Voice For Liberty

Tag: Wichita city government

  • Public forum on WaterWalk hotel proposal

    On Monday January 25, a group of citizens will hold a public forum concerning the proposal for a hotel in the WaterWalk development in downtown Wichita.

    The event is from 7:00 pm to 8:00 pm in the meeting room of the Wichita Downtown Public Library. The meeting room is on the top floor of the library.

    Tirza Heflin is the organizer of this forum. She says:

    “You and the public are invited to join a group of interested citizens to discuss the proposed Water Walk hotel.

    An invitation to join this public forum discussion has been sent to Wichita Mayor Carl Brewer and all of the Wichita City Council members.

    The forum is being organized by a group of citizens who are interested in downtown redevelopment, and want to see our downtown thrive. Several citizens have questions about the public sector interests in the WaterWalk public/private partnership before our City Council considers the letter of intent for this project on February 2, 2010.”

    Contact Tirza Heflin at 316-201-8353 or tvgustadj_88@yahoo.com.

    The Facebook page for this event is Public forum on WaterWalk hotel proposal.

  • Estes Park repeals TIF district

    A city in Colorado has voted to repeal a TIF district. Wichitans ought to take notice. Randal O’Toole, the author of the post, notes the complexity of the TIF mechanism. This is in line with testimony I’ve delivered to the Wichita City Council, in which I characterized TIF districts as “a confusing arrangement that hides the reality and size of the subsidy given to TIF developers.” The benefit, I said, is 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.”

    It’s likely that more TIF districts will be proposed as part of the revitalization of downtown Wichita, as our planning firm, Goody Clancy, has said that Wichita should “Continue to employ established TIF funding mechanisms.”

    O’Toole will be visiting Wichita on Thursday and Friday February 4 and 5 for a series of events, including a public lecture that Thursday evening. Details will follow.

    I’ve reproduced the post in its entirety below. The original version, complete with many links to supporting documents, is at Estes Park Repeals TIF District.

    In what leaders hope to be the start of a movement, nearly 61 percent of voters in the city of Estes Park, Colorado decided to abolish the city’s urban-renewal district. The measure, which was put on the ballot through an initiative petition, also requires voter approval before the city creates another one.

    Supporters of the urban-renewal district made the usual claim that tax-increment financing doesn’t cost anything. In fact, it takes money that would otherwise go to schools and other urban services and puts it in a slush fund for city officials to use to benefit favored developers.

    The city made every effort to keep the measure from passing, including scheduling it during a time when many voters were out of town and it would be a single-issue election, thus depressing voter turnout. Despite this, voter turnout exceeded 60 percent.

    After the election, the Mayor Bill Pinkham announced that the city may challenge the vote in court. However, he later backed away, perhaps because he couldn’t find any legal grounds to contest it.

    The problem with tax-increment financing is that it is just complicated enough that it is easy to confuse people about it. This makes it hard for critics in major cities such as Denver or Portland to gather enough signatures to put a similar measure on the ballot in their cities. But if some more smaller cities pass such measures, it may inspire similar campaigns in the big cities.

  • Goody Clancy market findings presented to Wichita audience

    Goody Clancy market findings 2010-01-13 08On January 13, 2010, planning firm Goody Clancy presented some findings to a Wichita audience at the Scottish Rite Temple.

    Last Wednesday Boston planning firm Goody Clancy presented some preliminary findings regarding the planning process for the revitalization of downtown Wichita. While the presentation contained some material specific to Wichita, those looking for a preview of how the planning process will deliver its promised benefits were likely to be unsatisfied.

    As always when talking about downtown, there was talk about how a thriving downtown is necessary for a healthy Wichita and region. One presenter said “If you have a healthy downtown, you will have a healthy region. If the downtown starts to fail, the region will start to fail.” Believers of this mantra, however, are not able to supply evidence as to the truth of this.

    A theme repeated over and over is that downtown development will succeed as downtown becomes more walkable.

