This Friday (September 19, 2014) the Wichita Pachyderm Club presents Dr. Art Hall, who is Executive Director of the Center for Applied Economics at the University of Kansas School of Business. His topic is “Thoughts on Water and Economic Development.” These two topics are of current interest as they represent the two largest items the proposed one cent per dollar Wichita sales tax would be spent on.

Hall is the author of Embracing Dynamism: The Next Phase in Kansas Economic Development Policy.

The public is welcome and encouraged to attend Wichita Pachyderm Club meetings. Meetings are held almost every Friday in the Wichita Petroleum Club on the top floor of the Bank of America Building at 100 N. Broadway. The program starts at noon, and it is suggested that guests arrive by 11:45 am in order to get their lunch before the program starts. The meeting costs $12, which includes a delicious buffet lunch and beverage. For more information click on Wichita Pachyderm Club.

Richard Florida in Los Angeles Times:

The reality is that incentives play little if any role in companies’ location decisions, which are based on more fundamental factors like labor costs, the quality of the workforce, proximity to markets and access to suppliers. But companies have learned to game the process. Once they have decided on the best location, some even create a fictitious competition to extract whatever incentives they can from overzealous governments.

Political scientist Kenneth Thomas, a leading expert on incentives, points out that “companies have learned that the site location decision is a great opportunity to extract rents from immobile governments, and invest considerable resources into doing just that.” …

Virtually all of the published research on the subject shows that most economic development incentives are a senseless waste of taxpayer money. The Lincoln Institute of Land Policy, for example, studied the issue and found that “instead of creating new jobs or spurring employment, the main effect of incentives is simply to deplete a community’s tax base.” Poorer, less advantaged communities often take the biggest hit, being more likely to gamble public funds on the hope of new factory jobs. My own analysis found no connection between incentive dollars spent per capita and such measures of economic success as wages, incomes, human capital levels or unemployment.

Full article is Want to deplete your tax base? Give ‘job creators’ what they want.

This Friday (September 12, 2014) the Wichita Pachyderm Club presents Kansas Governor Sam Brownback speaking on the topic “Leading the Kansas Comeback.”

The public is welcome and encouraged to attend Wichita Pachyderm Club meetings. Meetings are held almost every Friday in the Wichita Petroleum Club on the top floor of the Bank of America Building at 100 N. Broadway. The program starts at noon, and it is suggested that guests arrive by 11:45 am in order to get their lunch before the program starts. The meeting costs $12, which includes a delicious buffet lunch and beverage. For more information click on Wichita Pachyderm Club.

Kansas senator debate

Kansas State Fair, September 6, 2014. pat Roberts, Republican, and Greg Orman, Independent.

Kansas governor debate

Kansas State Fair, September 6, 2014. Sam Brownback, Republican, and Paul Davis, Democrat.

This Friday (September 5, 2014) the Wichita Pachyderm Club presents Stephen Moore, Chief Economist at the Heritage Foundation. Moore will discuss his new book “An Inquiry into the Nature and Causes of the Wealth of States.”

Of this book, Steve Forbes wrote “Wow! This compelling, comprehensive book will be the bible for state and local leaders who truly want rapid economic growth. It will profoundly, positively change politics and economics in America.”

The public is welcome and encouraged to attend Wichita Pachyderm Club meetings. Meetings are held almost every Friday in the Wichita Petroleum Club on the top floor of the Bank of America Building at 100 N. Broadway. The program starts at noon, and it is suggested that guests arrive by 11:45 am in order to get their lunch before the program starts. The meeting costs $12, which includes a delicious buffet lunch and beverage. For more information click on Wichita Pachyderm Club.

At one time it was thought that the Wichita city-owned parking structure in the 400 block of East William Street would house retail shops along the street. But the results should give us reason to be wary of government economic development efforts. The video below explains, or click here to view in HD on YouTube.

By Leigh McIlvaine, Reno Gazette-Journal

As Nevada competes for a new Tesla battery factory, we write to say that tax incentives are not a “game.” Big, long-term decisions about whether Tesla pays taxes and how much will have real and lasting consequences for Nevada’s future economic health.

It was recently argued that tax breaks are necessary to help companies “control costs.” But even the biggest incentive packages have only a minimal impact on business costs. That’s because all state and local taxes combined make up less than 2 percent of the average company’s overall cost structure — a tiny amount compared to expenditures on labor, occupancy, equipment, materials, energy and logistics. The average manufacturing plant spends nearly 75 times more on labor than it does on property taxes.

Continue at McIlvaine: Decisions on incentives have consequences.

If we in Kansas and Wichita wonder why our economic growth is slow and our economic development programs don’t seem to be producing results, there is data to tell us why: Our tax rates are too high.

In 2012 the Tax Foundation released a report that examines the tax costs on business in the states and in selected cities in each state. Location Matters Tax Foundation coverThe news for Kansas is worse than merely bad, as our state couldn’t have performed much worse: Kansas ranks 47th among the states for tax costs for mature business firms, and 48th for new firms.

The report is Location Matters: A Comparative Analysis of State Tax Costs on Business.

The study is unusual in that it looks at the impact of states’ tax burden on mature and new firms. This, according to report authors, “allows us to understand the effects of state tax incentives compared to a state’s core tax system.” In further explanation, the authors write: “The second measure is for the tax burden faced by newly established operations, those that have been in operation less than three years. This represents a state’s competitiveness after we have taken into account the various tax incentive programs it makes available to new investments.”

The report also looks at the tax costs for specific types of business firms. For Kansas, some individual results are better than overall, but still not good. For a mature corporate headquarters, Kansas ranks 30th. For locating a new corporate headquarters — one that would benefit from tax incentive programs — Kansas ranked 42nd. For a mature research and development facility, 46th; while new is ranked 49th. For a mature retail store, 38th, while new is ranked 45th.

There are more categories. Kansas ranks well in none.

The report also looked at two cities in each state, a major city and a mid-size city. For Kansas, the two cities are Wichita and Topeka.

Among the 50 cities chosen, Wichita ranks 30th for a mature corporate headquarters, but 42nd for a new corporate headquarters.

For a mature research and development facility, Wichita ranks 46th, and 49th for a new facility.

For a mature and new retail store, Wichita ranks 38th and 45th, respectively.

For a mature and new call center, Wichita ranks 43rd and 47th, respectively.

Kansas tax cost compared to neighbors

Kansas tax cost compared to neighbors

In its summary for Kansas, the authors note the fecklessness of Kansas economic development incentives: “Kansas offers among the most generous property tax abatements and investment tax credits across most firm types, yet these incentives seem to have little impact on the state’s rankings for new operations.”

