New research explains what you may have wondered: What is tax “decrement” financing?
Wichita has a financing mechanism known as the Gilbert-Mosley tax decrement fund. I knew about tax increment financing, but I never really understood how tax decrement financing worked. I had thought that in this context, “decrement” had a sophisticated meaning that I wasn’t able to understand because I wasn’t smart enough, or I hadn’t tried hard enough, or I didn’t have the correct documents to read.
Now, Chase M. Billingham and Sean Sandefur have published detailed research that explains how the Gilbert-Mosley financing works. Billingham is Assistant Professor of Sociology at Wichita State University. Their research, which forms a chapter of the book Tax Increment Financing and Economic Development, Second Edition: Uses, Structures, and Impact, is titled “The Conceptual Pliability of TIF and the Political Rhetoric of Environmental Remediation: Groundwater Pollution and Tax “Decrement” Financing in Wichita.” You may download a pdf of the chapter by clicking here. The published chapter had to be cut for length, but this pre-print version provides much greater detail than the published version.
Following, an introduction to the research by Billingham:
If you ask people around Wichita why growth in the city’s downtown core has been so slow over the past several decades, you’re likely to hear that one of the main culprits was a terrible problem with groundwater pollution in the 1980s and 1990s. You’re also likely to hear about the miraculous and innovative home-grown response that Wichita came up with to solve this problem. This solution involved using tax-increment financing to fund the groundwater cleanup operation, keep Downtown Wichita from becoming a massive Superfund site, and save the city’s core from turning into a “ghost town.”
Despite the local mythology that has been built up around this operation, neither the history of Wichita’s groundwater problem nor the financial mechanisms that were implemented to address it are well understood by the public.
That’s the focus of a new piece of research published this month as a chapter in a new edited volume – Tax Increment Financing and Economic Development: Uses, Structures, and Impact (SUNY Press). In this chapter, my coauthor Sean Sandefur and I explain the history of Wichita’s downtown groundwater crisis, the politics behind the creation of the local taxing district established to fund the cleanup, and the financial mechanisms that are still in place today to direct money toward the cleanup fund.
Although this has consistently been referred to as a novel use of tax-increment financing, we reveal that the actual structure that was implemented is not an example of TIF at all, but rather a simple diversion of a constant flow of property tax dollars into a special fund, with no relation whatsoever to fluctuations in underlying property values and assessments.
The idea of “TIF” is so poorly understood, so vague, and so frequently subject to mystical ideas about projects “paying for themselves” that it can be used as a convenient label to mask how local governments actually engage in public finance. The results of this research are applicable for thinking about a wide range of downtown development projects currently underway in Wichita, as well as other cities.
A visualization of employment, labor force, and unemployment rate for metropolitan areas, now with data through May 2019.
How does the Wichita metropolitan area compare with others regarding employment, labor force, and unemployment rate? A nearby example shows data from the Bureau of Labor Statistics, part of the United States Department of Labor. Considering growth of employment since the start of the decade, the answer is Wichita has not performed well.
This illustration came from an interactive visualization I created from BLS data. Click here to learn more and use the visualization.
Transit in Wichita isn’t working very well, and it is expensive.
A recent editorial in the Wichita Eagle proclaims, “If Wichita genuinely wants to be a vibrant, modern city, we have to improve our public transportation.” 1 This was inspired by the recent story of a Wichita State University employee chronicling his experience riding the bus to work for a week. The Eagle reported: “What Lucas found riding the bus for a week was that his regular 11-mile, 17-minute car commute was, on average, an hour and 35 minutes on Wichita Transit. Each way.” 2
There is little doubt that relying on the regular scheduled bus service in Wichita is frustrating for most riders. Some find it unusable. Given that, how much do we pay for transit?
The National Transit Database holds annual profiles for transit agencies. They are not easy to locate, and the numbers are presented in very fine print. I’ve excerpted some data for Wichita for 2017 and present tables nearby. (Clicking may produce larger versions.)
Of note: Fares account for 13.5 percent of operating revenue, not including the costs of buses, which are a capital expense. Someone else pays a lot of the expenses: For operating expenses, 51.4 percent comes from state and federal sources. For capital expenses, 82.4 percent is from federal sources.