    David Dixon, the Goody Clancy principal for this project, told how that in the future, Wichitans will be able to “enjoy the kind of social and cultural richness” that is found only at the core. “Have dinner someplace, pass a cool shop, go to a great national music act at the arena, and then go to a bar, and if we’re lucky, stumble home.”

    Dixon said that this planning effort is grounded in data and hard analysis. As an example, Dixon promoted Walk Score as a measure of the value we place in downtown. Walk score, according to its website, “calculates the walkability of an address based on the distance from your house to nearby amenities. Walk Score measures how easy it is to live a car-lite lifestyle — not how pretty the area is for walking.”

    I’ve found that the walk scores are not credible measures. The score for 525 E. Douglas, the block the Eaton Hotel is in and mentioned by Dixon as a walkable area, scored 91, which means it is a “walker’s paradise.” Examination of the results, however, leads us to have little confidence in this measure.

    For example, an important “amenity” — that’s a favorite word of planners — that should be nearby is a grocery store. The details for the walk score indicates a grocery store just 0.19 miles away. It’s “Pepsi Bottling Group,” located on Broadway between Douglas and First Streets. Those familiar with the area know there is no grocery store there, only office buildings. Those familiar will also know that the nearest grocery is several miles away.

    For a nearby library, it lists Robert F. Walters Digital Library, which is a specialized geological library costing $1,500 per year to use — over the internet.

    For a drug store, it lists Rx Doctor’s Choice, which is a specialty store selling oral chelation treatments. It’s nothing at all like a general-purpose drug store. One of those is nowhere nearby.

    Sedgwick County projected employmentSedgwick County projected employment, according to planning firm Goody Clancy. This excerpt starts with 2009.

    Some claims and evidence just don’t make sense. A slide titled “The Sedgwick County economy is projected to grow” contained a graph that, while showing a projected increase in employment for the next few years, becomes flat for many years. This slide was used twice in different presentations.

    Some of the most specific information about Wichita was contained in the residential and hotel market presentations. Regarding the hotel market — the presentation is available at the WDDC website — the preliminary conclusions are: there is market to support additional hotel rooms downtown, limited service hotel niche is a near term opportunity, cluster hotels in mixed-use, pedestrian-oriented environments, and to maximize leverage, locate hotels near convention center.

    The residential market findings are not available online at this time, but the main finding is that downtown Wichita should be able to support 1,000 new residential units over the next five years, about 200 new units per year. The mix, according to the presenter, should be 134 rentals, 48 condominiums, and 18 live-work spaces. Rental prices would range from $400 to $2,100, while purchase prices would range from $150,000 to $400,000.

    Some speakers from Goody Clancy revealed a condescending attitude towards those who hold values different from this group of planners. One presenter said “Outside of Manhattan and Chicago, the traditional family household generally looks for a single family detached house with yard, where they think their kids might play, and they never do.”

    Regarding office buildings, walkability again was a theme: “We need to offer an urban product. What we do not need is a large office building surrounded by a sea of parking and call that a downtown office building.” But parking and transit linkages are important, the presenter said.

    The presenter on retail topics had been in Wichita only once for a period of four days — “not a lot” by his own admission. His presentation was mostly generic and could have been presented at any city.

    In his closing remarks, Dixon noted that there was no disagreement among the presenters and panelists, except in one case over parking, and that really wasn’t a disagreement after all. He also said that the presentation tonight was not just an infomercial for downtown, but a presentation of data about our markets.

    In the short time devoted to questions from the audience — about ten minutes from a two hour meeting — several questioners wasted much time delivering their own personal stories instead of asking questions.

    One question asked about cooperation between the downtown planning effort and a committee working on homeless issues. The answer by Dixon was noncommittal.

    Another question asked about the use of eminent domain and the use of public subsidy. Dixon replied that eminent domain has been used and misused, and is much less available at this time. Regarding public investment — and he stressed the word “investment” — he said this is a market-driven effort, and there will be a role for public investment. The kinds of public investments are still to be determined, he said.

