The recent presentation of the draft master plan for the revitalization of downtown Wichita gave Wichitans a preview of the forms of public assistance that Goody Clancy recommends the city use. The plan may be viewed at the Wichita Downtown Development Corporation website.
It is a given, according to Goody Clancy, that downtown development will require public subsidy. Here’s an example as to why it is necessary: One of the issues with downtown development, especially in Wichita according to Goody Clancy, is “land acquisition & land lease issues.” It is contended that land ownership is fragmented, and assembling parcels for development is difficult. Therefore, public assistance is required.
The shakiness of this argument can be seen by examining recent events in Wichita. Earlier this year, a developer wanted to build a hotel in the downtown WaterWalk area. There are no land acquisition issues there. The city assembled that property — using eminent domain as a tool — some years ago. There is one owner. Yet, the hotel still required massive subsidy to make it economically feasible, according to the developer and Wichita city staff.
In a Wednesday morning workshop on the issue of public funding, a Goody Clancy consultant hinted at a legislative solution to the land acquisition problem. No more details were given, but solutions to problems like this usually involve the use of eminent domain.
Public assistance is proposed to be used only for those items that have a public purpose. The primary use is likely to be public parking. According to the logic of Goody Clancy consultants, if public funds pay for a parking garage located between an apartment building and an office building, that really doesn’t benefit just those two properties. Instead, it benefits everyone. It’s a public amenity. It’s infrastructure.
Nevermind that anywhere but downtown, people have to pay for their own parking. Homeowners build garages and driveways at their own expense. Developers build parking lots on their own.
While “structured parking” — that’s planner-speak for multi-story parking garages — is more expensive to build per parking spot than surface lots, that’s no reason for the public to pay.
The forms of public assistance mentioned as available for use include, at the state and national level: historic preservation tax credits, low income housing tax credits, new market tax credits, STAR bonds, brownfield grants, livable city grants, and transportation funds.
At the local level, programs mentioned include capital investment, tax increment financing (TIF), community improvement districts (CID), facade loans/grants, low interest loan pools, and land.
The last item refers to the fact that Goody Clancy considers it an advantage that the City of Wichita owns a lot of land downtown, as it can control the timing and features of development.
Missing from this list is any mention of a direct tax to fund downtown redevelopment. But downtown leaders admire the city sales tax used to fund development in downtown Oklahoma City, and some have privately told me that a sales tax would be good for downtown Wichita. I expect to see a sales tax proposed in Wichita, as I don’t believe there is enough funding available through the sources mentioned above to do all that downtown boosters will want to do.
Supporters of a sales tax for downtown subsidies will use the Intrust Bank Arena as an example of a successful project funded through a sales tax. They’ll say, as did Kansas Governor Mark Parkinson this year, that people didn’t even notice the one cent per dollar sales tax. It’s harmless, they will contend, despite evidence to the contrary. Not to mention that pronouncement of the arena as a sustainable success story is premature.
Goody Clancy proposes that projects qualify for public assistance through a point system, which is reported on in a Wichita Business Journal article. By meeting established criteria, developers would earn — or not earn — points. Earning a certain level of points would be necessary for the city to consider the application for public assistance, and the number of points earned would help the city justify pouring public assistance into a project. Presumably the point system could help the city rank and prioritize projects that are competing for limited funds.
Further considerations the city would use in deciding which projects to subsidize include, according to the presentation: team experience, financial qualifications, references, project economics, and public/private leverage ratio.
The problem is that any point system the city would use would be a system that meets political criteria, not market criteria. We must realize that the incentives and motivations of politicians and city hall bureaucrats are very different from the incentives and constraints that control behavior in markets. As Gene Callahan explains:
The Public Choice School has pointed out another force … Strong incentives exist for politicians to favor special-interest groups at the expense of the general public. Those upon whom benefits are concentrated are motivated to campaign hard for those benefits.
Specifically, for downtown redevelopment to be successful, we need to have development that is profitable for the private sector, considering all costs. By subsidizing certain developers according to political criteria the city ignores and distorts the dictates of markets, and capital is misapplied. People make decisions for wrong reasons using incorrect information.
While some city council members openly speak of the “free market” with disdain and other members pay it lip service only, we must remember that the free market consists of, in Wichita’s case, hundreds of thousands of consumers making decisions every day about where they want to live, work, and play. These decisions are made based on the individual preferences of each person, supplemented by the information the price system supplies.
The price system is the best way we have to communicate the relative value of things. Hayek explains its importance:
Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coordinate the separate actions of different people in the same way as subjective values help the individual to coordinate the parts of his plan.
The price system is a wonderful, almost miraculous system that, as Hayek writes, coordinates the actions of millions. It allows for the process of economic calculation which is at the heart of capitalism. The lack of economic calculation based on a price system is the reason why socialism fails everywhere it is tried. Callahan summarizes what Mises showed the world:
Mises showed that socialism is incapable of achieving an efficient use of society’s resources, because its economic planners have no means by which to perform economic calculation.
The point system that Goody Clancy proposes to dish out subsidy is a bypass of the price system and economic calculation. It substitutes the judgment of central planners for free people coordinating activities through the price system. Wichitans should reject this idea.
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