Tomorrow’s meeting of the Wichita City Council features a public hearing on the creation of a Community Improvement District to benefit Drury Southwest, developer of the Broadview Hotel in downtown Wichita.
CIDs are a creation of the Kansas Legislature from the 2009 session. They allow merchants in a district to collect additional sales tax of up to two cents per dollar. The extra sales tax is used for the exclusive benefit of the CID.
In this case, Drury is asking hotel guests — these are visitors to Wichita, usually — to pay an extra two cents per dollar sales tax. This CID is being constructed as “pay-as-you-go,” in which the extra sales tax is sent back to the applicant as it is collected.
The agenda material for this item tells us that Drury suffered increased costs due to “delays to the project caused by legislative changes to the value of historic tax credits.” Last week I told the council how economic development management by government adds political uncertainty to the entrepreneurial process. The Broadview developers chose to operate in the political arena rather than the marketplace. They were hurt — they claim — and now they want politicians to make up for that.
Drury has already received, or will receive, a huge amount of assistance from government for its work on the Broadview Hotel. Its participation in Kansas’ historic preservation tax credit program means a grant to the developers of perhaps $4 million. It is just as though the state wrote a check to Drury for that amount, and this is money that Kansas taxpayers have to make up.
Further, Drury will escape paying much of the taxes that the rest of us have to pay. According to city information provided last week, Drury plans to spend $22,797,750 on the hotel. If we use this as the appraised value for the property when it is complete, the annual property taxes due for this property would be $22,797,750 times .25 times 126.323 divided by 1000, or $719,970. This calculation may be rough, but it gives us an idea of the annual operating subsidy being given to this hotel for the next ten years.
Then, as part of the industrial revenue bond program this hotel is participating in, the hotel will avoid paying sales tax on purchases related to its renovation and furnishing. It’s a little ironic, then, that the hotel asks its guests to pay a special additional sales tax that benefits only the hotel.
Finally, the city accelerated riverbank improvements that benefit the Broadview, and there’s a sweetheart sale by the city of a parking garage across the street.
So this hotel is receiving plenty of subsidy from Wichita and Kansas taxpayers.
Does Wichita trust its planners?
This request by Drury for more Broadview Hotel subsidy poses a challenge to Wichita city council members. Goody Clancy, the firm that has been planning the revitalization of downtown Wichita, has proposed what seems to be a tougher stance towards government handouts to downtown developers. David Dixon, principal planner for Wichita’s planning effort, was reported in the Wichita Eagle thusly: “Dixon was clear: There will be enough private development downtown to repay taxpayers for the public investments through increases in the tax base.”
In January’s preliminary findings, Goody Clancy told Wichita that there is a strong market for hotels in downtown Wichita. The final report states: “Downtown Wichita offers a strong potential for new lodging developments.” That implies that hotels ought to be profitable without requiring massive subsidy. But right after the preliminary finding, the city broke new ground in granting millions in subsidy to a hotel developer to build a Fairfield Inn downtown.
The Goody Clancy plan has not yet been before the Wichita city council for formal acceptance. But most members, especially Mayor Carl Brewer, are enthusiastic about the plan.
Tomorrow’s meeting and the action by the council will let us know if the city has the political will to take Goody Clancy’s findings and advice to heart.