    The fact that these investments are still to be determined is unsettling. Downtown revitalization boosters promote ratios of up to fifteen to one of private investment to public investment. This is after a decade of public investment in downtown Wichita has produced private investment approximately equal to public investment. If Goody Clancy has a method of going from one to fifteen, it wasn’t revealed at this meeting.

    It’s starting to be revealed that the fifteen to one returns will be realized after “critical mass” is achieved. It appears that public investment will be at the front, with private investment blossoming later — according to plans. As there is no definition of what constitutes critical mass, any criticism can always be deflected by claiming that that mass has not yet been achieved.

    Dixon is correct in that the use of eminent domain is more restricted than in the past. But in Kansas, the threat of its use is still available, and may be as effective as its actual use.

    After the event I received feedback from two residents of Wichita who are skeptical of downtown planning. One said “I thought the answers to questions they gave were very generic and broad. Answers that could have applied to any city or town anywhere.”

    Another made an observation about the composition of the discussion panel members: “Something else I observed was that the panel existed of mostly those that seem to be already on the ‘in’ when it comes to elected officials in the city. Now I recognize that there are two ways of looking at this situation. People can be insiders either because they are active in developing downtown and are the ‘go to’ guys, or they are developing downtown because they are insiders and know where the money is to get the projects done to line their pockets. I really do not care which is the case with the people that are on the panel, but to me I just wish that there was a larger pool of people that the WDDC and Goody Clancy chose from to sit on the panels.”

  • Waterwalk hotel issue receives public input

    Tuesday’s meeting of the Wichita city council featured a lengthy discussion of a proposal that in the past, might have been passed without much public discussion. Instead, some useful information emerged, and the meeting opened the possibility of more citizen input not only on this item, but also on future city initiatives.

    The issue is a proposal for a hotel in the city’s WaterWalk district. My preview of the matter, which includes the city-supplied agenda report, is at Waterwalk hotel deal breaks new ground for Wichita subsidies.

    As an example of information that was revealed at this meeting, there was concern expressed by council member Sue Schlapp that the proposed hotel might be granted a period in which it would be the only hotel in WaterWalk. Bell replied that we don’t have the answer to this question, and that this has not been addressed. Later, a representative of WaterWalk revealed that the proposed hotel had an agreement that it would be the only hotel in WaterWalk for three years and possibly up to four years.

    This is an important piece of new information, as downtown boosters continually speak of the idea of “critical mass.” The idea, I believe, is that multiple hotels may feed off the presence of each other, instead of being in competition with each other. Or it might be that if other hoteliers see this proposed hotel doing well, they’ll be induced to build one on their own. But if there will not be another hotel in WaterWalk for at least three years, that puts a damper on the formation of critical mass. Hotels, of course, could be built in other parts of downtown.

    Council member Lavonta Williams asked about the survey the city is conducting to see if the proposed hotel would harm the city-owned Hyatt Hotel: Will it look at nearby hotels that the city doesn’t own? Bell said the consultant may look at those hotels, interview their management, and may be able to offer some information as to that. But Bell said that the present agreement considers only the Hyatt Hotel.

    Council member Jell Longwell said we’re sensitive about the burden on our local taxpayers. But the taxes on the proposed hotel would fall on out-of-area taxpayers, he said. His clear implication was that taxing visitors to our city is okay. The problem is that many visitors to a city pay attention to taxes. When a $100 hotel bill blooms to $114.30 with taxes, people notice, even business travelers whose employers may pay the bill.

    (The taxes are 6% for the transient guest tax or “bed tax,” 6.3% for our present sales tax, and another 2% for the Community Improvement District tax. Then if the governor has his way, there will another 1% in Kansas sales tax, and if some downtown boosters have their way, there will be yet another 1% city sales tax to provide subsidy for downtown.)

    Council member Paul Gray answered his own question with: “why would you?” The question was why would anyone build a hotel downtown privately when there are several subsidized hotels already operating? The unlevel playing field was created long ago, he said, and it’s unlikely that anyone will develop a hotel without receiving similar benefits from the city. He also said that we’re on the hook for the bonds sold for the WaterWalk TIF district. He made reference to the “giant hole that we’ve already created with the financial obligations we’ve placed on that.”

