Voice For Liberty

Tag: Wichita city government

  • WaterWalk hotel subsidy passes

    Not that it matters much now since the measure has passed, but here are a few things that haven’t been discussed much regarding the subsidy to a proposed hotel in Wichita’s WaterWalk development.

    Good public policy requires tax fairness

    When people pay taxes, they feel that their tax payments go towards funding the general operation of government, including paying for some services that benefit them specifically as well as everyone else. Police and fire protection, for example.

    There’s also the idea of joint sacrifice. Citizens may not like paying taxes, but most are comforted in the knowledge that everyone else pays, too.

    The tax policy surrounding this proposed hotel, however, violates sound principles of public policy. On January 12 the developer of this proposed hotel told this council that the hotel would pay property taxes. That’s true, but only on the surface. The property taxes this hotel will pay for many years will go towards retiring bonds that provided benefits exclusively for the WaterWalk development, not the general operation of government.

    So when citizens pay their property tax — knowing that some goes to provide public safety protection for their home and neighborhood — that doesn’t apply to the proposed hotel. But will it consume fire and police protection, and other city services? Of course it will, but it won’t be sharing in the cost of providing those services, as do regular citizens and businesses that don’t operate in this special tax-privileged environment.

    The same goes for the transient guest tax, or bed tax, that guests of this hotel will pay. That money, according to city budget documents, is designed to be used for certain specific purposes. “The Tourism and Convention Fund, financed through a six percent transient guest tax on hotel and motel rooms in Wichita, provides monies to support tourism and convention, infrastructure, and promotion of the City.” Further, from the same document: “Fund priorities are: 1) debt service for tourism and convention facilities, 2) operational deficit subsidies and 3) care and maintenance of Century II.” But in the case of this proposed hotel, the transient guest tax generated by the hotel will be used to pay off bonds that benefit only this hotel. Is this consistent with the city’s stated policy for use of the transient guest tax?

    Who can we trust?

    There’s a big issue of trust at stake here. Several members of this council, along with the mayor and city manager, last month heard a consultant from Goody Clancy (the firm that’s helping plan the revitalization of downtown Wichita) tell Wichita that downtown hotel occupancy rates are high, above the level that indicates a need for new hotels. In the consultant’s own words: “There’s a market for additional hotel rooms downtown.”

    The finding that there’s a market for hotel rooms should mean that there’s no need to pay someone to build a hotel downtown.

    We can’t have it both ways. We can’t have our planning consultant telling us there’s a market at the same time we’re ready to believe a hotel developer who tells us it’s unprofitable to build a hotel downtown.

    In light of the Goody Clancy findings, we need to examine the assumptions used to produce the “gap” in financing that the hotel developer claims makes it unprofitable to develop this hotel. It’s not sufficient to check the arithmetic, as Mr. Bell tells us his department does. We need to seriously examine those assumptions, remembering that they are provided by someone who has a multi-million dollar motive to show the existence of a financing gap that the city will fill.

    We need to also remember that as long as this city is willing to fill financing gaps, no one will submit a proposal to this city without showing a gap. This sets the template for the development of the remaining empty parcels in WaterWalk, and for all of downtown, for that matter.

    This issue of trust extends to Jack DeBoer, the WaterWalk owner, telling us that he doesn’t want any more city money. In response to citizen inquiry, the city has produced a statement of sources and uses of funds that shows that the money to be paid to DeBoer won’t come from the city’s contribution to the project.

    This contention would be laughable if it wasn’t disingenuous and self-serving. It’s not credible to tell citizens that money from one source is used only for one purpose. The fact that the city is making a contribution to the hotel developer makes the payment to DeBeor possible. It doesn’t matter whose pocket the dollars come from. As far as public policy is concerned, all dollars are the same.

    Leveling the playing field?

    Some on this council have said that the subsidy provided to this proposed hotel actually levels the paying field instead of distorting it. What is the source of the burden that downtown developers face? Often it is said that land assembly issues are troublesome, but that isn’t the case for the proposed hotel.

    What, exactly, are the difficulties that this proposed hotel faces that require city subsidy?

    Pursuit of conventions: good public policy?

    One of the reasons Wichita city leaders say we need to provide subsidy to a proposed hotel in the downtown WaterWalk development is that the rooms are needed to support the city’s effort to gain convention business.

