It hasn’t worked, but Wichita will do it again


man-digging-coinsTomorrow the Wichita City Council will, in all likelihood, issue more business welfare in an effort to create jobs in Wichita.

The applicant company is asking for relief from paying property taxes under the city’s Economic Development Exemption (EDX). The city’s economic development policy has a formula that determines how much tax can be excused, based on job creation and capital investment. In this case, according to city documents, “WSM Industries qualifies for a 59%, five-plus-five year tax exemption.” Not 50 percent, and not 60 percent. Precisely 59 percent is what the city judges.

Here’s how the tax savings breaks down among the various taxing jurisdictions:

City of Wichita: $4,500
Sedgwick County: $4,081
USD 259: $7,920
State of Kansas: $209
Total: $16,710

An analysis performed for the city indicates a favorable benefit-cost ratio for these incentives. This inspires a question: If we really believe in this benefit to the city (and similar benefits to the county, school district, and state), why doesn’t the city make more investments like this? Surely there are other worthy companies could expand if not for the burden of property taxes. And that’s what tomorrow’s contemplated action means, if we are to believe it is anything but cronyism and business welfare: Property taxes in Wichita are what prevented this company from expanding. Erase 59 percent of the company’s property tax burden, and it is able to make new capital investment and jobs.

If it really is so easy to promote economic growth and job creation, we should be doing things like this at every city council meeting. Several times each meeting, don’t you think?

I also wonder about companies that made expansions as did this applicant company, but did not ask the city for incentives. What is their secret?

The reality is that these economic development incentives don’t work, if we are willing to consider the effect on everyone in the region instead of just this applicant company, and also if we are willing to consider the long-term effects instead of only the immediate.

Peer-reviewed research on economic development incentives — this is the conclusion of all the studies — find business location decisions to be favorably influenced by targeted tax incentives. That’s not a surprise. But the research also finds that the benefits to the communities that offered them were less than their costs.

Wichita and Peer Job Growth, Total Employment

If peer-reviewed research is not convincing, let’s take a look at the record of Wichita.
Here is a chart of job growth for Wichita, the nation, and our Visioneering peers. (Click it for a larger version, or click here for the interactive visualization, or here to watch a video.) The data shows that Wichita hasn’t been doing well.

So if we believe that an active role for government in economic development is best, we have to also recognize that our efforts aren’t working. Several long-serving politicians and bureaucrats that have presided over this failure: Mayor Carl Brewer has been on the city council or served as mayor since 2001. Economic development director Allen Bell has been working for the city since 1992. City Attorney Gary Rebenstorf has served for many years. At Sedgwick County, manager William Buchanan has held that position for more than two decades. On the Sedgwick County Commission, Dave Unruh has been in office since 2003, and Tim Norton since 2001. It is these officials who have presided over the dismal record of Wichita.

Wichita City Manager Robert Layton has had less time to influence the course of economic development in Wichita. But he’s becoming part of the legacy of Wichita’s efforts in economic development.


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