For scheduled bus service, the cost per passenger mile is $1.44. and the cost of an unlinked passenger trip is $8.08. (An “unlinked passenger trip” is counted whenever someone boards a bus. For someone who rides a bus downtown and transfers to another bus — like the WSU employee — that counts as two unlinked trips. Two in the morning, then another two in the afternoon, for a total of four unlinked trips each day, or $32.32 for the day.)
Most of these costs for scheduled bus service are fixed in nature, meaning that they don’t increase with additional passengers. With more passengers, these costs on a per-mile or per-trip basis will fall, and if the additional passengers pay fares, the portion of expenses paid by fares will rise.
The costs for bus service in Wichita are not out of line with other similar cities, although costs rose rapidly in Wichita for 2016 and 2017, as can be seen in the nearby chart. (This chart comes from an interactive visualization of national transit data that I developed. Click here learn more about the data and to access the visualization.)
$8.08 per unlinked trip is a lot. $32.32 per day to travel to and from work is a lot. It seems like we ought to be able to provide better service. But I think Wichita provides about the same level of service as other similar cities.
Although plans have changed, an application by the City of Wichita holds interesting observations and claims.
Recently the City of Wichita submitted an application to the Federal Transit Administration seeking funds for a proposed transit center in Delano, just north of the new baseball stadium. Plans have changed, and the city’s intent is not clear. Nonetheless, the application is worth of reading and commentary. You can read the application by clicking on The Wichita transit center application. Following, some excerpts from the application and some remarks.
Application: “Employment centers are distributed in several areas around the City and are not concentrated in the downtown core.”
Precisely. This is one of the reasons why mass transit is difficult in Wichita. Transit worked better when downtown was a major employment center, but this is no longer true for most cities.
Application: “Located in the Delano District of the city, an area that is home to new economic development initiatives …”
While Douglas Street in Delano seems to be bustling, the “new economic development initiatives” are mostly in the future, at least as far as producing tangible results. The River Vista apartments are complete, and the new library is open. The new baseball park will not open until next year, and many are skeptical of its value as an economic driver. Other initiatives are still in the planning stage.
Notably, there is a lack of activity at the Delano Catalyst Site, a project slated for 200 apartments with parking garage, a 90 room hotel, and a public transportation hub. (Question: If this project has a public transportation hub, why build another just a few blocks away?) As of a week ago, there was no evidence of any positive construction activity, although it was reported there was some demolition last year. The city’s deadline for completion of this project is October 2020.
Application: “Not only would a new, multi-modal center be key to the growth of the west bank area and mitigate increased traffic, it would replace our old and antiquated transit center.”
Before reading this application, it was unclear to me (and others) whether the proposed transit center in Delano would replace or augment the existing transit center at Topeka and William. Now we know the city’s intent: replacement. Curiously, the application cover page checks off “Bus facility expansion” instead of “Bus facility replacement.”
Application: “Also integral to the boom in this area is a new multi-million dollar public-private economic partnership consisting of private a sports complex and other economic drivers slated to open in April of 2020.”
Regarding “private a sports complex,” I had thought that the City of Wichita would own the new baseball stadium. But this application calls it a private sports complex. While it is scheduled to open in April 2020, it seems unlikely that anything else will have opened by then.
Application: “… it is vital that services connect those areas to downtown employment (which exceeds 5,000 jobs) and to large employers (exceeding 11,000 people).”
Not long ago, city leaders told us there were 26,000 jobs in downtown Wichita. 1 The city and its affiliated agencies no longer use that number, because it was based on a gross misunderstanding and misuse of the data. A better estimate of jobs downtown is perhaps 14,000. 2
So why does this application use 5,000 as the number of jobs in downtown? (Exceeds?)
Application: “However, our aged and outdated transit center, located at William and Emporia Streets is an old design that doesn’t always meet our ever increasing needs.”
Click for larger.
As can be seen in the nearby chart, demand for bus transportation in Wichita is not rising — to say the least — in terms of either trips or passenger-miles.
Application: “Due to its inner city location, it requires constant policing and also sits less than 100 feet from Intrust Arena which hosts numerous events that necessitate closing the streets around the center; making bus operations next to impossible with foot traffic, cars and event activities so close.”
I believe that the proposed location in Delano also qualifies as “inner city.” If the transit center is a crime problem, moving it to Delano will probably also move the problem of crime. Indeed, the likely reason for the city deciding to move the proposed transit center is that developers of nearby property didn’t want a bus station next door.