It’s also useful to compare Kansas to our neighbors. The comparison is not favorable for Kansas.

The record in Wichita

Earlier this year Greater Wichita Economic Development Coalition issued its annual report on its economic development activities for 2013. Its efforts, in its own words, “represent a projected 1,117 new jobs.”

gwedc-office-operationsThis report shows us that power of government to influence economic development is weak. GWEDC’s information said these jobs were for the geographical area of Sedgwick County. According to the Bureau of Labor Statistics, the labor force in Sedgwick County in 2013 was 242,744 persons. So the jobs created by GWEDC’s actions amounted to 0.46 percent of the labor force. This is a vanishingly small fraction. It is statistical noise. Other economic events overwhelm these efforts.

The report by the Tax Foundation helps us understand one reason why the economic development efforts of GWEDC, Sedgwick County, and Wichita are not working well: Our tax costs are too high.

While economic development incentives can help reduce the cost of taxes for selected firms, incentives don’t help the many firms that don’t receive them. In fact, the cost of these incentives is harmful to other firms. The Tax Foundation report points to this harm: “While many state officials view tax incentives as a necessary tool in their state’s ability to be competitive, others are beginning to question the cost-benefit of incentives and whether they are fair to mature firms that are paying full freight. Indeed, there is growing animosity among many business owners and executives to the generous tax incentives enjoyed by some of their direct competitors.”

It seems in Wichita that the thinking of our leaders has not reached the level of maturity required to understand that targeted incentives have great cost and damage the business climate. Instead of creating an environment in which all firms have a chance to thrive, government believes it can identify firms that are subsidy-worthy — at the exclusion of others.

But there is one incentive that can be offered to all firms: Reduce tax costs for everyone. The policy of reducing tax costs or granting incentives to the selected few is not working. This “active investor” approach to economic development is what has led companies in Wichita and Kansas to escape hundreds of millions in taxes — taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form.

Professor Art Hall of the Center for Applied Economics at the Kansas University School of Business is Embracing Dynamism: The Next Phase in Kansas Economic Development Policycritical of this approach to economic development. In his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy, Hall quotes Alan Peters and Peter Fisher: “The most fundamental problem is that many public officials appear to believe that they can influence the course of their state and local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering expectations about their ability to micro-manage economic growth and making the case for a more sensible view of the role of government — providing foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.”

In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers that Wichita and Kansas has been pursuing and Wichita’s leaders want to ramp up: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”

In making his argument, Hall cites research on the futility of chasing large employers as an economic development strategy: “Large-employer businesses have no measurable net economic effect on local economies when properly measured. To quote from the most comprehensive study: ‘The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.'”

There is also substantial research that is it young firms — distinguished from small business in general — that are the engine of economic growth for the future. We can’t detect which of the young firms will blossom into major success — or even small-scale successes. The only way to nurture them is through economic policies that all companies can benefit from. Reducing tax rates is an example of such a policy. Abating taxes for specific companies through programs like IRBs is an example of precisely the wrong policy.

We need to move away from economic development based on this active investor approach. We need to advocate for policies — at Wichita City Hall, at the Sedgwick County Commission, and at the Kansas Statehouse — that lead to sustainable economic development. We need political leaders who have the wisdom to realize this, and the courage to act appropriately. Which is to say, to not act in most circumstances, except to reduce the cost of government for everyone.

On the three major questions — Do economic development incentives create new jobs? Are those jobs taken by targeted populations in targeted places? Are incentives, at worst, only moderately revenue negative? — traditional economic development incentives do not fare well.

Judging the effectiveness of economic development incentives requires looking for the unseen effects as well as what is easily seen. It’s easy to see the groundbreaking and ribbon cutting ceremonies that commemorate government intervention — politicians and bureaucrats are drawn to them, and will spend taxpayer funds to make sure you’re aware. It’s more difficult to see that the harm that government intervention causes.

That’s assuming that the incentives even work as advertised in the first place. Alan Peters and Peter Fisher, in their paper titled The Failures of Economic Development Incentives published in Journal of the American Planning Association, wrote on the effects of incentives. A few quotes from the study, with emphasis added:

Given the weak effects of incentives on the location choices of businesses at the interstate level, state governments and their local governments in the aggregate probably lose far more revenue, by cutting taxes to firms that would have located in that state anyway than they gain from the few firms induced to change location.

On the three major questions — Do economic development incentives create new jobs? Are those jobs taken by targeted populations in targeted places? Are incentives, at worst, only moderately revenue negative? — traditional economic development incentives do not fare well. It is possible that incentives do induce significant new growth, that the beneficiaries of that growth are mainly those who have greatest difficulty in the labor market, and that both states and local governments benefit fiscally from that growth. But after decades of policy experimentation and literally hundreds of scholarly studies, none of these claims is clearly substantiated. Indeed, as we have argued in this article, there is a good chance that all of these claims are false.

The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering their expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government — providing the foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.

Following is the full paper, or click here.

Kansas state government collects more tax revenue than most surrounding states. Additionally, severance taxes are a minor contribution to collections, even in Texas.

The United States Census Bureau conducts an Annual Survey of State Government Tax Collections. It’s useful to gather figures for Kansas and some nearby states.

The data considers only tax collections by state government. It does not include cities, counties, school districts, or the many other taxing jurisdictions that states may have formed. I have computed this data on a per-person basis. Data is for 2013.

State tax collections for Kansas and some nearby states. Click for a larger version.

State tax collections for Kansas and some nearby states. Click for a larger version.

Considering total tax collections by state governments, note that Kansas, at $2,633 per person per year, is only slightly below the average for all states. For a group of nearby states, Arkansas and Iowa have higher state tax collections than Kansas. Nebraska, Oklahoma, Colorado, Texas, and Missouri are lower.

In some cases, state tax collections are substantially lower. Texas collects $1,955 per person per year, which is 25.75 percent less than Kansas.

Using the visualization.

Using the visualization.

Of note are severance taxes, which are taxes collected based on the extraction of oil, gas, and sometimes minerals. Kansas has a severance tax that produces, on a per person basis, $26 per year. In Texas the same tax produces $176 per person per year, and in Oklahoma, $134.

I’ve created an interactive visualization of this data that you may use. Click here to open the visualization in a new window.

From June 2014.

