Remarks to be delivered at the May 5, 2009 meeting of the Wichita City Council.
Mr. Mayor, members of the council:
Last year, at the January 15, 2008 meeting of this council, there was the notion that city staff would conduct risk analysis of some facade improvement loans that were being considered at that time. I haven’t been able to determine the result of this analysis. Was the risk analysis to be only for the projects in consideration at that time, or is it a procedure that’s in place for all projects, such as the one before you today?
Last December this council indicated the desire to create a system to thoroughly investigate the backgrounds of developers the city is considering partnering with. Is such a system in place? Has this developer, his company, and his partners been investigated under this process?
Why is the developer being paid a fee of $39,227 for overhead and project management? This seems to me as though we’re paying someone to manage themselves.
I realize that we’re not giving the developer this money. Instead, we — the taxpayers of the City of Wichita — will borrow money and then give it to them. They’ll pay back that money as part of their future property taxes.
That leads to the risk that loaning money to this property against its future tax payments increases the financial leverage of this project to the point where it stands on shaky financial footing. Recently President Obama has warned us how highly leveraged real estate deals are a danger to the economy.
So shouldn’t the citizens of Wichita be able to see the financial plans for this project, as well as the financial statements of the developers? After all, now the citizens are a partner in this project.
That brings us to this question: What is the value of this loan program to the developers? Is it the ability to borrow about $700,000 at 6.5% interest, rather than 8.5% or more that private lenders might require?
My calculations show that the difference between these loans, over 15 years, is about $800 per month.
And, if according to the gap analysis mentioned in the agenda material, the project is not feasible without this relatively minor assistance, I would submit that the financial feasibility of this project hangs by a mere thread. It’s not something the taxpayers of the city of Wichita should get involved in.
I’d like to see the city ask for this loan to be personally guaranteed by the developers.
Schemes like this lead to the broader question: Will any project in downtown Wichita ever be accomplished without the taxpayer being involved?
That’s what people — at least me — are criticizing. I’m not against downtown development, Mr. Mayor. I’m against the taxpayer being dragged into deals like this that may or may not work.
It’s entrepreneurs who have the ability to assume and manage risk. They have the potential to earn profits if they do a good job. But the city and its taxpayers don’t have this ability and profit potential. That’s why we need to keep out of these arrangements.
Speaking to members of the Wichita Pachyderm Club on May 1, Wichita police chief Norman Williams spoke about the history and present of gangs in Wichita, the police department budget, and took questions from the audience.
The serious gang problem in Wichita dates from 1988, when gangs from California, Illinois, and Oklahoma moved into Wichita. Their initial purpose was to establish trade in drugs.
From 1988 to 2009, there have been 601 homicides in Wichita. Of these, 254, or 42%, were gang-related. This has had a tremendous impact on our community.
In Wichita, there are 1,679 active gang members. To this, add 718 associates, for a total of about 2,300 gang members and associates.
Gangs use terror and violence to control the drug trade.
A traffic stop in 2006 lead to a complex investigation called the “Cold Case” investigation. It involved many law enforcement agencies.
From this investigation, 65 individuals were indicted. 28 were charged under the RICO (Racketeer Influenced and Corrupt Organizations) Act. So far 20 have been convicted, 7 are waiting trial, and one was found not guilty. 71 federal search warrants were executed. 10 houses, 26 cars, and over $200,000 cash was seized.
The Wichita police force has also worked to find illegal aliens.
Of the 435 police officers in Wichita, about 71 are committed to gang suppression. Williams said this is a very high level of commitment, compared to other communities.
It takes a community effort, he said, to fight the gang problem. It takes three things — intervention, prevention, and suppression — to control gangs. Law enforcement has placed emphasis on the suppression side.
Parents and others need to stand together to intervene at early ages to shape the character of children. Otherwise, gangs establish a value system of violence. Children must be held accountable for their actions early on. We need more mentors, volunteers, after school activities, and we need to address the drop out rate.
The key is connecting all the resources in this community. Children may fall between the cracks otherwise, he said. No one person can do everything, Williams said, but each one of us can do something to bring about change in a young person.
With regard to its budget, Williams said the department is facing a challenge. The department has been asked to cut $500,000 from its $71.2 million budget. To make this cut, the department recommended to delay the start of the next recruit class ($200,000 savings), not filling two positions vacant due to military service ($80,000), and closing four patrol substations between 11:00 pm and 7:00 am. Police officers will continue to work at the stations, but clerical positions will be moved downtown ($147,000).