    After citizen John Todd spoke, Longwell asked how much lead time the council should give citizens for matters like this. He said that the Wichita Eagle reported the story, adding “I thought everybody read the Eagle.” (I wonder if Longwell has noticed the layoffs at the Wichita Eagle and the poor financial performance of most newspapers as fewer people read them.)

    A search of the Eagle for stories on this topic shows a blog column from Wednesday January 6, just six days before the city council meeting where the item was to be considered. The Eagle printed stories on Friday and Sunday. These stories, however, don’t report the detailed information that some people would like to have. There’s simply not room in a newspaper, as the agenda report for this item contained ten pages of small print. Not many people are interested in such detail, either.

    (The city’s agenda packet for this meeting, which is the important source of detailed information, became available on the city’s website probably late Thursday. The pdf file indicates that it was created at 4:51 pm that day.)

    Longwell pressed Todd: “How much lead time do we need?” I have an answer for him. After I read the agenda packet Friday afternoon, I emailed Wichita public information officer Van Williams with a few questions. By Monday afternoon I hadn’t received a response. I’m not criticizing Williams, as he might have had any number of valid reasons for not replying to my questions right away. But even if he had replied Monday afternoon, that’s just a few business hours away from the meeting. That is definitely not enough time to digest a project of this scope.

    Gray then asked Todd how much vetting does the public do on a project like this? The answer to this is: not enough, as the city has a recent history of problems with its development partners. In December 2008 the city was about to enter into an agreement with a developer when Dion Lefler of the Eagle uncovered very troubling facts about the developer’s past dealings. See Wichita city hall: more evidence of lax procedures for a summary.

    Then-city council member Sharon Fearey — now a candidate for the Sedgwick County Commission — was disappointed that the Eagle uncovered these facts and reported them. See Sharon Fearey doesn’t appreciate the Wichita Eagle for the story and video.

    Since then Wichita has a new city manager, and the city has said it has new procedures in place for investigation of the backgrounds of potential business partners. Other problems remain, however. Last month Wichita Eagle editorial writer Rhonda Holman wrote about missing or incorrect information provided to the city council:

    Worse, when the council approved the Big Dog deal on a 5-2 vote, its members reportedly were unaware that the company had hired an investment banker to explore a possible sale or merger. Plus, city documents about Big Dog listed its employment at 115 when the number actually has dwindled to 30 to 40 (from a 2005 high of 336).

    A policy meant to guide the use of tax abatements and other tools doesn’t work well if decisions are based on faulty information.

    Going back to 2004, we have evidence that city council members were not familiar with even the most basic facts about our economic development programs. The article “Tax break triggers call for reform” published in the Wichita Eagle on August 1, 2004 reported this:

    Public controversy over the Genesis bond has exposed some glaring flaws in the process used to review industrial revenue bonds and accompanying tax breaks.

    For example, on July 13, Mayans and council members Sharon Fearey, Carl Brewer, Bob Martz and Paul Gray voted in favor of granting Genesis $11.8 million in industrial revenue bond financing for its expansion, along with a 50 percent break on property taxes worth $1.7 million.

    They all said they didn’t know that, with that vote, they were also approving a sales tax exemption, estimated by Genesis to be worth about $375,000.

    It’s not like the sales tax exemption that accompanies industrial revenue bonds was a secret at the time. An easily accessible web page on the City of Wichita’s web site explains it.

    Regarding the present case, Schlapp said she would have liked to have known about the exclusivity period earlier. That’s just one example of something not contained in the agenda packet that is important for citizens and council members to know, and we didn’t know that before this meeting.

    Gray also noted the history of some of the people at the council meeting who opposed the project, adding that he didn’t see them changing their minds. That attitude represents a simplistic view of the way public policy ought to be formed.

    An issue like this has many facets. Some could possibly have merit, and some certainly are harmful. A discussion like what took place at this meeting can provide a forum for exploring these issues, and perhaps eliminating the bad in favor of the good. The fact that some might still be opposed to the project doesn’t negate this.