Today the Wichita City Council may decide to revive a program to issue rebates to persons who purchase water-saving appliances. The program was started last summer, but less than half the allocated rebate money was claimed. The city will argue that this program has no cost, as the funds are left over from last year’s program. Except: The city could use the money not spent on rebates to either reduce water rates or retire water system debt. Following is an article from last year on this topic.

Wichita begins rebates and regulation

Instead of relying on market forces, Wichita imposes a new tax and prepares a new regulatory regime.

Equus BedsAt today’s meeting of the Wichita City Council, the city decided to spend up to $1 million this year on rebates to encourage people to buy water-efficient appliances. This will save a vanishingly small amount of water at tremendous cost.

The worst realization from today’s city council meeting is how readily citizens, politicians, and bureaucrats will toss aside economic thinking. The antimarket bias that Bryan Caplan explains in The Myth of the Rational Voter: Why Democracies Choose Bad Policies was in full display — even by the conservative members of the council.

It’s also clear that some council members want to go down the road of austerity rather than abundance.

What did we learn today? Many speakers used the terms “conservation” and “judicious.” Conservation is good. Judicious use is good. But each person applies different meanings to these concepts. A great thing about living in a (relatively) free economy is that each person gets to choose to spend their time and money on the things that are important to them, and in the amounts they want. We make these choices many times each day. Sometimes we’re aware of making them, and sometimes we’re not.

For example: If you’re watching television alone in your home, and you go to the kitchen to get a snack, do you turn off the television for the moment that you’re not watching it? No? Well, isn’t it wasting electricity and contributing to global warming to have a switched-on television that no one is watching, even for just a moment?

Some people may turn off the television in this scenario. But most people probably decide that the effort required to save a minute’s worth of electricity consumption by a television isn’t worth the effort required.

(By the way, the type of television programs you watch each evening: Is it worth burning dirty coal (or running precious water through dams, or splitting our finite supply of uranium atoms, or spoiling landscapes and killing birds with wind turbines) just so you can watch Bill O’Reilly or Rachel Maddow rant? Or prison documentaries? Or celebrity gossip? Reruns of shows you’re already seen? And I’ve seen you fall asleep while watching television! What a monumental waste. We should require sleep sensors on all new televisions and rebates to retrofit old sets.)

But when people leave their homes empty to go to work, almost everyone turns off the television, lights, and other appliances. Many may adjust their thermostats to save energy. People make the choice to do this based on the costs of leaving the lights on all day versus the cost of turning them on and off. No one needs to tell them to do this. The relative prices of things do this.

(You may be noting that children have to be told to turn off televisions and lights. That’s true. It’s true because they generally aren’t aware of the prices of things, as they don’t pay utility bills. But adults do.)

In most areas of life, people use the relative prices of things to make decisions about how to allocate their efforts and consume scarce resources. Wichita could be doing that with water, but it isn’t.

The conservation measures recommended by speakers today all have a cost. Sometimes the cost is money. In some cases the cost is time and convenience. In others the cost is a less attractive city without green lawns and working fountains. In many cases, the cost is shifted to someone else who is unwilling to voluntarily bear the cost, as in the rebate program.

At least we’ll be able to measure the cost of the rebate program. For most of the other costs, we’re pretending they don’t exist.

Instead of relying on economics and markets, Wichita is turning to a regulatory regime. Instead of pricing water rationally and letting each person and family decide how much water to use, politicians and bureaucrats will decide for us.

All city council members and the mayor approved this expansion of regulation and taxation.

(Yes, it’s true that the rebates will be funded from the water department, but that’s a distinction without meaningful difference.)

The motion made by Mayor Carl Brewer contained some provisions that are probably good ideas. But it also contained the appliance rebate measure. Someone on the council could have made a substitute motion that omitted the rebates, and there could have been a vote.

But not a single council member would do this.

It’s strange that we turn over such important functions as our water supply to politicians and bureaucrats, isn’t it?

August 29, 2014
Dr. Malcolm Harris, Sr., Professor of Finance, Division of Business and Information Technology, Friends University. “Five Things to Get the American Economy Moving Again”

September 5, 2014
Stephen Moore, Chief Economist at the Heritage Foundation and former member of The Wall Street Journal’s editorial board, discussing his new book “An Inquiry into the Nature and Causes of the Wealth of States.”

September 12, 2014
Kansas Governor Sam Brownback. “Leading the Kansas Comeback”

September 19, 2014
Dr. Art Hall, Executive Director, Center for Applied Economics, University of Kansas School of Business. Thoughts on Water and Economic Development”

September 26, 2014
Eliehue Brunson, Chair, Kansas Black Republican Council. “Why is there a need for a Black Republican Council?”

October 3, 2014
Andrew Bernstein, Ph.D., The Ayn Rand Institute. “The Capitalist Manifesto and Objectivism in One Lesson”

October 10, 2014
Marlee Carpenter and Natalie Bright, Bright and Carpenter Consulting. “Political Landscape in the 2014 Elections”

October 17, 2014
Program to be announced.

October 24, 2014
Congressman Mike Pompeo.

The public is welcome and encouraged to attend Wichita Pachyderm Club meetings. Meetings are held almost every Friday in the Wichita Petroleum Club on the top floor of the Bank of America Building at 100 N. Broadway. The program starts at noon, and it is suggested that guests arrive by 11:45 am in order to get their lunch before the program starts. The meeting costs $12, which includes a delicious buffet lunch and beverage. For more information click on Wichita Pachyderm Club.

From Cato Institute.

Crony capitalism, corporate welfare or corporatism. Whatever you call it, Ralph Nader believes he can assemble a coalition to end it. In his new book, Unstoppable, he tries to signal to libertarians, conservatives and progressives that there is broad agreement on protecting civil liberties, preventing wars and ending handouts to corporations.

From LearnLiberty.org, a project of Institute for Humane Studies.

Dirty Laws? That’s the confusing part of EPA regulations. While intended to do good, they end up doing quite the opposite. When a corporation dumps its toxic waste a few miles upstream from your tomato farm — sure, you can go to the EPA, but odds are the offending party has filed all the right permits that allow them to do their dirtiest and you’re screwed. Join Law and Economics Prof. Roger Meiners in this Learn Liberty video as he shows how an age-old, British, free-market concept called “Common Law” may be the best remedy — without bureaucratic trash to stink things up.

Dr. Malcolm C. Harris

Dr. Malcolm C. Harris

This Friday (August 29, 2014) the Wichita Pachyderm Club presents Dr. Malcolm C. Harris, Sr. He is Professor of Finance at Friends University. His topic will be “Five Things to Get the American Economy Moving Again.” His blog is Mammon Among Friends.