    But the convention business is in a structural decline that has been declining for many years. At the same time many cities — both large and small — have built vast conventions centers and related infrastructure. The promised economic development impact of this public investment rarely materializes, but cities continue to pour in public investment, chasing something that just isn’t there.

  • Wichita’s pursuit of convention business: a wise strategy?

    One of the reasons Wichita city leaders say we need to provide subsidy to a proposed hotel in the downtown WaterWalk development is that the rooms are needed to support the city’s effort to gain convention business.

    On its face, this pursuit of convention business seems like a noble effort by city leaders. Vast streams of economic development will follow if they are successful, they say. Providing subsidy to a hotel in support of this effort, they say, should be a simple decision. Especially when supporters like Wichita city council member Jeff Longwell tell us that much of the subsidy to the hotel will be paid by visitors to Wichita.

    But I’ve not seen discussion in Wichita on whether this pursuit of convention business is wise. Heywood T. Sanders, who is professor in the Department of Public Administration at the University of Texas at San Antonio, is a noted critic of public efforts to chase convention business for economic development. His report 2005 Space Available: The Realities of Convention Centers as Economic Development Strategy was published by the left-leaning think tank The Brookings Institution. It provides a look at the realities of the convention trade.

    Heywood writes that convention center business has been on the decline, and it started well before the terrorist attacks in 2001. In a section titled “Trends: Portrait of a Faltering Industry” we can read that attendance is down, exhibit space demand is down, and hotel room demand in cities has fallen too.

    The author notes that the decline in convention business is a structural decline: “[Reasons for decline] are the product of industry consolidation, particularly in the hardware and home improvement industry, reductions in business travel in the face of increasing cost and difficulty, and alternative means of conveying and gathering information.” These are not cyclical trends that are likely to reverse in the future.

    Despite shrinking demand, cities are building more convention space: “Despite diminishing demand, the last few years have seen a remarkable boom in the volume of exhibit space in U. S. convention centers.” The building of larger convention centers in many cities means that more cities are able to host the larger events, or, cities can now host several smaller events simultaneously. The result, says the author, is fierce competition for both large and small events.

    Then, what about the costs? The author introduces a section on costs with: “The studies that justify both the new center space and the publicly-owned hotels paint a picture of tens of thousands of new out-of-town visitors and millions of dollars in economic impact. Despite that rhetoric, these projects carry real risks and larger potential costs, particularly in an uncertain and highly competitive environment.”

    The convention center is just the start of costs: “A new [convention] center is thus often followed by a subsidized or fully publicly-owned hotel.” Wichita, of course, has a fully publicly-owned hotel, the large 303-room Hyatt. Now Wichita seeks to subsidize a hotel in the WaterWalk development. This proposed hotel does not provide as many rooms as Wichita convention planners say the city needs, so it is likely not to be the last such proposal for a subsidy to hotel developers.

    Other things Heywood says that are likely to be proposed are a sports arena. Wichita, of course, just opened a taxpayer-financed and government-owned facility. Entertainment, retail, and cultural attractions are often proposed, he writes, and Wichita downtown planners have indicated their desire for these. Downtown boosters are likely to propose a sales tax to support these efforts.

    The conclusion to this paper describes Wichita’s current situation and foreshadows what is likely for the future of Wichita:

    But if taxing, spending, and building have been successful, the performance and results of that investment have been decidedly less so. Existing convention centers have seen their business evaporate, while new centers and expansions are delivering remarkably little in terms of attendance and activity.

    What is even more striking, in city after city, is that the new private investment and development that these centers were supposed to spur — and the associated thousands of new visitors — has simply not occurred. Rather, city and convention bureau officials now argue that cities need more space, and more convenience, to lure those promised conventions. And so underperforming convention centers now must be redeemed by public investment and ownership of big new hotels. When those hotels fail to deliver the promises, then the excuse is that more attractions, or more retail shops, or even more convention center space will be needed to achieve the goal of thousands of new visitors.

    We already see some of this excuse-making taking place: Private investment in downtown Wichita has been weak, it is said, because there’s not yet a critical mass of development. It is promised by downtown boosters that given enough public money critical mass will be achieved, and private investment will rush in. But since there is no definition of what constitutes critical mass, this excuse is always available to justify failure.