    In the end, the council voted unanimously to defer this matter until its February 2 meeting.

  • WaterWalk deal not good for city, public policy

    Remarks to be delivered at the January 12, 2010 meeting of the Wichita City Council.

    Mr. Mayor, members of the council:

    There are several aspects of the proposed hotel in the WaterWalk development that I find troubling.

    Perhaps most important to public policy, the city has now recognized that when it provides subsidy to one business, it may harm other businesses. As you may recall, I’ve spoken to the council several times on this topic over the past few years. I’ve been concerned about the effect on privately-owned businesses and the willingness of entrepreneurs to assume risk only to find themselves competing with a subsidized business. The city has shown little concern for this.

    But now that a city-owned business — the Hyatt Hotel — may be imperiled, the effects of city subsidy on competition is now a concern. It’s only now that city hall is measuring the harmful effects of its actions.

    This is a slap in the face of all businesses in the city that have faced competition from a city-subsidized competitor. In particular, there is a Holiday Inn and Suites just three blocks away from the proposed hotel. Will the city survey to see if this hotel will be harmed by a subsidized competitor?

    Then, why are we settling for such a low rate of return on this project? Promoters of public investment in downtown Wichita like the Wichita Downtown Development Corporation are promising returns of up to 15 to one for future projects. The agenda report for this proposed public investment indicates a benefit to cost ratio of 1.77 to one for the City of Wichita.

    Are these two indicators measuring the same thing? If so, why are we about to make an investment with a return of less than two to one, when much higher returns are promised after the planning for downtown revitalization is complete?

    I’m also concerned about the economic viability of this project. If we want to have robust development that has deep roots, grounded in solid financials and free market capitalism instead of crony capitalism, we need to turn away from highly subsidized ventures like this proposal. Relying so extensively on public subsidy creates development with shallow roots.

    An example of this is the problem the city is currently experiencing with the Broadview Hotel. This hotel was scheduled to be renovated by its new owners. The purchase and renovation were to be made possible by large subsidies by the city. Tax credits from the state were to play a large part, too. But last year when the state realized that it couldn’t afford these tax credits, it placed a lid on them, and now the Broadview renovations are on hold.

    There are a few specific questions about this project that need answers. We need to see a development budget for this hotel. It appears that the cost will be around $100,000 per room. I’ve been told this cost is high for this type of hotel.

    We also need to have more information about how much of their own money the developers are putting into this deal. Also, I think citizens would like to see the details of the ground lease and the parking arrangements.

    Although the governor didn’t mention this last night, there’s movement 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?

  • Wichita makes case for tax credits

    At yesterday’s meeting of the South-central Kansas legislative delegation with government officials, the City of Wichita spent most of its time presenting the case that cuts made to a program of tax credits for historic buildings should be restored.

    Initially Mayor Carl Brewer asked legislators for continued funding for the affordable airfares effort, for the National Institute for Aviation Research, and the aquifer recharge project.

    But the primary focus of the city’s requests became clear when Jeff Fluhr of the Wichita Downtown Development Corporation introduced Christy Davis, a historical preservation consultant who operates a company that assists property owners and governments in obtaining funding for historic preservation projects.

    She said that there is public policy in Kansas that supports historic preservation, and that the tax credit program has been a great success. In particular, she said the tax credits leverage the financing necessary for historic preservation projects.

    She said that every dollar in tax credits supports an additional three dollars of private investments. Rehabilitation of existing structures is 50 percent more labor intensive than new construction, so more jobs are created. Since 2002, $66.4 million in Kansas tax credits have been issued, and Davis said this has leveraged over $260 million in private investment, also creating jobs and income.

    Returning to the podium, Fluhr said that tax credit program needs to be predictable, so that the private sector knows they can depend on it. Also the transferability of the credits is important, so that developers can sell them to raise capital.

    Fluhr presented examples of several buildings in Wichita that have been rehabilitated, including the Wichita High Apartments, which he said will rent for $1,000 to $2,000. He mentioned condos in the Grant Telegraph building, which he said range in price from $300,000 to $950,000. Davis presented examples of rehabbed buildings whose property owners said the projects would not have been possible without the tax credits.