The public is welcome and encouraged to attend Wichita Pachyderm Club meetings. Meetings are held almost every Friday in the Wichita Petroleum Club on the top floor of the Bank of America Building at 100 N. Broadway. The program starts at noon, and it is suggested that guests arrive by 11:45 am in order to get their lunch before the program starts. The meeting costs $12, which includes a delicious buffet lunch and beverage. For more information click on Wichita Pachyderm Club.

A forum on water issues featured a presentation by Wichita city officials and was attended by other city officials, but the city missed a learning opportunity.

This week Kansas Policy Institute held an educational form on the issues of water in the Wichita area. The event featured four presentations with questions and answers, with most being about one hour in length.

This was a welcome and important event, as the city is proposing to spend several hundred million dollars on an increased water supply. It is likely that citizens will be asked to approve a sales tax to pay this cost. It’s important that we get this right, and citizen skepticism is justified. The city has recently spent $247 million on a water project that hasn’t yet proved its value over a reasonably long trial. A former mayor has told audiences that he was assured Wichita had adequate water for the next 50 years. It was eleven years ago he was told that. Wichita’s current mayor has admitted that the city has not spent what was needed to maintain our current infrastructure, instead pushing those costs to the future.

Most of the information that Wichitans have access to is provided by city government. So when an independent group produces an educational event on an important topic, citizens might hope that Wichita city officials take part.

And, Wichita city officials did take part. The second of the four presentations was delivered by Wichita public works director Alan King and council member Pete Meitzner (district 2, east Wichita). City governmental affairs director Dale Goter and council member Lavonta Williams were in the audience.

But after this presentation ended, the four city officials left.

What did they miss? They missed two additional presentations, or half the program. The city officials did not hear a presentation by Dr. Art Hall of Kansas University which presented novel ideas of using markets for water resources. Particularly, how Wichita could secure increased water supply by purchasing water rights and using the infrastructure it already has in place.

In the final presentation, the audience asked questions that the presenter was not able to answer. City officials like public works director King would have been able to provide the answers.

I understand that city council members are part-time employees paid a part-time salary. Some have outside jobs or businesses to run. But that’s not the case with the city’s public works director or its governmental affairs director.

Come to think of it, where was the city manager? Assistant city manager? Other council members? The city’s economic development staff?

Where was Mayor Carl Brewer?

If you’ve attended a city council meeting, you may have to sit through up to an hour of the mayor issuing proclamations and service awards before actual business starts. Fleets of city bureaucrats are in the audience during this time.

But none of these would spend just one hour listening to a presentation by a university professor that might hold a solution to our water supply issue.

I understand that city officials might not be the biggest fans of Kansas Policy Institute. It supports free markets and limited government.

But city officials tell us that they want to hear from citizens. The city has gone to great lengths to collect input from citizens, implementing a website and holding numerous meetings.

About 70 people attended the KPI forum. Citizens were interested in what the speakers had to say. They sat politely through the presentation by the two city officials, even though I’m sure many in the audience were already familiar with the recycled slides they’d seen before.

But it appears that Wichita city officials were not interested in alternatives that weren’t developed by city hall. They can’t even pretend to be interested.

This Friday (August 22, 2014) the Wichita Pachyderm Club presents Nick Jordan, who is Kansas Secretary of Revenue. His topic is “An Analysis of Governor Brownback’s Tax Policy.”

The public is welcome and encouraged to attend Wichita Pachyderm Club meetings. Meetings are held almost every Friday in the Wichita Petroleum Club on the top floor of the Bank of America Building at 100 N. Broadway. The program starts at noon, and it is suggested that guests arrive by 11:45 am in order to get their lunch before the program starts. The meeting costs $12, which includes a delicious buffet lunch and beverage. For more information click on Wichita Pachyderm Club.

From Douglas County Conservative.

Who is Dan Watkins and the Kansas Values Institute?

The Kansas Values Institute (KVI) has been attacking the record of Gov. Sam Brownback, a Republican. The chair of KVI is Dan Watkins, an attorney from Lawrence. Helen VanEtten, Topeka, a national committeewoman for Kansas Republican Party, has done a great job of outlining Watkins’ longtime connections to the Democratic Party. Kansas Meadowlark has also done an outstanding job of reporting on where KVI gets its money and with whom it spends it. However, liberals and moderates who are cheering on KVI might want to consider Watkins’ business dealings in Douglas County.

Dan Watkins

Dan Watkins

Many liberals and moderates opposed the construction of the South Lawrence Trafficway (SLT). Few, however, know of Watkins’ role in the SLT, which goes back to the 1980s. The Pitch, an alternative newspaper based in Kansas City, did extensive reporting on the SLT and Watkins in 1997. According to The Pitch:

Watkins served as chief counsel for the Kansas Dept. of Transportation from 1980 to 1984. He says he worked with County Commissioner Nancy Hiebert, KDOT planning director Michael O’Keefe and members of the Kansas Turnpike Authority to “look at transportation-related problems and possible solutions” before the Lawrence Chamber of Commerce ever got involved. But Watkins’ name also appears on the trafficway proposal that came out of the secret Chamber of Commerce planning meetings.

Further:

In August 1985, when the Douglas County Commission sought engineering firms for a preliminary study of the highway, commissioners were impressed with HNTB’s bells and whistles. “Describing the firm’s presentation, which she said included color-coded charts and an ‘8-foot-long’ visual aid, Hiebert said she has ‘never seen a presentation up to that level,'” according to the Journal-World. HNTB won out over eight other firms, though none of the firms had submitted bids. The county paid HNTB $148,500 for the preliminary study.

When HNTB returned several months later with its results, the presenters included Daniel J. Watkins, a managing partner in the firm and the father of Dan Watkins. The elder Watkins later retired from HNTB, but not before the firm had secured much of the county’s trafficway business. Some argue that the family connection was a bit too close.

“No one says that very loud,” says Dan Watkins. “HNTB was selected for every major road project in the state of Kansas. They designed the Kansas Turnpike and many turnpikes around the country. They were a firm well positioned to design limited access roadways when the federal interstate system was funded in the ’50s and ’60s. They’re one of the largest design firms in the country. My dad is a well-recognized, well-respected engineer. The fact that he’s my father doesn’t have a goddamn thing to do with anything.”

Many liberals and moderates also opposed Columbia/HCA’s proposal to build a second hospital in Lawrence. Watkins also played a major role in that controversy proposal, as did Hiebert and another lawyer turned judge named Paula Martin.