As far as the present transit station being near an event center, Intrust Bank Arena hosts relatively few events, and very few that generate many thousands of spectators. And, isn’t the proposed location near a baseball stadium that the city hopes will generate much “foot traffic, cars and event activities?”
Application: “The land has also seen a significant increase in its value and will eventually be landlocked by future economic development by the private sector, further reducing accessibility.”
This is a surprise to hear. The only significant development near the present transit station is Commerce Street and the Spaghetti Works District. Property owners on Commerce Street think their property taxes are too high and have asked for relief. The Spaghetti Works district is not complete, so we really don’t know how to gauge its success. Whatever its future, it took millions in public subsidy to achieve.
Directly across William Street from the transit center is retail space owned by the City of Wichita whose only tenants have been government and quasi-governmental agencies that pay a fraction of market rent. (The last time I checked, in 2015 Wichita Festivals, Inc. was paying $2.00 per square foot in rent to the city for the entire space. At that time, according to the Weigand Commercial Real Estate Forecast, Class A space in the central business district averaged $16.04, Class B was $9.96, and Class C $7.46. Perhaps the city considers low rent as a contribution to Wichita Festivals. But it’s also an indication of the low value of this space. When built, it was thought that the retail space would lease for $8.70 per square foot, in 1993 dollars. 3 That’s $15.42 in 2019 dollars.)
Catty-corner to the northwest lies new retail space that has largely remained empty since it was built some five years ago.
Application: “While changing attitudes about automobile ownership and driving are evident among the younger population, schedules and route coverage limit expanded ridership.”
This statement echoes a common belief: Young people, specifically Millennials, don’t like to own cars and drive as much as previous generations. This, however, may not be true. A recent research paper holds this in its abstract:
Anecdotes that Millennials fundamentally differ from prior generations are numerous in the popular press. One claim is that Millennials, happy to rely on public transit or ride-hailing, are less likely to own vehicles and travel less in personal vehicles than previous generations. However, in this discussion it is unclear whether these perceived differences are driven by changes in preferences or the impact of forces beyond the control of Millennials, such as the Great Recession.
After describing their research methodology, the authors state their findings:
We find little difference in preferences for vehicle ownership between Millennials and prior generations once we control for confounding variables. In contrast to the anecdotes, we find higher usage in terms of vehicle miles traveled (VMT) compared to Baby Boomers. Next we test whether Millennials are altering endogenous life choices that may, themselves, affect vehicles ownership and use. We find that Millennials are more likely to live in urban settings and less likely to marry by age 35, but tend to have larger families, controlling for age. On net, these other choices have a small effect on vehicle ownership, reducing the number of vehicles per household by less than one percent. 4 (emphasis added)
Commenting on this study, Leonid Bershidsky wrote:
It would, however, be a mistake to reconsider business plans as if consumer preferences were undergoing a radical change. Having a car of one’s own provides, and will continue to provide, a degree of freedom that cannot be matched by any other transportation offering. Data do not bear out the expectation that people will give up that freedom for any reason except being unable to afford it. 5
Looking at data for automobiles sales, Dale Buss wrote this in Forbes last year:
It turns out that Millennials were responsible for all new-vehicle sales growth in North America during the first quarter of 2018, according to data compiled by Experian, the credit-information company. More specifically, Millennial market share increased to 29.7 percent during the period from 27.9 percent in the first quarter of 2017, while market shares from other generations remained unchanged or fell in the same period, when overall U.S. car sales were leveling off after an eight-year boom. 6
I hope that decision-makers in Wichita government have better access to data than this application reflects.
Christopher R. Knittel, Elizabeth Murphy. Generational Trends in Vehicle Ownership and Use: Are Millennials Any Different? NBER Working Paper No. 25674, March 2019. Available at https://www.nber.org/papers/w25674.pdf. ↩
For the Wichita metropolitan area in May 2019, the labor force is up, the number of unemployed persons is up, the unemployment rate is unchanged, and the number of people working is up when compared to the same month one year ago. Seasonal data shows declines in labor force and jobs from April.