    In 2009, the legislature placed a cap or lid on the amount of tax credits. Davis said that it was intended to be a 10 percent cut, but it turned out to be a 70 percent cut.

    Both Fluhr and Davis presented the case of the Broadview Hotel in downtown Wichita. That project, already receiving various forms of subsidy from the City of Wichita, requires historic tax credits for its financial viability, according to the developers and the city. (Uncertainty over Broadview’s future doesn’t bother Wichita)

    Analysis

    The city’s quest for more tax credits is likely to face a rough road in the statehouse.

    Spending advocates, especially schools, want the legislature to close tax exemptions. Generally, these are sales tax exemptions, so that organizations such as the Girl Scouts (expect them to make several field trips to the statehouse soon) don’t have to pay sales tax.

    Kansas Secretary of Revenue Joan Wagnon says that repealing these sales tax breaks could generate $200 million per year in revenue. She also wants a three-year moratorium on new tax breaks.

    These sales tax exemptions are “passive” from the standpoint of the legislature, in that the legislature created them, and then people have to initiate economic activity in order to benefit. The only involvement of the state in the transaction is that it doesn’t collect tax that it would have. For believers in limited government, that’s good.

    But tax credits are active. When an applicant qualifies, the state, in essence, pays money to the applicant. While some may disagree that tax credits are in fact a payment by the state, Fluhr mentioned the transferability of the tax credits and the ability to sell them as important to developers. Recently some have started to use the word “tax appropriations” to describe tax credits. These expenditures don’t go through the normal legislative process that most appropriation do.

    Indeed, if the state issued checks to real estate developers, citizens would look at things differently. They’d wonder why they’re subsidizing the construction of apartments that rent for up to $2,000 monthly, or condos worth nearly a million dollars. These aren’t low-income housing tax credits, after all.

    By characterizing subsidies to developers as tax credits, it seems much less benign, although the economic effect is the same.

    For believers in the collective wisdom of free people trading voluntarily in markets — instead of government intervention — making grants to favored developments through tax credits is one of the most harmful things that government can do. In the case of historic building credits, it represents the desires of a relatively small band of enthusiasts. As John W. Sommer wrote in The Cato Journal:

    With few exceptions, historic or landmark preservation illustrates the powerful force of cultural elites who impose their tastes on the landscape at the expense of the general public. City after city has been confronted by small groups of architectural aesthetes who are as highly organized as they are both righteous and wealthy. In city after city these groups have succeeded in stalling, or permanently freezing, the pace of physical and functional change. In the name of “heritage” or “culture” or “a livable city,” and invariably “in the public interest,” preservationists seek to legislate “charm” for others.

    We’d be better off with requiring that preservationists rely on the market for the financing and success of their projects.

  • Mark Gietzen should be compensated by Wichita

    In 2000, a bridge was built by the City of Wichita near Mark Gietzen’s house. Vibration from the construction process damaged Gietzen’s house. Nearly ten years later, Gietzen has not been compensated for damages.

    It’s not that Gietzen hasn’t tried to receive payment for his damages. The mayor of Wichita at the time assured Gietzen that he would be compensated. There’s been a number of lawsuits. But so far, that hasn’t happened.

    According to Wichita city attorney Gary Rebenstorf, the city has no responsibility for damage. That lies with Dondlinger & Sons Construction, the city’s contractor.

    Besides Gietzen’s house, there are three other houses that are damaged, according to Gietzen. Two houses are owned by Vietnamese immigrants who don’t speak English. They’ve not been compensated for their damage, either.

    Some of the evidence of wrong-doing is striking. For example, the company performed a soil test on Gietzen’s property. The soil they took to test, however, was topsoil that had been placed there during landscaping.

    Gietzen has an estimate of $96,000 for repairs. Besides that, he’s been harmed in other ways. He hasn’t been able to refinance his mortgage to a lower interest rate. If he had wanted to sell his house, there would have been problems.

