On Tuesday the Wichita City Council will consider an economic development incentive for a local business. The process the city is using to grant this incentive bypasses the scrutiny that accompanies the formation of TIF districts while providing essentially the same benefit.
The proposal provides Industrial Revenue Bond financing to American Luxury Cinemas, Inc., d.b.a. 21st Street Warren Theatre, a company owned in part by Wichita theater operator Bill Warren. Under the city’s IRB program, no city money is lent to Warren, and the city does not provide any guarantee that the bonds will be repaid.
Instead, the benefit of the IRB to Warren is that he will escape paying property taxes on the new theater. Also, he will likely avoid paying sales taxes on purchases made with the bond money. (The city-supplied material doesn’t mention the sales tax exemption, but this incentive is commonly granted, and mention of it was likely omitted by mistake from the agenda report.)
This project is a TIF district in effect. It has the same economic benefit to the applicant. But the way this deal is structured means it doesn’t have to go through the normal approval process of a TIF district. Specifically, the Sedgwick County Commission will not have a chance to consider approval of these incentives. That approval would probably not be granted.
The process being used also allows the city to bypass the 30 day notice of a public hearing required for formation of a TIF district.
In a TIF district, the city borrows money and spends it immediately for the benefit of the TIF district. What the city spends money on isn’t important, as long as it’s spent on things that the owners of the property in the TIF district would have to pay for themselves, if not for the city. This is important to remember, as defenders of TIF districts say that the city money is spent “only on infrastructure,” as if most developers don’t have to pay for their own infrastructure.
As improvements to property in the TIF district are made — buildings being built or renovated, etc. — the property taxes on the property go up. This increase in the tax payments — that’s the increment in TIF — goes to pay off the borrowed money that was spent on the TIF district.
Since the TIF district spending was for the exclusive benefit of of the TIF district applicant, and the increased property taxes are paying off the bonds that provided that spending, TIF districts, in effect, let the applicants keep the increase in their own property taxes for their exclusive benefit.
Whenever anyone else improves their property and has to pay higher taxes, those taxes go to fund the general operations of government.
(If this sounds confusing and complicated, it is. It is confusing by design. A while back I told the council: “I’ve come to realize that this confusion serves a useful purpose to this council, because if the people of Wichita knew what was really happening, they’d be outraged.”)
In the Warren deal that the council will consider on Tuesday, no TIF district is being created. But because the property is in the IRB program, property taxes will be forgiven. Warren is agreeing to make payments equal to the present tax bill on the property (plus a small annual increase).
The net effect is that the Warren group will not pay property taxes on the value of the new project. It’s the same economic effect as a TIF district, without the scrutiny that accompanies formation of a TIF district.
Some city politicians and bureaucrats — particularly Mayor Carl Brewer, council member Jeff Longwell, and the city’s economic development chief Allen Bell — have complained that the city doesn’t have enough “tools in the toolbox” when it comes to dishing out economic development incentives.
This applicant has been the recipient of economic development incentives, including a TIF district formed for its benefit. When that business was failing, the city created a special tool for Warren’s benefit: a no-interest and low-interest loan.
Here we see another new tool being created — the formation of what is, in effect, a TIF district without accompanying scrutiny.
Jeff Longwell was on channel 3 6:00 news Friday evening and made it sound as if if this request from Warren is not granted, Warren will build elsewhere. The Wichita taxpayer says then ‘feel free to do so’. I doubt very seriously if Oklahoma is willing to do this for Mr. Warren. I don’t have a problem with Mr. Warren requesting the IRBs. What I have a problem with is the veiled threat to ‘go elsewhere” in order to forgive Warren’s fairshare of taxes.
How much can this City Council continue to forgive and forgo? And why does Mr. W continue to receive all these special favors from this Council? The Old Town Theatre loans, TIF district status and now this??????????????
Jimmy, Bill Warren contributes thousands of dollars to elect and re-elect most council members. The money, of course, ends up being taxpayer’s money since he gets reimbursed many times over with the City’s giveaways. The City Council needs to come under the same ethics laws that state elected officials have including the registration of lobbyists. Finally, in the Spring of 2011 we need to vote all of these Council Clowns out of office.
Jimmy, do you know that the City Council members do not pay social security!
[…] and next, the Wichita City Council will attempt to do this several times. It starts tomorrow with a theater owner’s request to avoid paying millions in property taxes. A food processing company is asking for similar […]
Warren should have to use a portion of his IRB proceeds to pay back the loan the city made him on his theatre in Old Town.
A millionaire is milking the city for millions more. A sweet deal for a fellow with a struggling business model. The business model is struggling since folks can rent much more inexpensively videos for their home theatre/sound system.
That’s why theatre owners nationwide are trying to upgrade to 3D or in this case, IMAX to provide something unique for consumers. This is a challenge for Mr. Warren. If he can get the taxpayer to subsidize his upgrade, this reduces his risk and protects his capital. Why this is in the interest of the average Wichitan is a mystery to me.
Mr. Warren has built theatres in town and elsewhere (OK). He will pursue his business interests as he sees fit. I wish him well in his ventures but I want my tax dollars to subsidize NO ONE! That includes Mr. Warren. I am disappointed that the city council seems to follow the government subsidy form of special favors for special people. How sad for this community’s future.
[…] Related: Wichita targeted economic development should end, Wichita Warren Theater IRB a TIF district in disguise. […]