    Listen to an interview with Sanders from 2009. A transcript of an interview with Sanders from 2004 is at “A Lot of Hooey”: Heywood Sanders on Convention Center Economics.

  • Arizona case rules on economic development subsidy

    In its press release titled Arizona Supreme Court Strikes Down Future Taxpayer Subsidies, the Goldwater Institute reports on a ruling by the Arizona Supreme Court that dealt a blow to government subsidies for the purpose of economic development.

    This is an important topic in Wichita, as city leaders nearly every week grant some form of subsidy in the name of economic development. Presently the city council is considering subsidy of over $2.5 million to a developer of a downtown hotel. The planning for the revitalization of downtown Wichita, also currently underway, is likely to require massive subsidy, too

    In the release, the Goldwater Institute explains the ruling:

    A Maricopa County Superior Court judge upheld the $97.4 million subsidy of the CityNorth shopping center by the City of Phoenix, basing his decision on “indirect benefits” such as jobs, sales tax revenues, and the creation of an urban core. But such indirect benefits “are not consideration under contract law,” the Supreme Court concluded in its opinion written by Justice Andrew Hurwitz. In reality, the only tangible benefit received by the City, the Court ruled, was 200 parking spaces, which the Court found unlikely to be worth $97.4 million.

    The Institute’s Clint Bolick said “The ruling should stop schemes that government concocts to subsidize developers based on grandiose promises that often fail to materialize.”

    Jobs, sales tax (and other tax) revenues, urban core. That’s just what Wichita is trying to create.

    Grandiose promises failing to materialize? What, in Wichita? Do we have these?

    What would happen in Kansas if such a suit was filed?

  • Urban planning to be explored in Wichita

    As Wichita is presently engaged in a downtown planning process that holds the promise of more centralized planning, more government spending, and tax increases, Wichitans need to be aware of alternatives.

    Noted author and Cato Institute Senior Fellow Randal O’Toole will be in Wichita next week for several events. O’Toole is author of The Best-Laid Plans: How Government Planning Harms Your Quality of Life, Your Pocketbook, and Your Future and more recently Gridlock: Why We’re Stuck in Traffic and What to Do About It.

    O’Toole’s biography at the Cato Institute states:

    Randal O’Toole is a Cato Institute Senior Fellow working on urban growth, public land, and transportation issues. O’Toole’s research on national forest management, culminating in his 1988 book, Reforming the Forest Service, has had a major influence on Forest Service policy and on-the-ground management. His analysis of urban land-use and transportation issues, brought together in his 2001 book, The Vanishing Automobile and Other Urban Myths, has influenced decisions in cities across the country. In his most recent book, The Best-Laid Plans, O’Toole calls for repealing federal, state, and local planning laws and proposes reforms that can help solve social and environmental problems without heavy-handed government regulation. O’Toole is the author of numerous Cato papers. He has also written for Regulation magazine as well as op-eds and articles for numerous other national journals and newspapers. O’Toole travels extensively and has spoken about free-market environmental issues dozens of cities. An Oregon native, O’Toole was educated in forestry at Oregon State University and in economics at the University of Oregon.

    O’Toole will deliver a free public lecture titled “Is There a Better Alternative to Urban Planning?” on Thursday February 4. The location is the Bank of America auditorium at Douglas and Broadway, starting at 7:00 pm.

    The Kansas chapter of Americans for Prosperity is the sponsor for this event. While there is no charge for admission to the lecture, it is helpful if those planning to attend would register by clicking on Is There a Better Alternative to Urban Planning?

  • With downtown Wichita hotels doing well, why the need for subsidy?

    At a recent presentation by Wichita’s downtown revitalization planning firm Goody Clancy, data was presented that is at odds with the city’s plans.

    Goody Clancy consultants presented data showing that downtown Wichita hotels are doing better than hotels in the entire Wichita market. Data from the charts shows that Wichita market hotels command an average daily rate of about $78. The rate for downtown hotels is about $110.

    Occupancy rates tell a similar story. For all Wichita hotels the occupancy rate is about 65%, while for downtown hotels the rate is 70%.

    According to Goody Clancy consultant Sarah Woodworth, when occupancy rates are at 65% or higher, the area is ready for new hotel rooms. So it seems that more hotels are needed in downtown Wichita, and that new hotels could be profitable.

