Readers of the Wichita Eagle might be excused for not understanding the economic realities of a proposed tax giveaway to a local development.
Tomorrow’s meeting of the Wichita City Council holds an item of economic development that might be confusing to citizens unless they read the meeting’s agenda packet. Here’s what the Wichita Eagle is reporting to readers: “The owner of the former Wichita Mall is seeking $3.6 million in industrial revenue bonds for a new parking lot — a request that the Wichita City Council will consider at its Tuesday meeting.” (Owners of former Wichita Mall seek IRBs for new parking lot, kansas.com, September 8, 2014)
The article doesn’t present much more about the economics of this transaction and its importance to public policy. That’s unfortunate, as after reading this article, citizens could be excused for thinking that the city is making a loan to a private entity.
But that isn’t the purpose of industrial revenue bonds, or IRBs, in Kansas. By issuing these bonds, the City of Wichita is not lending any money, and is not guaranteeing — not even hinting — that any loan will be repaid. Instead, city documents — but not Wichita Eagle reporting — tell us that Co-Co Properties, LLC will purchase the bonds. Who is Co-Co, you may be wondering? It’s the company that owns the Wichita Mall property, the same company that wants to borrow money to repair its parking lot. By purchasing the IRBs, the company is, in effect, lending money to itself. (It’s possible that Co-Co may seek other loans to get the funds to buy the IRBs, but if so, these would be private transactions and therefore not a matter of public policy.)
So if Co-Co is buying these IRBs itself, what is the purpose of the transaction? Why is Co-Co taking $3.6 million from one of its corporate pockets and transferring it to another pocket, and incurring costs in the process?
At this point, if all you’ve done is read the Wichita Eagle story, you may be confused. Actually, you’d be uninformed, because the Eagle story says nothing about who will purchase the IRBs. Further, the Eagle story tells us nothing about the reason for this transaction, which is to avoid paying two forms of taxes.
The city council agenda packet, available on the city’s website, explains that property tax forgiveness accompanies the IRBs. Specifically:
The one year estimated tax abatement on Co-Co’s proposed $3.6 million real property improvements when fully complete would be $108,541. … The value of a 100% real property tax exemption as applicable to taxing jurisdictions is:
City of Wichita, $29,258
Sedgwick County, $26,439
State of Kansas, $1,350
Wichita school district, $51,494
These annual numbers would be repeated for five years, plus another five years if the city council approves, based on council review. That’s potentially over one million dollars of forgiven property taxes.
That’s not all. City documents say city staff will also apply for a sales tax exemption. No value is given for how much sales tax Co-Co may avoid paying. If all purchases were taxable the value of the sales tax exemption would be $257,400, but it’s unlikely the value of the exemption would reach that level.
So there it is. The purpose of the industrial revenue bonds transaction is to avoid paying taxes. That inspires a question. In its application, Co-Co says it has spent millions renovating the building in order to attract tenants, done without public incentive or financing. But now we’re told the parking lot can’t be repaired without two forms of tax giveaways?
When the city finds it necessary to forgive taxes in order to make investment possible, it tells us that taxes in Wichita are too high. Those high taxes are blocking investment. It’s either that, or cronyism — a simple taxpayer-funded gift to a city council crony.
One more thing: Boosters of the proposed Wichita sales tax, part to be used for economic development, tell us that Wichita has only $1.65 million per year to fund incentives. The incentives being considered for Co-Co are worth over $1 million, but have no cash cost to the city. These incentives aren’t part of the $1.65 million annual budget for incentives. But the incentives do have a cost, paid by taxpayers when the city, county, state, and school district spend and expect taxpayers to make up this missing tax revenue.