Total nonfarm employment rose from 300,000 last May to 303,200 this May. That’s an increase of 3,200 jobs, or 1.1 percent. (This data is not seasonally adjusted, so month-to-month comparisons are not valid.) For the same period, employment in the nation grew by 1.5 percent. The unemployment rate in May 2019 was 3.5 percent, same as one year ago.
Considering seasonally adjusted data from the household survey, the labor force fell by 402 persons (0.1 percent) in May 2019 from April 2019, the number of unemployed persons fell by 57 (0.5 percent), and the unemployment rate was unchanged at 3.7 percent. The number of employed persons not working on farms fell to 299,023 in May from 299,368 the prior month, a decline of 345 persons, or 0.1 percent.
The following chart of the monthly change in labor force and employment shows a general decline over the past year, then two consecutive months of losses for both measures.
The following chart of changes from the same month one year ago shows six consecutive months of decline in the rate of growth of both employment and labor force. The values are growing, but at a slower pace each month.
The City of Wichita has submitted an application to the Federal Transit Administration for a project described as “Delano Multimodal Center and Park-N-Ride.” The application was supplied in several documents. I’ve combined them in what I hope is the correct order. Click here to view.
Map submitted with application. Click for larger.The “Demonstration of Need” section starts with this: “The successful approval of the City of Wichita application will transform public transit in our city as we know it. Not only would a new, multi-modal center be key to the growth of the west bank area and mitigate increased traffic, it would replace our old and antiquated transit center.”
Of note, the application mentions a partnership “consisting of private a sports complex.” I had thought that the City of Wichita would own the new baseball stadium.
Following is more material from this section of the application:
This center is envisioned as containing transit amenities to handle connections from commuter service, connect-ability to the downtown circulator, transfer points to routes meeting education, employment and economic development key to the growth of the west bank area of the Arkansas River. Also integral to the boom in this area is a new multi-million dollar public-private economic partnership consisting of private a sports complex and other economic drivers slated to open in April of 2020. All of which presents countless public transit opportunities. Designed to rest in an urban setting, the development will have limited on-site parking and public transit will be key in providing accessibility for patrons.
With an evolving Wichita Transit and the growth of areas west and east of the city center, it is vital that services connect those areas to downtown employment (which exceeds 5,000 jobs) and to large employers (exceeding 11,000 people). The multi-modal transit center will provide vast opportunities that will meet and enhance Wichita’s education, employment and economic development needs An increase in demand for this types of service could see a huge advantage in the existence of a multi-modal center that contains transit-oriented development (TOD) space, up to 543 parking spaces as well as connect-ability to transit. This also becomes a quick charge area for our electric bus fleet (11 on order and a new application for more), improves access to our bike share program as well as any potential autonomous circulators which become possible with this type of facility.
Wichita Transit continues to explore and adopt new and innovative modes of transportation. However, our aged and outdated transit center, located at William and Emporia Streets is an old design that doesn’t always meet our ever increasing needs. Due to its inner city location, it requires constant policing and also sits less than 100 feet from Intrust Arena which hosts numerous events that necessitate closing the streets around the center; making bus operations next to impossible with foot traffic, cars and event activities so close. The land has also seen a significant increase in its value and will eventually be landlocked by future economic development by the private sector, further reducing accessibility. The multi-modal center will be a multi-functional transit center that works in today’s modern world.
Capital
Without this funding, it will be extremely difficult to fund a multi-modal center. The funding mix utilized for capital purchases up to now (FTA sections 5307 & 5339, and FHWA’s Surface Transportation Program (STP) and Congestion, Mitigation, and Air Quality (CMAQ), etc.) is not sufficient to close the funding gap to replace the transit center, as they are earmarked for normal operations (preventive maintenance, planning, operations, and other capital needs such as fare-boxes, bus IT needs, lift systems, support vehicles, security projects and bus replacements). Possible future CMAQ or STP funding will not be available to Wichita Transit until after 2020, but planned uses of eligible funds in 2021 and 2022 is for para-transit van replacement.
In 2017, Wichita Transit forged many partnership initiatives to increase economic and mobility opportunities for the Wichita community, partnerships that resulted in a 9% increase in fixed route ridership in 2018. Our partners include USD259, Wichita State University (WSU), WSU Tech, Regional Economic Area Partnership (REAP) and Workforce Alliance of South Central Kansas. In order for these minor accomplishments to become major successes it is essential that we create an impactful sustainable public transit system. This multi-modal facility would go a long way toward achieving that goal.
