be too bad the first time or the second time, but over years and decades, the results can be significant. The “next big thing” will be created in a state with a better tax and regulatory climate.

    Cessna, Spirit, Boeing, Learjet and Beechcraft are all great companies that produce great products known throughout the world. Kansans and Wichitans are rightly proud.

    Who can predict with any certainty they’ll be in Wichita or even in business in 10 or 30 years? I hope so, and I think they will, but I am not willing to bet Wichita’s future on it.

    We shouldn’t give other individual companies state or local funded goodies, either.

    Lower the tax rates for everyone. After all, the tax breaks and other prizes handed out are recognition that the cost of doing business in a particular are is too high.

    The Kansas Division of Legislative Post Audit last year reported we spent billions of dollars in “economic development” with literally nothing to show for it. Our lawmakers aren’t very good at picking winners and losers.

    When Wichita’s aircraft leaders were asked about Detroit, there was a golden opportunity to ask other business leaders in Kansas and Wichita that same question.

    It is just as likely and maybe more so, that they will determine if Wichita goes the way of Detroit — or does not.

  • Destination ICT rollout presents a look at the future of Wichita

    Destination ICT rollout 2010-02-22Destination ICT presentation.

    Yesterday Rebecca Ryan of Next Generation Consulting presented “Destination ICT.” This is a program designed to “attract and retain talent to Wichita.” It’s sponsored by Young Professionals of Wichita which is an initiative of the Wichita Metro Chamber of Commerce.

    In her talk, Ryan presented evidence that knowledge workers are highly concentrated, and that a relatively small proportion of workers create much of the economic output. “Some workers have a higher economic impact on an economy than other workers.” She said that Wichita must continue to invest in knowledge-based jobs and knowledge-based occupations.

    She said that Wichita employers say that they need 3,000 professional workers over the next six to eight years. But 23 percent of the people Ryan surveyed said they are leaving Wichita in the next four years. She said this would cost Wichita $610 million over the next four years.

    Ryan said Wichita needs to use “intentional design” in which we design an ICT that “people are homesick for.”

    Ryan presented the seven indexes of a “next city” — referring to attributes, attitudes, and amenities that the “next generation” will get excited about. These are:

    • Cost of lifestyle. Can I afford to live here?
    • Earning opportunities. Many families or couples who locate to a town require two jobs.
    • Vitality. Is this a community that invests in parks, trails, and recreation?
    • Learning. This refers to career education for professionals as well as the K-12 public school system.
    • Around town. This refers both to in-town mobility as well as things like the number of flights.
    • Social capital. Does everyone feel they have a stake and a say in the community? Voting rates and crime count here.
    • After hours. What is there to do after work and on weekends?

    Ryan showed a chart, based on a survey of Wichitans, that showed “value vs. perception,” that is, how do Wichitans feel about these indexes as compared to their measured values? Consistently, Wichitans’ perception was lower than the reality.

    Wichita scores well in cost of lifestyle. Wichita scored low in “around town.” Wichita also scored low in earning opportunities. In other categories, Wichita scored about the same as its group of peer cities, which for the purposes of this analysis are Denver, Raleigh, Lexington, Kansas City, Omaha, Oklahoma City, Tulsa, Chattanooga, Fort Worth, Salt Lake City, and Richmond.

    Ryan said that Wichita’s low cost of lifestyle is “a key strength that can be leveraged, particularly in efforts to attract and retain Millennials who are in their early years of earning.”

    Ryan said we need to connect people to Wichita’s career opportunities. She showed two examples — ColumbusTalent.com in Columbus, Indiana, and SmartCareerMove.com in Iowa — of cities or regions that have done this. Also, she said we need to feature employers on high-traffic websites. A “robust internship culture” is valuable, too.

    She also recommended that we make Wichita a more attractive place to work and play, and that is sustainable. She mentioned — as do the downtown Wichita planners — “connectedness.” A quote from a survey participant is “There are parks [in Wichita], but there’s no way to get from one to another … there are no arteries linking the green spaces.” She said that Wichita should have many more miles of bike paths. Our bus transit system is a problem, too, as it takes a very long time to get from one place to another on a bus. She recommended a grid system rather than a hub system as Wichita presently uses.

    Wichitans also needs to convince themselves that Wichita is a great place to live. She said that most people don’t realize Wichita is as large in population as it is.

    She recommended a centralized place for finding information about Wichita such as events. She used OnMilwaukee.com as an example of such a site, noting that Wichita’s UploadWichita.com has not been updated frequently.

    She said that we need to make sure that what people are saying about our community matches the reality. Two-thirds of the people who have moved away from Wichita have thought about coming back. These are the “convinceables,” she said.

    She recommended that if people care about downtown, they should attend Saturday’s design charrette.