In 1994, Martin was part of a 19-member pool of Douglas County attorneys hoping to be appointed to a new judgeship. Amongst the seven-member judicial nominating committee was Nancy Hiebert, a former Douglas County commissioner. Two years before then, Hiebert had been appointed to the Commission on Judicial Qualifications, which is the state’s watchdog agency for municipal and district judges.

At the time that Martin was being considered for the new judgeship, the 1994 Polk’s Lawrence City Directory shows her office was located at 211 E. 8th St., Ste. C, in Lawrence. The directory also listed attorney Dan Watkins’ office at the very same address.

After the pool of 19 had been pared down to three, the governor appointed Martin to fill the new judgeship. (Dan Watkins has worked for and with several Kansas governors. I have heard, but could not confirm, that he lobbied Gov. Joan Finney to appoint Martin to the judgeship.)

That same year, Columbia/HCA Healthcare Corp began expressing an interest in doing business in Lawrence. The corporation hired Hiebert as a liaison between the corporation and City of Lawrence officials. By early 1995, Columbia/HCA had proposed to buy half of Lawrence Memorial Hospital. Dan Watkins, a Lawrence attorney working on the Columbia/HCA proposal, “estimated that $28 million in cash would be generated by the creation of the joint venture.” Hiebert appeared with Watkins when he presented the proposal to Douglas County commissioners. In June 1996 Hiebert was promoted to serve as acting chief operating officer of Mt. Oread Medical Arts Centre, which was owned by Columbia/HCA. Like Watkins, Hiebert is deeply involved in Democratic Party politics. In fact, she and her husband John hosted Howard Dean, chairman of the Democratic National Committee, at their home in 2005. At that event, Dean told the crowd, “This is a struggle of good and evil. And we’re the good.”

After LMH trustees rejected Columbia/HCA’s proposal to buy LMH, Columbia/HCA announced its intentions to build a for-profit hospital in Lawrence to compete with city-owned LMH.

In December 1996, Lawrence city commissioners unanimously rejected Columbia/HCA’s proposal to build a new, for-profit hospital in Lawrence. According to the Journal-World, “Columbia’s local attorney, Dan Watkins, cautioned commissioners that governments aren’t always granted immunity from antitrust laws, particularly when the city, which owns the hospital, is a ‘market participant.'”

In February 1997, Columbia/HCA filed a lawsuit against the City of Lawrence, saying “The city commission had no reason to deny Columbia/HCA Healthcare Corp. its request to build a hospital in Lawrence.” (Hiebert left her position as acting chief operating officer of Mt. Oread Medical Arts Centre prior to the filing of the lawsuit.)

In July 1997, three executives of Columbia/HCA Healthcare Corp. were indicted by a federal grand jury in Florida on charges of defrauding the government for over a decade. They’re charged with conspiring to overbill Medicare and Medicaid by more than $1.7 million. Richard Scott, chairman and chief executive of the corporation, was forced to resign. In August 1997, the trustee for the New York state public pension fund sued 11 current and former executives and directors of Columbia/HCA Healthcare Corp., saying that they had allowed “pervasive and systemic” criminal fraud to flourish throughout the company. In January 2001, two subsidiaries of The Healthcare Corp., formerly Columbia/HCA, pleaded guilty to criminal fraud charges and were fined $65.2 million.

Back in Lawrence, Columbia/HCA’s lawsuit against the city was given to Judge Paula Martin to rule on. In May 1998, Judge Martin ruled in favor of Columbia/HCA, saying that the city’s permit rejection was “unreasonable.” The city responded with an appeal.

In February 2000, months after Columbia/HCA had sold its Mt. Oread complex to LMH, the Kansas Court of Appeals overturned Judge Martin’s ruling, and for one simple reason, which the judge apparently overlooked: Columbia/HCA did not own the property involved, so the question of whether it should be allowed to proceed with a new hospital was moot.

I will leave it to the reader to judge for herself or himself whether Watkins’ roles with the SLT and Columbia/HCA represent “Kansas values.”

By Dave Thomas.

Tax hurts business

Some have argued that Wichita’s potential new sales tax would hurt low-income citizens. While that is true, the impact of increasing the sales tax extends far beyond low-income consumers. As a sales manager, I see the result of changes in consumer spending habits, be it from higher gas prices, inflation in food prices or taxes.

A citywide retail sales tax would not only be felt by those paying the sales tax but by hundreds of Wichita small businesses. As consumers must pay one percent more in tax for everything they buy, they effectively have that much less to spend.

The burden on low-income citizens and the negative consequences felt by small businesses across Wichita would not be outweighed by the “jobs fund” plan to provide millions of dollars in incentives to a few politically connected businesses.

The local economy would be better served if City Hall kept the money in the pockets of the taxpayers and reduced the red tape for all business owners and entrepreneurs in Wichita.

From February 2013.

Once again, the Wichita Eagle editorial board misses the point regarding downtown Wichita development.

There may be some that are opposed to downtown simply because it’s downtown, or for other silly reasons. That seems to be the focus of Rhonda Holman’s editorial today.

But speaking from a perspective of economic freedom and individual liberty, it’s government interventionism in downtown that I object to. This is what harms Wichita, not the fact that people are living and working downtown or anywhere else, for that matter.

The political cronyism involved in many projects in downtown Wichita is what harms our city. When government takes from one and gives to another, everyone is worse off — other than the recipients. I understand that it’s easy to look at a subsidized project — be it downtown or elsewhere — and see people working at jobs. It’s much more difficult, however, to see the harm that the government intervention causes: Prosperity and jobs are lost due to inefficient government allocation of capital through political, not market, mechanisms. In the whole, we are worse off, not better.

If you don’t believe this — if you insist that the city government can create jobs and prosperity through its interventions, and that these have no net cost — then you have to ask why the city is not involved in more development.

It is the principled objection to government involvement that many do not understand, including, I think, the Wichita Eagle editorial board. An example: In September 2011, after I and others started a campaign to overturn a city council decision to award a tax subsidy to the Ambassador Hotel, the hotel’s lead developer asked to meet with me. In the meeting I explained that I would oppose the city’s action if applied to any hotel, located anywhere in Wichita, owned by anyone. He said that he sensed my opposition was based on principle, and I agreed.

The curious thing is that this seemed to puzzle him — that people would actually apply principles to politics.