    Gietzen believes that when the city treats citizens as he’s been treated, it’s bad for the city’s image. He also believes that his political activism — he’s a noted pro-life activist, very dedicated to his cause — is hurting his case.

    When Gietzen brought this issue to the attention of the council at the November 3, 2009 meeting, former Wichita Mayor Bob Knight spoke on behalf of Gietzen. (Knight was mayor at the time of the incident. Most of his testimony that day is available below.) Summarizing the case, Knight said: “His house has been severely damaged by a public works project of this city that I love, and to cast Mr. Gietzen, with his resources, against government, against a large corporation … I happen to think Mr. Gietzen has been caught in a catch-22. I have confidence enough of this council, and manager Layton, and Gary Rebenstorf to figure out a solution to this, and to hold him harmless. He should be held harmless.”

    Knight also said that Dondlinger’s legal counsel may be doing what’s legally correct, but there’s more at stake than that. It’s the credibility of our city, he said.

    At the November 3 meeting, Wichita Mayor Carl Brewer, with support from several council members, asked Wichita city manager Bob Layton to look into this matter. On Saturday, Gietzen received the city’s response, which is to deny liability for damage.

    Gietzen will bring this issue before the council at its meeting tomorrow.

    Analysis

    Gietzen and the other homeowners that suffered damage should be compensated for their damage. The fact that the other homeowners are immigrants who don’t speak English is a new factor in this case. Hopefully they will be able to seek redress for their damages, too.

    Mayor Knight is absolutely correct in his assessment of this case. For the City of Wichita to hide behind contracts that shield it from liability is unconscionable. If Dondlinger (or its insurer) won’t take responsibility for its action, it seems that the city needs to revise its contract, or find a responsible contractor.

    The fact that Gietzen’s politics may play a role in this is troubling, too. The original Wichita Eagle story reporting on the November 3 city council meeting carried a headline that referenced his anti-abortion activism. I don’t imagine that Mayor Brewer is a fan of Gietzen’s politics and his activism. That, however, should play no role in the settlement of this case.

  • Wichita’s economic development strategy: rent seeking

    As Wichita embarks on our planning for the revitalization of downtown Wichita — or as we look back at actions the Wichita city council takes almost every week — we ought to take a look to see if these actions produce an increase in wealth for our community.

    It is wealth, after all, that defines prosperity. Our goal ought to be to create an environment where everyone lives in an environment conducive to creating prosperity and wealth. But in a misguided effort, our city leaders, week after week, take actions that produce just the opposite.

    The revitalization of downtown Wichita is likely to further harm the economic environment in Wichita. That’s because counterproductive measures such as tax increment financing districts and a sales tax are likely to be necessary to implement the plan.

    What’s wrong with these actions? Simple: They’re rent seeking activities. They don’t produce wealth.

    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 — to these companies. Or sometimes we may dispense with the cumbersome IRB process 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 city council discusses economic development incentives, again

    At this week’s meeting of the Wichita City Council, underperforming companies that have received economic incentives was at issue.

    Wichita grants incentives — usually in the form of an escape from paying property taxes — to companies. Usually there are conditions attached to the incentives, such as a certain amount of capital investment or employment targets. Recently — and in the past two or so years — several companies that received incentives have not met employment goals. Should the city rescind the tax breaks in these cases? Or should there be recognition that there’s a tough economy at the moment, and should the company be excused from meeting the goals it pledged?

    During a period of questions from the bench, council member Sue Schlapp remarked: “We have to be flexible, don’t we? … Especially in today’s economy, we need to be very careful that we’re not too rigid in what we’re doing.”

    Council member Jeff Longwell said he’d like to see something that rewards companies that bring in business from outside our community. Economic development head Allen Bell answered that the policy is limited to companies that bring in wealth from outside. Businesses that are here because their customers are here are not eligible for economic incentives, he said.

