Today’s Wichita Eagle reports that Wichita’s “Minnesota Guys,” formally known as Real Development, are seeking yet another subsidy as they work in downtown Wichita. The article in the Eagle is HUD loan sought for downtown Wichita apartment plan.
In this case, the subsidy sought is a loan guarantee from the U.S. Department of Housing and Urban Development. Some readers say that a loan guarantee is not really a subsidy, as the government isn’t lending or giving Real Development any money. But it’s a subsidy nonetheless.
A loan guarantee will let Real Development borrow at a lower interest rate than it could without the guarantee. That is a benefit that pays off year after year, as long as the loan is in effect. It also puts the United States taxpayer at risk, as if Real Development defaults on the loan, the U.S. Treasury must pay.
Judging the risk of default for this loan is difficult. But if this application is approved, we’re stuck with this risk.
The development receiving this subsidy has also received other subsidies, according to the Eagle: “They got the city of Wichita to agree to spend $3 million to buy Exchange Place and the Bitting Building, and give it to them. The city is also committed to spend up to $6.2 million for a parking deck along Douglas.”
When the Minnesota Guys came to town a few years ago, they didn’t ask for subsidy, at least according to my research. I wrote to them, commending their position and asking why. Quoting from my letter: “If, as I believe, you have not sought help from our local government, I salute you, and I am very interested as to why.” No one responded to my query.
We can now confidently place Real Development in the crony capitalist column. Its principals — Michael Elzufon and David Lundberg — have become adept at working the halls of government power for taxpayer subsidy. The danger that Wichita faces is that since these developments are built with capital raised from politicians rather than markets, their roots are shallow.