The political allocation of investment capital in Wichita leads to problems of the appearance of impropriety, if not actual impropriety. There is a small group of people that repeatedly receive large amounts of taxpayer subsidy. These people and others associated with their companies regularly contribute to the campaign funds of city council members and candidates. These council members then vote to grant these people taxpayer-funded subsidy, year after year.

City council members also vote to award them with no-bid contracts. That’s terrible government policy. Especially when one recent contract was later put to competitive bid, and turned out to cost much less than the no-bid price. City council members, all except one, were willing to award their significant campaign contributors with an overpriced no-bid contract at taxpayer expense.

The company that won the no-bid contract was Key Construction. Its owners and executives were the sole contributors to the campaign fund of Lavonta Williams (district 1, northeast Wichita) in 2012 as she prepared to run for reelection this spring.

James Clendenin (district 3, southeast and south Wichita), also running for reelection this spring, and also having voted for the no-bid contract for Key, also received many contributions from Key and its executives in 2012. That company, along with person associated with one other company, were the sole source of Clendenin’s campaign funding that year.

Doesn’t the Wichita Eagle editorial board see a problem here? Doesn’t the newsroom?

There was a time when newspaper opinion editors crusaded against this type of behavior.

Newspaper editorial writers ought also to be concerned about how taxpayer funds are spent. The City of Wichita, however, has established non-profit organizations to spend taxpayer funds. The Wichita Downtown Development Corporation, for example, is funded almost exclusively through taxes. Yet, it claims that it is not a public agency as defined in the Kansas Open Records Act, and therefore need not fulfill records requests seeking to bring transparency as to how the agency spends its taxpayer funds. The city, inexplicably, backs WDDC in this interpretation of law that is contrary to the interests of citizens.

Secrecy of this type regarding taxpayer funds is not good public policy. There was a time when newspaper editors railed against government secrecy like this.

We need a newspaper editorial board that understands principle vs. political expediency. As a first step, let’s ask for an editorial board that recognizes these abuses of citizens and is willing to talk about them.

From August 2011. Douglas Place is now known as Block One, and the hotel is the Ambassador Hotel.

As part of the subsidy plan for Douglas Place, a downtown Wichita hotel being proposed, developers plan to make extensive use of historic preservation tax credits to fund their project. This form of developer welfare, besides being inefficient, is largely hidden from public view.

According to Allen Bell, Wichita’s Director of Urban Development, the project’s team, which is lead by David Burk, plans to tap $3.8 million in state tax credits and $3.5 million in federal tax credits, for a total of $7.3 million in this form of subsidy.

Tax credits may be a mystery to many, but there is no doubt as to their harmful effect on state and federal budgets. When using tax credits, the government, conceptually, issues a slip of paper that says something like “The holder of this document may submit it instead of $500,000 when making a tax payment.”

This is a direct cost to the government, according to both reason and the Kansas Division of Legislative Post Audit. Last year, after conducting an audit of Kansas tax credit programs, auditors explained: “Tax credits, which the government offers to try to induce certain actions by the taxpayer, reduce income tax revenues because they are subtracted directly from the amount of taxes due.” (emphasis added)

The audit found that in 2001, when the Kansas historic preservation tax credit program was started, the anticipated cost to the state was about $1 million per year. By 2007, the actual cost to the state was reported at almost $8.5 million.

Further, the audit found what many already knew: tax credit aren’t an efficient way of transferring subsidy to developers. Most of the time, the developers sell the credits to someone else at a discount, as the audit explains: “The Historic Preservation Tax Credit isn’t cost-effective. That credit works differently than the other three because the amount of money a historic preservation project receives from the credit is dependent upon the amount of money it’s sold for. Our review showed that, on average, when Historic Preservation Credits were transferred to generate money for a project, they only generated 85 cents for the project for every dollar of potential tax revenue the State gave up.”

The audit concluded this is not efficient: “That’s not a cost-effective means of generating funds for these projects because 15% of the money gets pulled out and never actually goes for preservation activities.”

(Besides this efficiency problem the audit also found that the Kansas Department of Revenue was not accurately tracking the tax credits after their issue. See Kansas historic preservation tax credits audit reveals inefficiency, data problems.)

In the case of the Douglas Place project in Wichita, the inefficiencies that Legislative Post Audit found are present. According to Bell, the developers plan to sell the tax credits for 87 cents on the dollar. So they’re doing a bit better than the average project.

Still, Kansas taxpayers will give up $3.8 million in tax revenue in order to give Burk and his team about $3.3 million cash. Federal taxpayers will give up $3.5 million in order to give Burk $3 million.

And it is a gift. It’s not an exemption from paying property or sales taxes, or letting a hotel keep 75 percent of the guest tax it generates, or tax increment financing for a garage, or the state charging customers extra sales tax that the hotel keeps, or sweetheart lease deals. Burk and his partners are getting all that, too.

The tax credits stand out as a direct transfer of money from taxpayers to private parties. But being accomplished through the tax system shrouds the process in mystery. And, no direct action is required by any legislative body. The tax credit program is in place. The developer applies, and if accepted, the credits are granted. No one — at least no one elected by and accountable to voters — votes to grant the specific credits.

The historic preservation tax credit program, in a short time, has grown from a program designed to help spruce up a few old buildings here and there to a developer welfare program on steroids. The Drury Plaza Hotel Broadview in downtown Wichita benefited from this program too, costing Kansas taxpayers over $4 million to pay for its tax credits, and that’s on top of other forms of subsidy.

From April 2012.

OLYMPUS DIGITAL CAMERARecently both chambers of the Kansas Legislature passed similar bills authorizing a five year extension of the Kansas STAR bonds program. In the House the bill passed 92 to 31. In the Senate the vote was 27 to 13.

The STAR bonds program provides a way to redirect sales taxes to project developers instead of the state treasury, which is where most people think taxes go — or should go.

Not so with STAR bonds. In the words of the Kansas Department of Commerce, the program offers “municipalities the opportunity to issue bonds to finance the development of major commercial, entertainment and tourism areas and use the sales tax revenue generated by the development to pay off the bonds.” This description, while generally true, is not accurate. A proposed STAR bond district in Wichita includes much area beyond the borders of the proposed development, including a Super Target store, a new Cabela’s store, and much vacant ground that will probably be developed as retail. The increment in sales taxes from these stores — present and future — goes to the STAR bond developer.

I asked a number of members of the Kansas House and Senate to explain their votes in favor of extending the STAR bonds program. It was difficult to extract answers, but I finally a received a few.