    Longwell also expressed concern about companies that use temporary employees. Should that increase in payroll be included as a benefit, even if the employees are only temps? Bell said yes, even though these jobs are not as good as direct hire placements. Wichita City Manager Bob Layton interjected that we shouldn’t count seasonal peak employee ramp-up in benefit calculations.

    Longwell added that we ought to include the fact that some companies drive up hotel occupancy rates due to the nature of their business. Bell said that this is a factor in the WSU analysis.

    Vice-mayor Jim Skelton inquired about details of the model that WSU uses to calculate the economic benefit of incentives. These calculations, Bell said, are required by the Kansas Legislature. The model presently used is unique to WSU. It focuses on the fiscal impact that an economic development project has on cities, counties, school districts, and the state. It takes into account jobs created, capital that is invested, and other factors. It includes such factors as the need for additional police and other government services, additional sales and bed tax, and other revenue sources. It then performs a present value calculation and produces a ratio. A value greater than one means the benefits exceed the costs.

    City manager Layton said that these incentives represent a contract between the business and the city. The business promises to grow the economy, and the city makes an investment in the company. The council presently is struggling with how to judge the performance of companies that have received incentives in a down economy. The WSU index makes sense, he said. If economic conditions are poor, we now have a tool to judge the performance of the companies that received incentives. There are now extenuating circumstances, he said.

    Mayor Carl Brewer said that we recognize there are challenges, and that in an ideal world we shouldn’t have to provide incentives. But he said we have several options: Be competitive and provide incentives and fight to keep what we have, or don’t provide incentives and see what happens. He said we know what would happen in that case. Businesses will go where they can get these incentives, he said, and we can’t argue that. There will always be incentives, he said, and we have to be competitive.

    The council unanimously approved a revision to the policy that recognizes down periods of economic activity. Then, it approved the extension of tax breaks to three companies that had not met all their performance goals. Passage was not unanimous in two cases, with some council members voting against the extension of the incentives. Dion Lefler’s reporting in the Wichita Eagle is at Wichita City Council eases rules on tax abatements.

    Analysis

    Contrary to the belief of the mayor, council members, and city hall bureaucrats, economic development incentives aren’t all they’re promoted to be. The state of Kansas spent some $1.3 billion on incentives over five years. In a recent report produced by the Kansas Legislative Division of Post Audit, one of the summary points is this: “Most studies of economic development incentives suggest these incentives don’t have a significant impact on economic growth.” See In Wichita, let’s have economic development for all for more on this report and a link to the document.

    There is an interesting academic paper titled The Failures of Economic Development Incentives, published in Journal of the American Planning Association. A few quotes from the study, with emphasis added:

    Given the weak effects of incentives on the location choices of businesses at the interstate level, state governments and their local governments in the aggregate probably lose far more revenue, by cutting taxes to firms that would have located in that state anyway than they gain from the few firms induced to change location.

    On the three major questions — Do economic development incentives create new jobs? Are those jobs taken by targeted populations in targeted places? Are incentives, at worst, only moderately revenue negative? — traditional economic development incentives do not fare well. It is possible that incentives do induce significant new growth, that the beneficiaries of that growth are mainly those who have greatest difficulty in the labor market, and that both states and local governments benefit fiscally from that growth. But after decades of policy experimentation and literally hundreds of scholarly studies, none of these claims is clearly substantiated. Indeed, as we have argued in this article, there is a good chance that all of these claims are false.

    The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering their expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government — providing the foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.

    On the surface of things, to the average person, it would seem that spending (or granting tax breaks, it’s the same thing) to attract new businesses makes a lot of sense. It’s a win-win deal, backers say. Everyone benefits. This is why it is so appealing to politicians. It lets them trumpet their achievements doing something that no one should reasonably disagree with. After all, who could be against jobs and prosperity? But the evidence that these schemes work is lacking, as this legislative audit and article show.

    I have suggested to the city council that a broad-based tax abatement on new capital investment could propel economic growth in Wichita. See Wichita universal tax exemption could propel growth.

    But a plan like this doesn’t give bureaucrats much to do, and gives politicians little to crow about to their constituents at election time. All it’s good for is the people who want economic growth.