    But we’re getting a different story from Wichita’s bureaucratic class. According to them, a proposed Fairfield Inn in the downtown WaterWalk development is not feasible unless the city supplies some $3 million in subsidy to the developer.

    This is according to Wichita Urban Development chief Allen Bell, who says there is a “gap” in the business plan for the proposed hotel. Unless the city steps in and fills the gap, the hotel won’t be built, according to Bell.

    The figures that show the gap, however, are provided by someone who has a multi-million dollar motive to create a gap. Bell says his office checks the arithmetic on these figures, but that doesn’t count for due diligence, especially with the city’s recent history of overlooking important facts about proposed projects.

    Here’s the real question: with the city’s planning firm saying the downtown Wichita hotel market is strong with the market clamoring for new rooms, why does the city say a new hotel can’t be built without subsidy?

  • Real estate development to be topic at Pachyderm Club

    At the Wichita Pachyderm Club this Friday, Wichita real estate developers Steve Clark and Johnny Stevens will speak to members and guests on “The Waterfront, A History of a Private Development.”

    All are welcome to attend Pachyderm club meetings. The program costs $10, which includes a delicious buffet lunch including salad, soup, two main dishes, and ice tea and coffee. The meeting starts at noon, although it’s recommended to arrive fifteen minutes early to get your lunch before the program starts.

    The Wichita Petroleum Club is on the ninth floor of the Bank of America Building at 100 N. Broadway (north side of Douglas between Topeka and Broadway) in Wichita, Kansas (click for a map and directions). Park in the garage just across Broadway and use the sky walk to enter the Bank of America building. Bring your parking garage ticket to be stamped and your parking fee will be only $1.00. There is usually some metered and free street parking nearby.

  • More questions surround WaterWalk hotel proposal

    Yesterday the Wichita Eagle printed a letter from citizen activist John Todd concerning the proposal for City of Wichita subsidy for a hotel in the downtown WaterWalk development. This is the unabridged version of the letter.

    In 2002 elected city officials leased a prime 20-acre parcel of city owned downtown land known as the East Bank to the WaterWalk developers for $1 per year for 99 years. The lease contained a subordination clause that allowed the developers to place new first mortgage financing on improvements (buildings) they made to the property, thus leaving the publicly owned land in second position to new first mortgage financing. This land was therefore subject to foreclosure action and loss in the event the developers defaulted.

    The Wichita Eagle reported that WaterWalk developers have received an estimated $41 million of taxpayer-subsidized stimulus money since the inception of this public/private venture. In addition to essentially free land, government officials have placed the project in a tax increment financing district and have utilized the STAR bond programs, both of which transfer tax revenues away from the public treasury and into the hands of the private developers. The Eagle also reported that WaterWalk developer Jack DeBoer was buying out his other WaterWalk venture partners and said there would be no need for additional government subsidy

    Just days prior to the January 12th City Council meeting the public learns that a new proposed WaterWalk hotel developer will ask the Council for a letter of intent approval seeking millions of dollars more of public subsidized funds.

    I feel certain that the letter of intent would have been unanimously approved had not several concerned citizens been there asking for a public hearing process that would allow citizens the opportunity to examine this project. (A video of that meeting can be seen at the city’s website by clicking on Wichita City Council meeting, January 12, 2010.)

    Is the WaterWalk hotel developer the only hotel bidder for this public/private partnership? Will our City Council issue a RFP (Request for Proposals) from other developers? Perhaps there is another private developer who will build the hotel with less public stimulus money or none. With massive public subsidy already given, why hasn’t hotelier DeBoer built a hotel on the property? He has stated he has no need for additional public money.

    How much money will, if any, is Mr. DeBoer receiving from the hotel developer for transferring the $1 per year for 99 year least on the .8-acre parcel of WaterWalk land? Who owns the parking garage next to the proposed hotel site, and how much money will the hotel developer be paying to use 100 parking spaces?

    As stewards of the public trust in the WaterWalk public/private partnership, our Mayor and City Council have an obligation to the taxpayers to hold a meaningful public forum to discuss the public’s interests in this public/private project. It needs to be held in a public forum similar to those held by Sedgwick County Commissioners.