Above all, there is a latent demand for public transportation that is not met by the present system. While changing attitudes about automobile ownership and driving are evident among the younger population, schedules and route coverage limit expanded ridership. To date, the hub-and-spoke system has limited Wichita Transit from playing a role in adding jobs and residents downtown or creating links between employers and employees in the area workforce.
Wichita Transit has significant capital funding needs; needs that are also funded from the federal apportionment. Using the apportionment to fund operating costs is starving funding needed for capital replacements. The current transit service, system design, route configurations can be challenging for all but the most dedicated riders, who are most often transit-dependent. Providing a sustainable service level reflective of the results of citizen engagement efforts and generating improved outcomes. comparable to the local commitment to public transportation found in other communities.
Service improvement scenarios have been identified in addition to the current system – Introducing a modified grid system to improve connectivity, eliminate transfers, and shorten travel times, express bus services from Andover, Derby, Park City and West Wichita or Goddard would be introduced. Local service would also be extended to the City of Maize and Haysville.
Service enhancements would be expected to generate outcomes, including increased citizen satisfaction with the level of transit services, improved financial sustainability, and increased ridership, particularly ridership supporting downtown and economic development purposes.
It is unfortunate that Wichita city and metro populations are falling. It is unimaginable that our city’s top leader is not aware of the latest population trends.
Mayor Longwell said he wasn’t aware of the estimate, telling the audience, “census estimates are different than the census.” Absolutely correct. The census, which is an attempt to count the population, happens only once every ten years, while census estimates for population are produced annually. With only decennial data, we wouldn’t know much about recent developments.
Estimates are important. We use them in numerous circumstances when producing a count would be expensive. Mayor Longwell said he hasn’t seen estimates for population, but he knows the unemployment rate for Wichita. That is also an estimate produced by a different branch of the federal government. The city uses many estimates. The “City Overview” section of the budget document starts with: “Wichita, the largest city in Kansas with a population 389,965 …” The footnote gives the source of the data as “2015 Census population estimates.”
On Call the Mayor, Longwell said, “our population in Wichita has grown from 2000 by nearly 40,000 people.” Interestingly, if the mayor doesn’t want to use estimates, he should have said the City of Wichita population grew by about 30,000, as that is the difference between the 2010 and 2000 census counts. Based on the estimate of city population for 2018, growth has been almost 37,000.
Wichita and top 100 city population, annual change, through 2018. Click for larger.It’s too bad that the mayor doesn’t know the latest population estimates, because they don’t hold good news. The City of Wichita proper lost 1,052 in population from 2017 to 2018, a decline of 0.27 percent. 1 For the same period, the Wichita Metropolitan Statistical Area population fell by 740 persons, or 0.11 percent. Net domestic migration for the Wichita metro area showed a loss of 3,023 persons, or 0.47 percent of the population. This change, on a proportional basis, was 301st among the 383 largest metro areas. 2
Wichita’s unemployment rate is low, and has been declining
One of the reasons the Wichita unemployment rate is low is because of a declining labor force. As can be seen in the nearby chart, the unemployment rate (green line) has fallen — and by a lot — since the end of the last recession in 2009. (Click here for an interactive version of the chart.) But the unemployment rate depends on two things, one being the labor force as the denominator of a fraction, or ratio. If the denominator (labor force) falls at a greater rate than the numerator, the unemployment rate will fall. That is what has happened in Wichita.
Wichita labor force and employment. Click for larger.
For example, on January 1, 2010, the labor force in Wichita was 320,287 and the number of unemployed persons was 28,523, resulting in an unemployment rate of 8.9 percent. The number of employed persons was 291,764.
Then, on April 1, 2019, the labor force in Wichita was 311,114 (falling by 9,173 or 2.9 percent) and the number of unemployed persons was 11,576 (falling by 16,947 or 59.4 percent), resulting in an unemployment rate of 3.7 percent. The number of employed persons was 299,538 (rising by 7,774 or 2.7 percent).
If, for example, the current labor force was the same size as on January 1, 2010, and we have the same number of employed people as we do today, there would be 20,749 unemployed people, and the unemployment rate would be 6.5 percent instead of 3.7 percent. (We don’t know what would have happened had the labor force not fallen, but this is an example of how the arithmetic works.)