    Analysis

    Wichita’s advantage of low cost of lifestyle (is this different from a low cost of living?) is something that we must work to maintain. Actions by Wichita’s city council such as the creation of TIF districts make the burden of paying for government more expensive for everyone in the city except those in the TIF district. Other misguided economic development policies such as tax abatements make it more expensive for everyone but the recipient of the incentive.

    The emphasis on bicycle paths is misplaced. A recent visitor to Wichita, Randal O’Toole, said that bicycle paths are not nearly as useful as city streets for serious commuting and traveling by bicycle.

    With regard to public schools, Wichita is falling behind the rest of the country in educational freedom. Our charter school law gives local boards of education total control over the formation of charter schools, and as a result, there are very few in Kansas. Furthermore, we have no school choice through vouchers or tax credits. Many cities and states are using these programs to implement choice — rather than government monopoly — in education. Wichita lags far behind in this regard. School choice programs, by the way, could be implemented quickly at very low cost, and in fact, could save money.

    Ryan’s promotion of the downtown planning process shows a reliance on centralized government planning. This means a loss of economic freedom for Wichitans, as those who chose not to live downtown will subsidize those who do. Reliance on government planning means that more economic activity in Wichita will be controlled by bureaucrats and politicians. These classes of people have motivations different from entrepreneurs, who must meet the demands of consumers or go out of business. Bureaucrats, especially, do not face such a stern taskmaster.

    I was also troubled by other reliance on government recommended by Ryan. The parks system — which suffers, according to Ryan, from a lack of connectedness — is a creation of government. So here’s an example of a large government program that has produced something other than what is needed, or at least is not optimal. Now Wichita has a new and ambitious program to create a new generation of parks. But what makes us think that the current generation of parks planners can do better than the past?

    Reliance on websites as a way to distribute information and build community in Wichita has been problematic. Ryan noted UploadWichita.com as an example. Its most most recent story is from July 2008, and the most recently uploaded photo is from March 2009.

    More recent efforts by government-sponsored enterprises to promote the city through online efforts are sputtering, too. The Wichita Downtown Development Corporation’s blog — ironically titled Momentum — hasn’t had a fresh post since December 17, even though Wichita is in an intense period of downtown planning.

    There are some efforts such as RokICT and Naked City Wichita that promote events in Wichita. Both sites seem to be in transition at the moment, however, and are not the fresh and copious sources of information that they once were.

  • Assessment of Wichita’s Intrust Bank Arena’s success premature

    Any rational assessment of the success of the Intrust Bank Arena in downtown Wichita must realize that the arena is in its honeymoon period. Will the parade of big-name stars playing to a packed arena continue for long? Will the Wichita Eagle and local television stations continue to breathlessly announce every upcoming event?

    Until initial enthusiasm dies down and the arena has a track record of a year or more, we simply have no idea what the financial performance of the arena will be. That’s what’s important.

    This premature glowing assessment of the arena’s success is dangerous in that it leads us to believe that there is a positive role for large government projects in Wichita. Worse, people are lead to think that taxation is a good way to pay for such things. As an example, the one cent sales tax used to pay for the arena is presently touted as a model for funding other government spending, ranging from Governor Parkinson’s proposal for a sales tax to fund state government to what surely will be a proposal for a sales tax to fund the revitalization of downtown Wichita.

    Proponents say that the sales tax was painless, so why not do it again? Some were sorry to see it expire. As the sales tax that funded the arena was nearing its end, Sedgwick County Commissioner Tim Norton “wondered … whether a 1 percent sales tax could help the county raise revenue.” (“Norton floats idea of 1 percent county sales tax,” Wichita Eagle, April 4, 2007)

    But the tax was not painless. Undoubtedly, the employment landscape was shifted in Sedgwick County because of the tax, and that caused some people to be unemployed. My post Prepare for sales tax-induced job effects now reports on what happened in Little Rock when that city’s arena was built. It would be reasonable to think that similar effects happened here.

    Last year in Portland, a proposal to build a new minor league baseball stadium was found to produce a net job loss. An economics consulting firm reported: “Thus, the Lent’s project would have a net impact of a 182 job-year loss on the City’s economy (a gain of 175 from the construction less a loss of 357 due to reduced spending by households and businesses because of higher taxes).”

    It also concluded that “If those individuals who put their money into baseball via taxes are allowed to put that money into the private market, that same amount of money would actually yield more jobs.” Reportedly, Portland’s mayor “appears to have sat on” the study and was not eager to release it.

    This effect — a shiny, highly touted public works project being much more visible than private dispersed economic activity — was known long ago and explained by Henry Hazlitt in his classic work Economics in One Lesson:

    Therefore for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $1,000,000 taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project.