One member explained to me that some votes are “ugly.” Yes, indeed I would say, including this member’s. But that’s no reason not to vote correctly in favor of limited government, capitalism, and free markets. Sometimes members have to vote according to their campaign promises.

One member explained to me that the bonds that will be sold are bought by private investors, and there’s nothing wrong with that. That’s true, but stopping the thought process there is naive. How are payments on these bonds to be made, we have to ask. The answer is payments are made, at least partially, from the captured sales tax revenue. That’s revenue not earned by the developers. Instead, it is revenue collected by government in the form of taxes that consumers have no choice but to pay. From the developers’ viewpoint (and pocketbook) it is a gift from government that others in similar situations are not able to receive. These gifts of money from government to business are known as cronyism. It is Kansas being business-friendly, which is not the same as capitalism-friendly, and it makes our state poorer and less able to compete.

Some made the argument that STAR bond proceeds can be used only for certain allowable expenses such as “horizontal” expenses. Arguments such as these are commonly made to support government subsidy programs. Supporters argue that since the use of the funds is restricted, this somehow makes it allowable, even benign. But this is nonsense. If I gave you $100 with the stipulation that you could spend it only on Mondays, would anyone deny that you are wealthier by $100? That is, of course, if you were planning to spend money on Mondays. And if you weren’t, couldn’t you shift some of your spending to Mondays?

This is the nonsensical nature of these arguments. Still, many purportedly fiscal conservatives are persuaded.

Simply put, the STAR bonds program turns over taxation to private parties for their own benefit. When we are willing to turn over taxation to the benefit of private interests, we have to wonder a few things:

First, why do we need taxation at all, if we can simply excuse some from participating in the system?

Second: Can something be moral if it is not applied equally to everyone?

Third: Sometimes it is claimed that without the government subsidy, a project is not economically feasible. Developers have lots of ways to make a project appears that it needs government help, and they have multimillion dollar motives to do so. But when something is truly not economically feasible, that means that the judgment of the marketplace is that the product or service is not desired — at least not at a price necessary to make the project profitable. But not to worry — our fearless government leaders will override the judgment of free people trading freely in markets. They will enact a forced transfer of wealth from taxpayers to the developers whose ideas can’t make it in the market. These leaders include Kansas Governor Sam Brownback, Secretary of Commerce Pat George, the Speaker of the House and President of the Senate, and chairs of key committees, except (surprisingly) Les Donovan, chair of the senate tax committee.

For more on the harm to capitalism of the STAR bonds program, see Kansas STAR bonds vote a test for capitalism.

In the House of Representatives, there were two explanations as to why some members voted no. The first one reads: “I vote NO on HB 2561. Star Bonds are a form of failed economic policy that Kansas should distance itself from. It is time for government to stop picking winners and losers and instead promote economic policies and a lower tax structure that all Kansans can benefit from. Star bonds are a form of centralized planning that favors a few at the expense of other taxpayers and businesses. These bonds divert needed money from police, fire, roads, and other core functions of government for 10, 20, and even 30 years. Mr. Speaker, I vote NO, choosing to support the taxpayers who voted me in office.” This was in the names of Pete DeGraaf, Virgil Peck, Jr, Randy Garber, Charlotte O’Hara, Owen Donohoe, and Connie O’Brien.

A second statement read: “HB 2561 goes against my principles of free enterprise and limited government. By redirecting tax revenue to a particular business, STAR bonds create an unequal playing field. STAR bonds favor a few at the expense of other taxpayers and businesses. These bonds divert money needed for core functions of government for decades into the future. It is time for government to stop picking winners and losers and instead promote economic policies and a lower tax structure from which all Kansans can benefit. Mr. Speaker, I stand with the voters that elected me. I vote NO on HB2561.” This was in the names of Jim Howell, Dennis Hedke, TerriLois Gregory, Brett Hildabrand, Greg Smith, Kelly Meigs, Amanda Grosserode, Jana Goodman, Lance Y. Kinzer, Mitch Holmes, Marc Rhoades, Kasha Kelley, Dan Collins, and Tom Arpke.

In the House, there were a number of members who voted in favor of the STAR bonds program in spite of proclamations of fiscal conservatism. Many of these members are looking for ways to reduce the growth of Kansas government and taxes. Some are in high leadership positions. Yet, somehow they didn’t see the harm in voting for the STAR bonds program. This list includes Steve Brunk of Wichita; Richard Carlson of St. Marys and Chair of the House Taxation Committee; Mario Goico of Wichita; Phil Hermanson of Wichita; Kyle Hoffman of Coldwater; Steve Huebert of Valley Center; Dan Kerschen of Garden Plain; Mike Kiegerl of Olathe; Marvin Kleeb of Overland Park and vice-chair of House Taxation Committee; Brenda Landwehr of Wichita; Peggy Mast of Emporia, who is Assistant Majority Leader; Mike O’Neal of Hutchinson, who is Speaker of the House; Les Osterman of Wichita; Joe Patton of Topeka; Scott Schwab of Olathe; Arlen Siegfreid of Olathe, who is Majority Leader; Gene Suellentrop of Wichita; and Brian Weber of Dodge City.

In the Senate, these votes came from Terry Bruce of Hutchinson; Dick Kelsey of Goddard, Jeff King of Independence; Garrett Love of Montezuma; and Susan Wagle of Wichita.

From August 2012.

The City of Wichita has passed a revision to its economic development policies. Instead of promoting economic freedom and a free-market approach, the new policy gives greater power to city bureaucrats and politicians, and is unlikely to produce the economic development that Wichita needs. Sedgwick County will also consider adopting this policy.

The city wants to have policies that everyone can understand, but it also wants flexibility to waive policies and guidelines in light of mitigating factors.

Here’s an illustration of how difficult it is to adhere to policies. The draft proposal of the new economic development policy states: “The ratio of public benefits to public costs, each on a present value basis, should not be less than 1.3 to one for both the general and debt service funds for the City of Wichita; for Sedgwick County should not be less than 1.3 overall.”

The policy also states that if the 1.3 to one threshold is not met, the incentive could nonetheless be granted if two of three mitigating factors are found to apply. But there is a limit, according to the policy: “Regardless of mitigating factors, the ratio cannot be less than 1.0:1.”

Last August the city council passed a multi-layer incentive package for Douglas Place, which is better known as the Ambassador Hotel and environs. Here’s what the material accompanying the letter of intent that the council passed on August 9, 2011 held: “As part of the evaluation team process, the WSU Center for Economic Development and Business Research studied the fiscal impact of the Douglas Place project on the City’s General Fund, taking into account the requested incentives and the direct, indirect and induced generation of new tax revenue. The study shows a ratio of benefits to costs for the City’s General Fund of 2.62 to one.

So far, so good. 2.62 is greater than 1.3. But the policy applies to both the general fund and the debt service fund. So what about the impact to the debt service fund? Here’s the complete story from the WSU CEDBR report:

                                   Cost-benefit ratio
City Fiscal Impacts General Fund         2.63
City Fiscal Impacts Debt Service         0.83
City Fiscal Impacts                      0.90

The impact on the debt service fund is negative, and the impact in total is negative. (A cost-benefit ratio of less than one is “negative.”)

Furthermore, the cost of the Ambassador Hotel subsidy program to the general fund is $290,895, while the cost to the debt service fund is $7,077,831 — a cost factor 23 times as large.

So does the city have the wherewithal to stick to the policies it formulates? In my experience, not always. In this case, the city didn’t make this negative information available to the public. It was made public only after I requested the report from WSU CEDBR. It is not known whether council members were aware of this information when they voted.

There are, however, other factors that may allow the city to grant an incentive: “In addition to the above provisions, the City Council and/or County Commission may consider the following information when deciding whether to approve an incentive.” A list of 12 factors follows, some so open-ended that the city can find a way to approve almost any incentive it wants.

At yesterday’s city council meeting, when explaining the policy to the council, Wichita economic development chief Allen Bell said there should be “rational criteria” for when exceptions can be considered. We should also ask for truthfulness and complete disclosure, including negative factors.

When considering cost-benefit ratios, we also need to realize that the “benefits” in the calculation are in the form of increased tax revenue paid to the city, county, etc. There is no consideration of actually rewarding the taxpayers that pay for — and assume the risk of — economic development incentives. Furthermore, these benefits are not like profits that business firms earn. Instead, they are in the form of taxes that government takes.

Speculative industrial buildings

A new feature of the policy implements property tax forgiveness for speculative industrial buildings. The proposed plan had a formula that grants a higher percentage of tax forgiveness as building size increases, but the council eliminated that and voted a 100 percent tax abatement for all buildings larger than 50,000 square feet.

Given tax costs and industrial building rents, this policy gives these incentivized buildings a cost advantage of about 20 percent over competitors. That’s very high, and makes it difficult for existing buildings to compete. Probably no one will build these buildings unless they qualify for and receive this incentive.

While the city hopes that these incentivized buildings will generate new jobs in Wichita, there appears to be nothing in the policy that prevents existing companies in Wichita from moving to these buildings. This simply moves jobs from one location to another, and would harm existing landlords.

While the policy was designed to encourage large buildings instead of small, there appears to be no limitation on the size of space someone can rent. A building 100,000 square feet in size gets 100 percent tax abatement. But the space could be rented out in smaller parcels to multiple tenants, making it easy to steal local tenants from another landlord.

Finally, are pre-built facilities really necessary? Wind energy firms in Newton and Hutchinson built their plants from ground up.

Tax costs

Since many of the economic development incentives involve relief from paying taxes, we have to ask whether our tax levels and tax policies are discouraging business investment. Now we have an answer.

This year the Tax Foundation released a report that examines the tax costs on business in the states and in selected cities in each state. The news for Kansas is worse than merely bad, as our state couldn’t have performed much worse: Kansas ranks 47th among the states for tax costs for mature business firms, and 48th for new firms. Wichita was cited in the report, and the city did not do well. See Kansas and Wichita lag the nation in tax costs.

Wichita’s record on economic development

Earlier this year Greater Wichita Economic Development Coalition issued its annual report on its economic development activities for the year. The shows us that power of government to influence economic development is weak. In its recent press release, the organization claimed to have created 1,509 jobs in Sedgwick County during 2011. According to the Bureau of Labor Statistics, the labor force in Sedgwick County in 2011 was 253,940 persons. So the jobs created by GWEDC’s actions amounted to 0.59 percent of the labor force. This is a very small fraction, and other economic events are likely to overwhelm these efforts.

In his 2012 State of the City address, Wichita Mayor Carl Brewer took credit for creating a similar percentage of jobs in Wichita.

Rarely mentioned are the costs of creating these jobs — the costs of the incentives and the cost of the economic development bureaucracy. These costs have a negative economic impact on those who pay them, meaning that economic activity and jobs are lost somewhere else in order to pay for the incentives.

Also, at least some of these jobs would have been created without the efforts of GWEDC. All GWEDC should take credit for is the marginal activity that it purportedly created. Government usually claims credit for all that is good, however.

The targeted economic development efforts of governments like Wichita and Sedgwick County fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. In the case of the Wichita and Sedgwick County policy, do we really know which industries should be targeted? Are we sure about the list of eligible business activities that subsidies can be used to pay? Is 1.3 to one really the benchmark we should seek, or we be better off and have more jobs if we insisted on 1.4 to one or relaxed the requirement to 1.2 to one?

This lack of knowledge, however, does not stop governments from creating policies for the awarding of incentives. This “active investor” approach to economic development is what has led to companies escaping hundreds of millions in taxes — taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form.

Professor Art Hall of the Center for Applied Economics at the Kansas University School of Business is critical of this approach to economic development. In his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy, Hall quotes Alan Peters and Peter Fisher: “The most fundamental problem is that many public officials appear to believe that they can influence the course of their state and local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering expectations about their ability to micro-manage economic growth and making the case for a more sensible view of the role of government — providing foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.”

In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers that Wichita and other cities engage in: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”

In making his argument, Hall cites research on the futility of chasing large employers as an economic development strategy: “Large-employer businesses have no measurable net economic effect on local economies when properly measured. To quote from the most comprehensive study: ‘The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.'”

There is also substantial research that is it young firms — distinguished from small business in general — that are the engine of economic growth for the future. We can’t detect which of the young firms will blossom into major success — or even small-scale successes. The only way to nurture them is through economic policies that all companies can benefit from. Reducing tax rates is an example of such a policy. Abating taxes for specific companies through programs like IRBs and other economic development programs is an example of precisely the wrong policy.

We need to move away from economic development based on this active investor approach. We need to advocate for policies — at Wichita City Hall, at the Sedgwick County Commission, and at the Kansas Statehouse — that lead to sustainable economic development. We need political leaders who have the wisdom to realize this, and the courage to act appropriately. Which is to say, to not act in most circumstances. Wichita and Sedgwick County are moving in the wrong direction.