This is unfortunate
It is unfortunate that the city and metro populations are falling. It is unimaginable that our city’s top leader is not aware of the latest population trends. These numbers are easy to find. Until recently, they would be reported in local news media.
But the city has an economic development staff that ought to be aware of these numbers. There is the Greater Wichita Partnership, responsible for shepherding economic development. There is a city manager, assistant city manager, six city council members, and a fleet of bureaucrats. Didn’t any of these people know the population has declined? If not, why not?
And if any knew the population was declining and didn’t tell the mayor, well, that’s another problem.
Transcript from Call the Mayor, May 30, 2019
Host: We have a Facebook question from Bob. Could you please comment on the recent US Census Bureau population estimates for the city of Wichita and Wichita metro stat area for the year ending July 1, 2018. It’s very specific but the latest on the census for Wichita.
Longwell: So the census estimates are different than the census and so I’m not I haven’t seen the census estimate data specifically. I know the region … Wichita is becoming a destination for health care and so you’re starting to see many people in rural Kansas migrate to big cities and we’re no different. I know that our population in Wichita has grown from 2000 by nearly 40,000 people and so we will continue to see that growth and right now we need more people. We need people to fill these jobs that are in Wichita. Our unemployment’s at historic low right now.
To view the program on YouTube starting at the point of this question, click here.
The Wichita City Council plans to use the consent agenda to vote on an item containing confusing language.
For the Tuesday June 25, 2019 meeting of the Wichita City Council meeting, item No. II-17 concerns the city leasing land to a company wanting to build and operate a new hotel near the airport. 1 The agenda packet holds this language:
“Upon execution of the lease, WEH will provide a $2 million good faith security deposit in escrow with the Airport to ensure timely construction of the hotel. Upon completion of the roof construction, the deposit will be available to WEH for additional construction costs. WEH will invest a minimum of $12 million of private funds to build and equip the property, which the structure will be owned by the WAA in accordance with existing policy. During the life of the lease, WEH is required to make periodic capital improvements and re-investment obligations in order to maintain its franchise agreement with a national flag hotel.” (emphasis added)
(WEH is Wichita Eisenhower Hotel, LLC, a private company formed to construct and operate the hotel. WAA is the Wichita Airport Authority, which is the same as the Wichita City Council.)
Reading this, can you tell me who will own the hotel building? I wondered, so I posed this question by email to the city’s public information officer: “The sentence fragment ‘which the structure will be owned by the WAA in accordance with existing policy’ sounds like the hotel building will be owned by the Wichita Airport Authority. Is this correct?”
I received a generic response that illuminated nothing. 2 My follow-up question was not acknowledged by the end of the day.
The council will, at least according to its schedule, consider this item tomorrow morning. Will city council members, acting as the Wichita Airport Authority, have a clear idea of the meaning of this agenda item and the supporting contract?
I think I know what it means. WEH will own the hotel and lease the land from the city. There’s language like this: “The development group requesting a lease agreement has formed a Kansas corporation to own and operate a hotel on the Airport.” (emphasis added)
Further, the lease is priced by the square foot of land (49.6 cents per square foot per year), although after four years that is replaced by a minimum agreed amount or a percent of the revenue of the hotel.
All this points to WEH owning the hotel building, not the city through the Airport Authority, although the Wichita Business Journal has a different opinion. 3 But it’s a shame that we must guess what the city means.
Will city council members also have to guess? Perhaps. This item is on the airport’s consent agenda. Unless a council member speaks up and asks for clarification, there will be no discussion on this item.
“All buildings and land are owned by the Airport Authority, with just a few exceptions. The FAA owns the control tower and the Post Office and the County owns the buildings at Jabara’s WSU Tech campus. But even in those cases, the land is owned by the Authority. Tenants pay land and building rent but do not pay property taxes.” ↩
The nearby chart shows data starting in 2010 for Wichita and selected airports, as well as all U.S. airports. For all measures except load factor, Wichita is at or near the bottom. Often the trend for Wichita underperforms the other airports, too.
It is not too surprising that the Wichita airport lags others, as the Wichita economy has been underperforming, even losing jobs in 2017. Now we know that the metropolitan area and city proper have lost population.
Local business leaders have formed a campaign to promote using the airport. The statistics in this chart and the visualization end shortly before that campaign started.