    We were also told that the arena would be a driver of downtown development. But in its first test, the Wichita City Council evidently didn’t believe what arena boosters told them, as it voted to grant several million dollars in subsidy to the developer of a hotel just a few blocks from the arena. Will all future development around the arena — if it happens — require similar subsidy?

  • Kansas historic preservation tax credits audit reveals inefficiency, data problems

    Yesterday the Kansas Legislative Post Audit Committee received an audit recently completed by the Legislative Division of Post Audit. The audit, titled Kansas Tax Revenues, Part I: Reviewing Tax Credits, revealed that the historic preservation tax credit program is not efficient. Further, the Department of Revenue is not accurately tracking the cost of the program.

    Historic preservation tax credits provide funds to those who wish to renovate qualified historic buildings. Last year the legislature placed a cap on the dollar amount of credits that could be issued, and that caused some developers in Wichita to complain that their projects were no longer economically feasible. The city has made expansion of the amount of available credits a legislative priority. Wichita Governmental Affairs Director Dale Goter (in plain language, the city’s lobbyist) was present at the committee hearing, as was I.

    In the audit, the historic preservation tax credit is identified as a program that the legislature may want to re-evaluate. In this case, the program is significantly more expensive than originally planned. The fiscal note that accompanied the tax credit legislation when passed in 2001 and revised in 2002 estimated an annual cost of $1 million. In 2007, the actual reported cost was $8.5 million.

    The audit also finds that the historic preservation credit is not cost-effective:

    The Historic Preservation Tax Credit isn’t cost-effective. That credit works differently than the other three because the amount of money a historic preservation project receives from the credit is dependent upon the amount of money it’s sold for. Our review showed that, on average, when Historic Preservation Credits were transferred to generate money for a project, they only generated 85 cents for the project for every dollar of potential tax revenue the State gave up.

    The audit also found that there were data recording problems at the Kansas Department of Revenue regarding the tax credits. The audit found that some tax credits weren’t recorded in a tracking database, even though the credit had already been claimed on a tax return. Over a five-year period, about $6 million in tax credits was under-reported by the Department of Revenue. This is the information that lawmakers had concerning the cost and performance of the tax credit program.

    The audit noted “The Department doesn’t have sufficient computer controls to ensure that its database entries are accurate. … Finding problems like these in a relatively small sample raises questions about the integrity of the Department’s tax credit information.”

  • David Burk, Wichita developer, overreaches

    Today’s Wichita Eagle contains a story about a well-known Wichita real estate developer that, while shocking, shouldn’t really be all that unexpected.

    The opening sentence of the article (Developer won tax appeal on city site) tells us most of what we need to know: “Downtown Wichita’s leading developer, David Burk, represented himself as an agent of the city — without the city’s knowledge or consent — to cut his taxes on publicly owned property he leases in the Old Town Cinema Plaza, according to court records and the city attorney.”

    Some might say it’s not surprising that Burk represented himself in the way the Eagle article reports. When a person’s been on the receiving end of so much city hall largess, it’s an occupational hazard.

    And when you’ve been the beneficiary of so much Wichita taxpayer money, you might even begin to think that you shouldn’t have to pay so much tax anymore.

    At the state level, you might seek over a million dollars of taxpayer money to help you renovate an apartment building.

    Burk has certainly laid the groundwork, at least locally. A registered Republican voter, Burk regularly stocks the campaign coffers of Wichita city council members with contributions. These contributions — at least for city council candidates — are apparently made without regard to the political leanings of the candidates. How else can we explain recent contributions made to two city council members who are decidedly left of center: Lavonta Williams and Janet Miller? Burk and his wife made contributions to their campaigns in the maximum amount allowed by law.

    This is especially puzzling in light of Burk’s contributions to campaigns at the federal level. There, a search at the Federal Election Commission shows a single contribution of $250 to Todd Tiahrt in 2005.

    It’s quite incongruous that someone would contribute to Tiahrt, Williams, and Miller. Except Williams and Miller can — and have — cast votes that directly enrich Burk. Politicians at the federal level don’t have the same ability to do that as do Wichita city council members. Well, at least not considering Wichita city business.

    So which is it: is Burk a believer in Republican principles, a believer in good government, or someone who knows where his next taxpayer handout will come from?

    Burk’s enablers — these include Wichita’s lobbyist Dale Goter, Wichita Downtown Development Corporation president Jeff Fluhr and chairman Larry Weber, Wichita City Manager Robert Layton, Wichita economic development chief Allen Bell, and most importantly Wichita Mayor Carl Brewer and various city council members — now have to decide if they want to continue in their efforts to enrich Burk. Continuing to do so will harm their reputations. The elected officials, should they run for office again, will have to explain their actions to voters.

    At the state level, the bill that will enrich Burk will likely be voted on in the Kansas Senate this week. Then, similar action may take place in the Kansas House of Representatives. Let’s hope they read the Wichita Eagle in Topeka.