    Local officials have locked us into an expensive public/private partnership with massive taxpayer provided benefits accruing to the private developer. Isn’t it time for the interests of the “public” portion of this partnership to be protected? Don’t Wichitans deserve the opportunity to discuss this project before additional public money is promised once again to developers?

  • At Wichita city council, does the field tilt?

    At the January 12 meeting of the Wichita City Council, several citizens and one council member addressed the “unlevel playing field” and its implications for development in downtown Wichita.

    Speaking about the unlevel playing field, council member Janet Miller said: “My own philosophy on that would say that really, incentives are often used to actually level the paying field.” Referring to downtown Wichita, she said that there may be conditions that make development more costly, or there may be other conditions that make development more difficult.

    Miller didn’t name specific factors, but often land assembly issues are mentioned as an impediment to developing in downtown Wichita. A parcel may be owned by many parties, the story goes, and it can be difficult and expensive to contact all parties and come to agreement with them.

    But land assembly is not an issue with the proposed hotel in WaterWalk. There is no doubt as to land ownership. It’s just one party, and one who is willing to lease it for $1 per year.

  • Concerning Wichita’s WaterWalk, I have a few questions

    As the City of Wichita decides whether to offer subsidy to a hotel in the downtown WaterWalk development, there are a few questions that deserve answers. Most of these questions are my own, but some are questions that people have told me I should ask.

    What is the development budget for this project? I’ve been told by several sources that $100,000 per room seems to be too high for a limited-service hotel like this.

    What are the terms of the ground lease? Will the developers of the proposed hotel be paying any private person or entity for the rights to lease the ground under the hotel? If so, who and how much?

    What are the terms of the parking space arrangement? Will any private person or entity be receiving payment for allowing the use of the parking spaces? If so, who and how much?

    Jack DeBoer, owner of WaterWalk, has recently been quoted saying he doesn’t want any more of Wichita’s money. Will any of the city subsidy or any of the cost of this proposed hotel be flowing to him?

    The city says it has performed a “gap analysis” which indicates that city subsidy is needed for the proposed hotel to be financially feasible. May we see that analysis? Are the underlying assumptions used in this analysis realistic? What is the source of these assumptions? Do these assumptions come from someone who has a financial motive in showing a financing gap?

    Could the project be modified so that there is no financing gap?

    What is it about downtown Wichita that makes it unprofitable to make an investment without subsidy from the city and other government? Can we fix any problems so that development may proceed without taxpayer subsidy?

    City council members spoke of a “critical mass” of hotels developing downtown, but the proposed hotel will have an exclusivity period of four years in WaterWalk. Will the developer of the proposed hotel consider proceeding without such a restrictive agreement?

    The stated reason for the need for the proposed hotel is to boost the city’s convention business. What, precisely, is the benefit of convention business to Wichita? Is the claimed benefit general, applying to a broad sector of the city’s economy? Or do primarily certain sectors of the economy benefit?

    What is the estimate of the amount of transient guest tax this hotel will generate?

    According to the Wichita budget: “The Tourism and Convention Fund, financed through a six percent transient guest tax on hotel and motel rooms in Wichita, provides monies to support tourism and convention, infrastructure, and promotion of the City.” Further, from the same document: “Fund priorities are: 1) debt service for tourism and convention facilities, 2) operational deficit subsidies and 3) care and maintenance of Century II.” In the case of this proposed hotel, the transient guest tax generated by the proposed hotel will be used to pay off bonds that benefit only this hotel. Is this consistent with the city’s stated policy for use of the transient guest tax?

    There’s a move in Topeka to limit or eliminate tax exemptions, including sales tax exemptions such as planned for this hotel. Is the city confident it can secure the planned sales tax exemption?

    At the city council meeting, Jim Korroch, the developer of the proposed hotel, said that the hotel will pay property taxes. Will those property taxes go to fund the general operations of government? Or will they be used to retire bonds that were issued for the specific benefit of the WaterWalk development?

    What is the financial performance of the city-owned Hyatt Hotel? Are all floors back in operation? On September 13, 2004 the Wichita Eagle reported “Wichita police arrested one man Sunday after discovering a meth lab at the Hyatt Regency Wichita.” Are we sure there are no meth labs operating there today?

    Other articles on this issue include: