As the City of Wichita prepares to grant special tax status to another new industrial building, existing landlords must be wondering why they struggle to stay in business when city hall sets up subsidized competitors with new buildings and a large cost advantage.

Tomorrow the Wichita City Council considers whether to grant property and sales tax exemptions to a proposed speculative industrial building in north central Wichita. If approved, this will be the second project undertaken under new economic development policies that allow for this type of tax exemption.

Those with tax abatementsCity documents estimate that the property tax savings for the first year will be $312,055. This exemption will be granted for five years, with a second five year period possible if performance goals are met.

The city documents also state that the project will also apply for a sales tax exemption, but no estimate of these tax savings are given. It’s common for a project of this type to have about half its cost in purchases subject to sales tax. With “site work and building” at $10,350,000, sales tax in Wichita on half that amount is $370,012. Undoubtedly a rough estimate, it nonetheless gives an idea of how much sales tax the developers will avoid paying.

(If city hall has its way, the sales tax in Wichita will soon increase by one cent per dollar, meaning the developers of this project would save $421,762 in sales tax. While others will hurry to make purchases before the higher sales tax rate takes effect — if it does — these developers will be in no hurry. Their sales tax is locked in at zero percent. In fact, once having a sales tax or property tax exemption, these developers are now in a position to root for higher sales and property tax rates, as that increases costs for their competitors, thereby giving these tax-exempt developers a competitive advantage.)

City documents give the benefit-cost ratios for the city and overlapping jurisdictions:

City of Wichita General Fund 1.30 to one
Sedgwick County 1.18 to one
USD 259 1.00 to one
State of Kansas 12.11 to one

It’s not known whether these ratios include the sales tax forgiveness.

Wichita City Budget Cover, 1992While the City of Wichita insists that projects show a benefit-cost ratio of 1.3 to one or better (although there are many exceptions), it doesn’t apply that standard for overlapping jurisdictions. Here, Sedgwick County experiences a benefit-cost ratio of 1.18 to one, and the Wichita school district (USD 259) 1.00 to one. These two governmental bodies have no input on the decision the city is making on their behalf. The school district’s share of the forgiven taxes is 47.4 percent.

When the city granted a similar tax exemption to a speculative warehouse in southwest Wichita, my estimates were that its landlord has a cost advantage of about 20 percent over other property owners. Existing industrial landlords in Wichita — especially those with available space to rent and those who may lose tenants to this new building — must be wondering why they struggle to stay in business when city hall sets up subsidized competitors with new buildings and a large cost advantage.

Wichita property taxes

Property taxes in Wichita are high for industrial buildings, and even higher for commercial buildings. See Wichita property taxes compared. So it’s difficult to blame developers for seeking relief. But instead of offering tax relief to those who ask and to those city hall approves of, it would be better to have lower taxes for everyone.

Targeted economic development incentives

The targeted economic development efforts of governments like Wichita 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, do we really know which industries should be targeted? Is 1.3 to one really the benchmark we should seek, or would we be better off by insisting on 1.4 to one? Or should we relax the requirement to 1.2 to one so that more projects might qualify?

This assumes that these benefit-costs ratios have validity. This is far from certain, as follows:

1. The benefits that government claims are not really benefits. Instead, they’re in the form of higher tax revenue. This is very different from the profits companies earn in voluntary market transactions.

2. Government claims that in order to get these “benefits,” the incentives must be paid. But often the new economic activity (expansion, etc.) would have happened anyway without the incentives.

3. Why is it that most companies are able to grow without incentives, but only a few companies require incentives? What is special about these companies?

4. If the relatively small investment the city makes in incentives is solely responsible for such wonderful outcomes in terms of jobs, why doesn’t the city do this more often? If the city has such power to create economic growth, why is anyone unemployed?

Do incentives work?

The uncontroverted peer-reviewed research tells us that targeted economic development incentives don’t work, if we consider the entire economy. See: Research on economic development incentives. Some of the conclusions of the studies listed there include:

No evidence of incentive impact on manufacturing value-added or unemployment”

Small reduction in employment by businesses which received Ohio’s tax incentives”

No evidence of large firm impacts on local economy”

No permanent employment increase across a quasi-experimental panel of all Cabela’s stores”

“Employment impact of large firms is less than gross job creation (by about 70%)”

These research programs illustrate the fallacy of the seen and the unseen. It is easy to see the jobs being created by economic development incentives. It’s undeniable that jobs are created at firms that receive incentives, at least most of the time. But these jobs are easy to see. It’s easy for news reporters to find the newly-hired and grateful workers, or to show video footage of a new manufacturing plant.

But it’s very difficult to find specific instances of the harm that government intervention produces. It is, generally, dispersed. People who lose their jobs usually don’t know the root cause of why they are now unemployed. Businesses whose sales decline often can’t figure out why.

But evidence tells us this is true: These incentives, along with other forms of government interventionism, do more harm than good.

Proceedings of a recent Wichita City Council meeting are instructive of the factors citizens should consider if they want to interact with the council and city government at a public hearing.

At the June 17, 2014 meeting of the Wichita City Council, one agenda item was a public hearing to consider adding a property to the city’s facade improvement program. Susan Estes of Americans for Prosperity-Kansas appeared before the council during the hearing to express concern that a member of AFP (me) had made a request for information on the item, but had not received the information by the time of the public hearing. Background on my request and its importance to public policy can be found at In Wichita, a public hearing with missing information. Video of this meeting is below, or click here to view at YouTube.

From the bench, Council Member Pete Meitzner (district 2, east Wichita) said that this Pete Meitzer District 2 2012item had been “discussed in length last week,” referring to what would be the June 10, 2014 meeting. A reading of council agendas and minutes shows that it was actually at the June 3 meeting when the item was presented. Further, the June 3 matter was a different item. It’s a small detail, but the purpose of the June 3 item was to approve and accept the property owners petition and set the date for a public hearing. That public hearing was held on June 17.

At the June 3 meeting, contrary to Meitzner’s assertion, there was no substantive discussion on this item except for the presentation by city staff. There really was no need for discussion at that time, as the purpose of the agenda item was to accept the petition and set a date for a public hearing. If the petition is valid in its form, I don’t believe the council has any choice but to accept it and set a date for a public hearing. The purpose of the public hearing is to, naturally, hear from the public.

At the June 17 meeting during the public hearing, Meitzner questioned Estes and city staff. He asked if there was a “gap analysis” performed on all special assessments the city establishes. When told no, he asked Open Recordswhy is the gap analysis needed for this project and not for others. The assistant city manager explained that it is required for economic development projects like the one under consideration today, but not for others.

Questioning at the meeting also revealed that there are legal issues regarding whether the gap analysis can be disclosed to the public. The city has told me it will respond to my request for the document by June 20. The city is treating my friendly request for the document as a request made under the Kansas Open Records Act. That law is permeated with loopholes and exceptions that give government many pretexts to avoid disclosure of documents.

The meeting also featured an impassioned attack on Estes and her allies from a citizen speaker. The attack was based on incorrect information, as was explained to the citizen in the meeting.

What citizens can learn from this meeting

If you don’t ask for information on a schedule that pleases the city council, you may be criticized by multiple council members.

Council members may criticize you based on incorrect facts.

Council members may grill you based on their lack of knowledge of — or incorrect understanding of — city policy.

If you ask for information from the City of Wichita, but don’t also ask for the same from other jurisdictions, a city council member may seek to discredit you.

The Wichita metropolitan area compares well creating jobs in local government, but trails in private sector jobs.

Data from the Bureau of Labor Statistics through 2013 allows us to compare the Wichita metropolitan area with the peers selected by Visioneering Wichita. I’ve gathered BLS data divided by industry sector.

Growth in Local Government Jobs, Wichita and Visioneering Peers. Wichita is the dark line.

Growth in Local Government Jobs, Wichita and Visioneering Peers. Wichita is the dark line.

When considering only government jobs, especially local government jobs, Wichita ranks high. When looking at private sector jobs, however, Wichita is in last place, and by a wide margin.

This is a problem. It is the private sector that generates the taxes that pay for government. When government grows faster than the private sector, economic activity is shifted away from productive activities to unproductive. The economist Dan Mitchell has proposed what he calls the “Golden Rule of Fiscal Policy,” which is: “The Private Sector should Grow Faster than Government.”

In Wichita, we see our local government proposing to grow itself even more by recommending that voters approve increased sales taxes to pay for more government programs. Officials tell us the increased spending is needed so that government can correct problems with Wichita’s economy, water supply, transit, and streets.

Growth in Private Sector Jobs, Wichita and Visioneering Peers. Wichita is the dark line.

Growth in Private Sector Jobs, Wichita and Visioneering Peers. Wichita is the dark line.

On these and other issues, the Wichita Eagle recently quoted Mayor Carl Brewer: “We’ve put them off for too long. We didn’t want the challenges. We didn’t want the tax bills. But now, to maintain our quality of life, we’ve got to catch up.”

Wichita’s government has created problems, by the mayor’s admission. Now, Wichita politicians and bureaucrats ask that we rely on government to fix the problems.

The interactive visualization I’ve created from BLS data lets you compare Wichita’s job growth with our Visioneering peers. You can select various industry sectors for display.

Data is from the Bureau of Labor Statistics of the U.S. Department of Labor. Visualization created by myself using Tableau Public. Click here to open the visualization in a new window.

When Todd Tiahrt criticizes Congressman Mike Pompeo for missing votes during a campaign, he should check his own record. Data from govtrack.us.

Todd Tiahrt voting record, Govtrack.us

(This week there is a special bonus Wichita Pachyderm Club meeting on Tuesday; see here.)

This Friday (July 25, 2014) the Wichita Pachyderm Club presents a forum of Republican Party candidates for district court judge.

In Division 5 the candidates and their websites are Linda Kirby and Seth L. Rundle.

In Division 19 the candidates and their websites are Mike Hoelsher and Diane Sherwood.

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.

(Note the special day (Tuesday) for this bonus Wichita Pachyderm Club meeting. The cost and time are the same; only the day is different. There is still the regular Friday meeting; see here.)

Wichita City Budget Cover, 1975This Tuesday (July 22, 2014) the Wichita Pachyderm Club presents a panel discussion on the proposed one cent sales tax in Wichita. Panelists are business owners Jennifer Baysinger and Karma Mason, radio talk show host Joseph Ashby, and Americans for Prosperity-Kansas Deputy State Director Rodger Woods.

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 Secretary of State logoThis Friday (July 18, 2014) the Wichita Pachyderm Club presents candidates for the Republican Party nomination for Kansas Secretary of State Kris Kobach and Scott Morgan.

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.

Economic freedom

Our having a free market and limited government more than anything else explains our wealth, writes Walter E. Williams.

Economic Freedom

By Walter E. Williams

A couple of years ago, President Barack Obama, speaking on the economy, told an audience in Osawatomie, Kansas: “’The market will take care of everything,’ they tell us. … But here’s the problem: It doesn’t work. It has never worked. … I mean, understand, it’s not as if we haven’t tried this theory.” To believe what the president and many others say about the market’s not working requires that one be grossly uninformed or dishonest.

The key features of a free market system are private property rights and private ownership of the means of production. In addition, there’s a large measure of peaceable voluntary exchange. By contrast, communist systems feature severely limited private property rights and government ownership or control of the means of production. There has never been a purely free market economic system, just as there has never been a purely communist system. However, we can rank economies and see whether ones that are closer to the free market end of the economic spectrum are better or worse than ones that are closer to the communist end. Let’s try it.

Continue reading at the author’s site.

Americans for Prosperity

On Monday (July 14, 2014) Americans for Prosperity-Kansas presents “A Comprehensive Look at the Proposed Water Plans and the Proposed 1-Cent Sales Tax for Wichita, Followed by Group Discussion.”

The meeting is from 7:00 pm to 8:30 pm, at Spangles Restaurant, 612 S. Broadway, Wichita, Kansas. Click here for a map.

For more information on this event contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415.

An ongoing study reveals that generally, property taxes on commercial and industrial property in Wichita are high. In particular, taxes on commercial property in Wichita are among the highest in the nation.

The study is produced by Lincoln Institute of Land Policy and Minnesota Center for Fiscal Excellence. It’s titled “50 State Property Tax Comparison Study, March 2014″ and may be read here. It uses a variety of residential, apartment, commercial, and industrial property scenarios to analyze the nature of property taxation across the country. I’ve gathered data from selected tables for Wichita. A pdf version of the table is available here.

A pdf version of this table is available.

A pdf version of this table is available; click here.

In Kansas, residential property is assessed at 11.5 percent of its appraised value. (Appraised value is the market value as determined by the assessor. Assessed value is multiplied by the mill levy rates of taxing jurisdictions in order to compute tax.) Commercial property is assessed at 25 percent of appraised value, and public utility property at 33 percent.

This means that commercial property pays 25 / 11.5 or 2.18 times the property tax rate as residential property. (The study reports a value of 2.263 for Wichita. The difference is likely due to the inclusion on utility property in their calculation.) The U.S. average is 1.716.

Whether higher assessment ratios on commercial property as compared to residential property is good public policy is a subject for debate. But because Wichita’s ratio is high, it leads to high property taxes on commercial property.

For residential property taxes, Wichita ranks below the national average. For a property valued at $150,000, the effective property tax rate in Wichita is 1.324 percent, while the national average is 1.508 percent. The results for a $300,000 property were similar.

Wichita commercial property tax rates compared to national average

Wichita commercial property tax rates compared to national average

Looking at commercial property, the study uses several scenarios with different total values and different values for fixtures. For example, for a $100,000 valued property with $20,000 fixtures (table 25), the study found that the national average for property tax is $2,591 or 2.159 percent of the property value. For Wichita the corresponding values are $3,588 or 2.990 percent, ranking ninth from the top. Wichita property taxes for this scenario are 38.5 percent higher than the national average.

In other scenarios, as the proportion of property value that is machinery and equipment increases, Wichita taxes are lower, compared to other states and cities. This is because Kansas no longer taxes this type of property.

This Friday (July 11, 2014) the Wichita Pachyderm Club presents a forum of Republican candidates for the Kansas Legislature. In the 88th District the candidates are Jim Price and Joseph Scapa. In the 92nd District, Jeremy Alessi and Jason Paul Dean. In the 93rd District, Joe Edwards and John Whitmer.

For maps of these districts, click on 88th District, 92nd District, and 93rd District.

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 the campaign office of Representative Mike Pompeo. His opponent is Todd Tiahrt, whose campaign sees this issue differently.

July 5, 2014 — FOR IMMEDIATE RELEASE

Tiahrt Continues to Dodge Debates with Rep. Pompeo

Mr. Tiahrt refuses to accept common debate rules and instead demands the right to read from statements prepared by his handlers

WICHITA — Over one month ago, Congressman Mike Pompeo challenged Todd Tiahrt to five debates. To date, not one email, not one phone call, and not one message have been sent back to the Pompeo campaign. Rep. Pompeo wants these debates so that voters can see the clear choice between his own Kansas values and Todd Tiahrt’s Washington, D.C.-centered vision of America.

“I was disappointed the Tiahrt campaign didn’t reply to requests to discuss such an important part of the campaign. I’ve been involved in numerous campaigns, and the normal practice is that two campaigns collaborate to put together a debate plan. Oddly, the Tiahrt campaign has chosen to work through intermediaries in an effort to delay and confuse and make the process difficult so as to avoid having to speak to Kansans,” stated Alan Cobb, senior advisor for the Pompeo campaign.

Today, the Pompeo campaign learned that Mr. Tiahrt has caused the cancellation of a debate that was proposed by Wichita State University. We had agreed to the debate with a simple set of commonly-used rules essentially requiring only (a) equal time for all, (b) good behavior of all in attendance, and (c) that each candidate stand on his own two feet and debate without pre-written materials to read from. It seemed pretty straightforward.

We have now learned that Mr. Tiahrt won’t debate unless he is permitted to bring to the podium a notebook containing prepared statements. The Tiahrt campaign confirms that they could not agree to the rule prohibiting pre-written materials and notes.

Mr. Cobb stated, “How would Kansans benefit from having candidates read statements prepared for them by their handlers? Rep. Pompeo understands that Kansans want debates so they can hear what the candidate knows and thinks, not what appears on a crib sheet in a notebook set down in front of them. After 18 years in politics, does Mr. Tiahrt not know what he believes? Why is he afraid to tell Kansans his own thoughts?”

The Tiahrt campaign falsely asserts that Rep. Pompeo has avoided three debates. Mr. Tiahrt knows the truth, but wants to mislead voters yet again.

  • June 17, Newton, Kansas:  The first was a forum – not a debate.  That forum occurred when Mr. Tiahrt knew Rep. Pompeo was unable to come to Newton because he was performing his duties in Washington, D.C., voting;
  • July 11, Pachyderm Club:  The second event Tiahrt asserts that Rep. Pompeo is avoiding is a Wichita Pachyderm Club event.  No debate was ever agreed to and Mr. Tiahrt would demand that he be permitted to avoid having to speak his own words to that audience as well;
  • July 18, Arkansas City:  Mr. Tiahrt, Mike plans to be there and hopes Mr. Tiahrt will do more than just read to the audience.

Our debate challenge to Mr. Tiahrt remains. Mr. Cobb concluded, “The Tiahrt campaign knows my phone number, and I still hope they’ll call to develop a plan that will enlighten voters about what each of the candidates believes — not what their advisor put in front of them.”

Fireworks

From Legal Insurrection: Call to Action: “Kansas is the battlefield. Remember Mississippi.”

The Mississippi Senate Runoff election was viewed by the media as the last, best chance for a Tea Party inspired Republican primary challenger to unseat a Republican incumbent in a primary.

But there remains the Kansas primary in which Dr. Milton Wolf is challenging Pat Roberts on August 5.

Legal Insurrection supports Dr. Wolf as the type of inspirational next generation of conservative Republican we need to lead us, not merely go along to get along.

Can Dr. Wolf pull off the upset? The two races, several weeks out from the primary, appear to have similarities: An incumbent Senator who’s been in Washington, D.C., for over forty years, a seemingly unbreachable power machine with money to burn and years of experience winning, and all the makings of yet another Tea Party vs. Establishment showdown.

The fact that other governments are willing to hurt their peoples by channeling credit away from worthier firms in the marketplace in favor of politically well-connected exporters is no reason for America to do the same. Subsidies are unfair to taxpayers as well as other companies. Subsidies promote malinvestment in favored industries. Subsidies encourage firms to rely on government aid rather than entrepreneurial vigor. And subsidies fuel the pursuit of political privilege.

From December 2013.

Sedgwick County Kansas sealTax credits can be an inefficient way for government to distribute benefits, as illustrated by action the Sedgwick County Commission will consider today.

A tax credit is, conceptually, a certificate with a dollar amount written on it. That certificate can be used instead of cash for payment of taxes. So when the State of Kansas issues a tax credit for $100, the state gives up that same amount in tax revenue, as someone will submit that certificate instead of a hundred dollar bill in payment of taxes. The certificate, of course, has no value to the state.

Sedgwick County received Kansas income tax credits under the state’s historic preservation program. Since the county doesn’t pay income tax, it can’t use them as payment for taxes. But since the credits are transferable, the county can sell them to someone who does need to pay taxes. And if that person can buy the tax credits for less than face value, such as paying $90 for a tax credit that’s worth $100, there’s motivation for buyers and sellers to make a deal.

This is what the county is doing. In an auction it sold three tax credits for a total of $507,066.74. This is described by county documents as representing $0.9025 per dollar of value. Working backwards, this means that the tax credits have a face value of $507,066.74/.9025 = $561,847 in face value. Someone will submit these credits to the state instead of a check for that amount when they pay their taxes.

This means that the State of Kansas gives up $561,847 in order to grant a benefit worth $507,067 to Sedgwick County. This is the inefficiency of using tax credits as a mechanism for distributing benefits.

You may be wondering: Why does this state use this inefficient method? One reason is that tax credits operate more or less on autopilot. Once the program is authorized and put in place, people or organizations that qualify for the credits receive them without action by the legislature. This has happened in downtown Wichita on a number of projects such as the renovation of the Broadview and Ambassador Hotels. Both received millions under historic preservation tax credit programs. (See In Wichita, historic preservation tax credits an inefficient form of developer welfare.)

Can you imagine the legislature having to vote to give millions of dollars to specific hotel developers? That probably wouldn’t be popular. But the tax credit program accomplishes the same result, and mostly under the radar without scrutiny.

Tax credits are 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 legislature creates the tax credit program. 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 Kansas 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.

Do Local Business Incentive Programs Really Create Jobs? Better Data Needed to Know for Sure, Says New Kauffman Paper

Kansas City, Mo. (PRWEB) April 17, 2014

Financial incentives are a key strategy for nearly every U.S. city and state to attract firms, and jobs, to their area. But while incentives can be credited with attracting firms to one region or another, how can we be sure they are generating the promised returns in terms of job creation?

The paper “Evaluating Firm-Specific Location Incentives: An Application to the Kansas PEAK Program,” released today by the Ewing Marion Kauffman Foundation introduces a proposed evaluation method and applies it to Promoting Employment Across Kansas (PEAK), one of that state’s primary incentive programs.

In the paper, researcher Nathan Jensen, associate professor of political science at Washington University in St. Louis, identifies a need for more comprehensive data to determine the effectiveness of incentive programs in creating jobs. Currently, states and cities provide limited data about companies receiving incentives, and many don’t keep information about firms that apply for incentives but don’t receive them.

“The data most often used to evaluate incentive programs tells only one part of one side of the story,” Jensen said. “To understand how much job creation can be directly attributed to incentives, and how much would have happened anyway, we need to pursue more granular data that provides better context.”

The proposed evaluation model, as applied to the PEAK program, uses National Establishment Time Series (NETS) data to capture employment and sales data for PEAK and non-PEAK firms in Kansas. To accurately assess results, the identified PEAK firms are compared to a control group of five “nearest neighbors,” firms similar in structure and sector to the PEAK firms.

Jensen cautioned that better access to more detailed data is necessary to make conclusive evaluations, but said the model highlights the need to reform the collection, management and sharing of data about incentive programs and recipients.

“Greater transparency and public sharing of data will allow much more sophisticated analysis of these programs’ value,” said Dane Stangler, Kauffman Foundation vice president of Research and Policy. “Understanding what types of incentives work, and how well they work, will help our cities and states make smart investments in programs that create jobs and drive economic growth.”

About the Kauffman Foundation

The Ewing Marion Kauffman Foundation is a private, nonpartisan foundation that aims to foster economic independence by advancing educational achievement and entrepreneurial success. Founded by late entrepreneur and philanthropist Ewing Marion Kauffman, the Foundation is based in Kansas City, Mo., and has approximately $2 billion in assets. For more information, visit www.kauffman.org, and follow the Foundation on www.twitter.com/kauffmanfdn and www.facebook.com/kauffmanfdn.

Despite its problematic nature, per capita income in Wichita is used as a benchmark for the economy. It’s not moving in the right direction. As Wichita plans its future, leaders need to recognize and understand its recent history.

One of the benchmarks used by Visioneering Wichita to measure the growth of the Wichita-area economy may not be the best statistic, and its interpretation requires caution.

The measure is per-capita personal income. Specifically, the benchmark goal of Visioneering is “Stop the 21-year decline of Wichita per capita income as a percentage of U.S. per capita income before 2011. By 2024 exceed the annual average of Omaha, Tulsa, Kansas City and Oklahoma City.” (Note that per capita measurements are problematic. See the section at the end of this article.)

Wichita per capita income compared to the nation. Click for larger version.

Wichita per capita income compared to the nation. Click for larger version.

How has the Wichita metropolitan area performed on this benchmark? What are the trends? I’ve plotted per capita income for the United States and the Wichita MSA, along with the ratio of Wichita to the nation. The leaders of Visioneering are right to be concerned about the direction of the Wichita economy relative to the country. Since about 1980, the trend of Wichita as compared to the country is that Wichita is not keeping up, and is falling behind. During the decade of the 1980s, per capita income in Wichita fell below that of the nation. Wichita per capita income had been higher, but since then has mostly been falling farther behind.

Visioneering peers

One of the Visioneering concepts is the idea of peers. The cities Visioneering Wichita selected as Wichita peers are Omaha, Tulsa, Kansas City, and Oklahoma City. It’s useful to compare Wichita with these cities, and also with a few others that are comparable to Wichita and interesting for other reasons.

Wichita per capita income growth compared to peers. Click for larger version.

Wichita per capita income growth compared to peers. Click for larger version.

Nearby are two snapshots from an interactive visualization of per capita income growth. Wichita is the dark line in each of these charts. As you can see, by the last year of available data (2012), Wichita is near the bottom in performance. It wasn’t always that way. In early years, Wichita did well.

Per capita income growth in Wichita and peers, annual rate of growth. Click for larger version.

Per capita income growth in Wichita and peers, annual rate of growth. Click for larger version.

The interactive visualization holds data from the U.S. Bureau of Economic Analysis and was created using Tableau Public. Click here to open it in a new window so that you may form your own conclusions.

We’ve had a plan

The current stance of Wichita civic leaders is that we need a plan to create jobs. But we’ve had plans, with Visioneering being just one.

These leaders also tell us that Wichita can’t compete with other cities in economic development because Wichita’s budget is too small. But as I show here, when Wichita leaders complain about a small budget for incentives, these officials don’t include all incentives that are available and regularly used. Not nearly all.

Per capita measurements

Per capita measures are problematic. They are not meaningless, but interpretation requires caution. Some of the issues with per capita measures are explained by Dave Trabert of Kansas Policy Institute:

Per-capita income is a bad measurement because it rewards cities that are losing people due to domestic migration and punishes those who are gaining.

Even without the per-capita issue, personal income is not a clean measure. Personal income can increase because federal transfer payments grew, employers had to spend more to provide health care benefits, and other items that have nothing to do with measuring relative economic growth.

Better measurements would be private sector jobs, private sector GDP and private sector wage and salary disbursements. Unless the point of Visioneering is to grow government, the measurements should only be of private sector elements.

KPI has explained how the mathematics of per-capita measures can produce results that seem paradoxical. A recent edition of Rich States, Poor States has a section devoted to these problems. Here’s an explanation of a scenario that requires caution to interpret:

Further, the residents of a state can be better off even if that state’s per-capita or median income decreases. If, for example, 50,000 low income agriculture workers move into Texas, those workers’ incomes almost surely rise (or else they would not have moved there). The residents and business owners in Texas who benefit from their labor services are better off, and the final result is that no one is worse off. But the per-capita income in Texas may actually go down if the low income agricultural workers earn less than the state’s average wage.