The department has also applied for federal stimulus money, applying for funds to hire ten police officers. The grant would provide funds for three years. Then the city would be required, by the terms of the grant, to fund the officers for one more year.
A question from the audience asked about the challenges to the police department of more activity in downtown Wichita. Chief Williams responded that the department has submitted a proposal to create a new bureau downtown. This proposal is pending.
Another question asked what does it mean to be a gang member? Williams answered that in 2006, the Kansas Legislature established the legal definition of a gang member and gang associates.
I asked this question: Since the gangs earn so much from illegal drug trade, if we could put aside the morality and public health issues of drugs, what would be the effect on crime of ending the war on drugs, which would mean legalizing drugs?
In reply, Williams said he’s not in favor of legalizing drugs. He said that yes, you may run the gang members out of business, but they will figure out a way to do something illicit to earn money. Gangs have become more complex in recent years, becoming involved in identity theft, prostitution, mortgage fraud, and tax violations. The illegal drug trade is not the gangs’ only business.
If I had a follow up question, I might ask Chief Williams if these other crimes (with the exception of prostitution) involve the type of street violence that terrorizes and harms residents of our city.
Later I asked about the mayor’s proposal to have — as one person termed it — “free range drinking” at festivals and in areas of Wichita like Old Town. Will this lead to more law enforcement issues?
Access to alcohol increases the challenges to public safety, the chief said. Can the department handle the challenge? The department has no choice but to deal with it, he said.
Here’s a map of improvement and development districts in Wichita and Sedgwick County.
Sometimes critics of tax increment financing districts (TIF districts) say things like “If TIF districts are good for development, why not make the entire city a TIF district?” Maybe we’re headed that way.
This Friday Wichita police chief Norman Williams will speak at a meeting of the Wichita Pachyderm Club.
All are welcome to attend. Lunch is $10, or you may attend the meeting only for $3.
At Pachyderm meetings, there’s usually plenty of time for the speaker to take questions from the audience. The meeting starts at noon, although those wishing to order lunch are encouraged to arrive by 11:45. The location is Whiskey Creek Steakhouse at 233 N. Mosely in Old Town.
In a talk to the Wichita Pachyderm Club on Friday April 24, 2009, Bryan S. Derreberry, President and CEO of the Wichita Metro Chamber of Commerce, laid out the case for government management of our area’s economic and community development. The title of the talk was “The Basis for Economic Partner Selection and Collaborative Efforts.” The slide presentation is available at the end of this article.
While the Chamber is, strictly speaking, not an arm of government, it receives a large amount of government funding. Additionally, many of the incentives that it offers to companies require governmental action and funding to implement.
One of the things I learned — I had suspected this, but now it is confirmed — is that “economic and community development are now the same.” The Chamber views their mission as more than just economic development.
Moreover, there’s a lot of competition in the economic development field. There are 361 MSA (metropolitan statistical areas) in the United States. There are 18,000 economic development organizations in the United States. All are looking to attract and retain business, just like the Wichita Chamber is.
The prize being sought — the really large expansion or relocation — is relatively rare, as Derreberry said there are just 200 expansions or relocations that feature 500 or more employees each year.
Some of the important tangible things companies are looking at, in order of decreasing importance, are highway access, low labor costs, low occupancy and construction costs, tax exemptions, availability of energy and its cost, availability of skilled labor, state and local incentives, fair corporate tax rates, low union profile, and available land and buildings.
One of the slides Derreberrry presented dealt with the intangible factors that, if aren’t nailed down, “the competition will beat you every time.” These include:
Risk minimization for expanding or relocating employer
Cooperative, enthusiastic, positive, and sincere public and private leadership — sophisticated and wanting of the project
Consultative economic development experts
Solutions-oriented negotiations (“we’ll find a way”)
Tireless momentum that overcomes obstacles
Other intangible qualities of a location include attributes such as vitality, earning, learning, social capital, cost of lifestyle, “after hours,” and “around town.” Many of these fall in to what our mayor and others refer to as amenities. It’s now the duty, it seems, of a city to plan for and provide entertainment for its citizens. Among the economic development planners, this is known as the “third place” beyond home and work: Are there other places I can go and feel good about the community I’m in?
“In February 2007, Stephen Moore wrote a column that appeared in the Wall Street Journal. In it he said ‘Thanks to an astonishing political transformation, many chambers of commerce on the state and local level have been abandoning these goals. They’re becoming, in effect, lobbyists for big government. … In as many as half the states, state taxpayer organizations, free market think tanks and small business leaders now complain bitterly that, on a wide range of issues, chambers of commerce deploy their financial resources and lobbying clout to expand the taxing, spending and regulatory authorities of government. This behavior, they note, erodes the very pro-growth climate necessary for businesses — at least those not connected at the hip with government — to prosper.’ Mr. Derreberry, the Wichita Chamber has supported tax increases, subsidies, centralized government planning, and what I call crony capitalism. Do you think this is valid criticism of this chamber?”
He replied that the Chamber opposed a tax increase for education in 2002. The Chamber will support “responsible” taxes, he said. He recognized that a high tax and regulatory environment will inhibit the ability to grow communities. He didn’t address subsidy or centralized government planning, and he didn’t agree that this criticism applies to the Wichita Chamber. Something tells me he doesn’t get asked questions like this very often.
Granting the incentives that the Wichita Chamber wants to offer is expensive. It requires government to pay subsidy directly to companies, or, as is often the case, grant companies relief from paying taxes. Sometimes a company is allowed to use its taxes for its own exclusive benefit, instead of funding the general operations of government.
All these courses are costly.
There’s also some question as to how important these subsidies are to companies. Last year, it was reported that North Carolina offered Cessna $200 million to build a new plant there. Between Kansas, Sedgwick County, and the City of Wichita, Cessna received an offer of $35 million, and decided to build the new plant here. To me, it looks like Cessna left $165 million on the table. Is building a new plant in Wichita worth that much? If they left $165 million on the table, would they have left, say, $185 million there too? The cynic in me says that Cessna never seriously considered building the plant outside Wichita, but they nonetheless wanted a reward for being a good corporate citizen.
The planning that Mr. Derreberry talks about requires government expansion and interventionism on a grand scale. In a newspaper op-ed a few years ago, he mentioned the entrepreneurial spirit of Wichita. Government planning like the downtown revitalization effort underway in Wichita strangles entrepreneurship. So does the public-private partnership.
Since there’s so much competition in economic development, and since Wichita doesn’t have picturesque mountains or seashore, why don’t we try something really different? We could make Wichita and Kansas a laboratory for economic freedom. That would be something quite unusual these days. There’s no telling to what level of prosperity we might advance.
The problem is that this would require unilateral disarmament by Wichita in the escalating arms race between states and cities to see who can dish out the greatest incentives. It doesn’t seem likely to happen, especially given the short time frame of most politicians — the next election campaign.
I spoke to one activist after the talk, and he was distressed at the call for government intervention that Mr. Derreberry called for. This reaction was in the minority, as many seemed appreciate of the Chamber’s efforts.
Another person I talked to said the Chamber’s action reminded him of a quote from Adam Smith: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public.”
Myself, I thought of a passage by Milton Friedman, which reads: “[The political system] tends to give undue political power to small groups that have highly concentrated interests; to give greater weight to obvious, direct and immediate effects of government action than to possibly more important but concealed, indirect and delayed effects; to set in motion a process that sacrifices the general interest to serve special interests rather than the other way around. There is, as it were, an invisible hand in politics that operates in precisely the opposite direction to Adam Smith’s invisible hand.”
It’s reported that the City of Wichita is facing a $6.5 million shortfall. The city’s looking at several ways to reduce costs, including closing police substations during the overnight hours ($148,000), reducing lawn mowing at parks ($100,000), and cutting back on swimming pool hours ($2,000).
Here’s one simple thing the city could do to save money that won’t cause very many people any pain at all: cut back on celebratory luncheons.
On Tuesday April 14, 2009, after the city council meeting, 37 guests lunched at the Hyatt Regency. The total cost of this event to the city, according to the estimate of charges that I asked for, was $1,046.99.
The event was titled “Wichita City Council Changing of the Guard.”
That’s not the total cost of the festivities on that day. A city council meeting was held. It was light on business, but long on sentiment. A video presentation of the highlights of departing council member Sharon Fearey’s tenure was shown. Maybe someone else will want to ask how many hours of city employee time it took to create this video.
Even in good times I don’t think the city should be spending taxpayer funds on celebrations like this. Now the council is asking others to cut, but is spending like this on itself. It’s a mixed message that Wichitans need to remember.
A letter in today’s Wichita Eagle places a lot of faith on things not yet seen, and in things we know don’t work.
“I think it is dumb that people are complaining about the new Intrust Bank Arena. It will bring money and tourists to Wichita, not to mention great entertainment. That means more money brought to our government, and that’s a good thing. — Caleb Beeson, Wichita”
First, since the Intrust Bank Arena is not yet open, it has no track record. We have absolutely no idea how well it will do, financially or otherwise. A lot of people think it’s “dumb” to count chickens before eggs have hatched.
Then, there’s this letter writer’s idea that more money in the hands of government is a “good thing.”
To believe that paying taxes to the government is good requires believing that government spends wisely. There’s little evidence of that.
Perhaps the writer means that when tourists from out of town travel to Wichita and spend money, our local government will be gathering tax revenue from out of our area. Better to tax someone else than ourselves — that’s the underlying message.
These taxes serve to suppress travel to cities that levy them. How does it feel to have a city add 13% to the cost of your hotel room, as I have paid in some cities? Or how do you think travelers feel when a city levies fees and charges that add 26% to the cost of renting a car, as some places do?
Since demand falls with rising prices, these high taxes reduce demand for travel to high-tax cities. Probably worse than that, they leave a bitter aftertaste for those who pay them. Do we want travelers to Wichita to feel that they’ve been soaked by our local taxes? They won’t feel good about coming back again.
Wichita TIF development, Kansas coal, Carl Brewer on downtown, Dick Coe on crash and recovery, Fox’s Glenn Beck
Parkstone hits milestone: Building almost complete on four townhouses (Wichita Eagle) Describes progress and plans for a Wichita real estate development project. Let’s hope this project sells well and quickly, as the taxpayers of Wichita are on the hook, due to this project’s use of tax increment financing.
Parkinson firm against coal (Tim Carpenter in the Topeka Capital-Journal) Kansas Lieutenant Governor Mark Parkinson has promised to veto a bill that authorizes a coal-fired power plant if he is governor. The Speaker of the Kansas House of Representatives says he has enough votes to override a veto by either Parkinson or present governor Kathleen Sebelius. Sources in the House and Senate tell me that few members — Democrats or Republicans — trust Parkinson.
Mayor asks Wichitans to dream about downtown’s future (Bill Wilson in the Wichita Eagle) Says Wichita Mayor Carl Brewer: “I want to provide everything you want to possibly imagine.” More evidence of local government’s desire to plan everything for us. I’m really surprised that young people are in favor of this.
J. Richard Coe: U.S. Paying Price for Overindulging (Wichita Eagle) The head of a Wichita financial services firm provides analysis of how the United States got in its current mess, and what must happen to recover. What happened? “Largely as a result of the Federal Reserve keeping interest rates too low for too long, there was a huge increase in borrowing (credit). Individuals, businesses and governments responded to an incentive to borrow, but the incentive was a temporary illusion.” Coe sees problems with the measures the administration is taking: “Massive government spending and increased regulation will make it more difficult for the private sector to recover.” He gives free markets their due: “Markets are more reliable than governments, and markets are in the process of correcting for government-incentivized excessive borrowing.”
Fox News’s Mad, Apocalyptic, Tearful Rising Star (New York Times) A profile of new Fox News television show host Glenn Beck. “Mr. Beck presents himself as a revivalist in a troubled land.” Some see “sinister meanings in his commentaries” and say he’s “stirring up a revolution.” “Let me be clear,” Mr. Beck said. “If someone tries to harm another person in the name of the Constitution or the ‘truth’ behind 9/11 or anything else, they are just as dangerous and crazy as those we don’t seem to recognize anymore, who kill in the name of Allah.”
A few weeks ago, Cornejo & Sons, Inc., a Wichita company, was reported to be in serious violation of agreements with the City of Wichita regarding a construction landfill.
Undoubtedly this company and its landfill will be in front of the Wichita city council before too long. Voters may want to know to whom has Cornejo or its associates contributed recently. Here’s what my inspection of campaign finance reports shows:
Lavonta Williams (candidate in district 1) received a contribution of $300 from company president Ron Cornejo on April 17, 2008. Another $500 was received on March 4, 2009.
Bob Aldrich (candidate in district 6) received a contribution of $200 from company president Ron Cornejo on January 28, 2009.