October 27, 2013

City Council debates better transparency with business tax breaks

Wichita has created 2,350 jobs in 10 years using business property tax abatements, though at least 850 of the jobs no longer exist, city officials said last week.

Wichita has created 2,350 jobs in 10 years using business property tax abatements, though at least 850 of the jobs no longer exist, city officials said last week.

Those job gains are far outstripped by the loss of 16,000 jobs during the recession.

Economic development officials talked with The Eagle on Friday about the urgency to gain public support for more and better resources to recruit and retain jobs.

They point to Bureau of Labor Statistics information that shows Wichita lagging other Midwest cities — Oklahoma City, Tulsa, Omaha, Kansas City and Dallas — in recovering from the recession. And they cite examples of other cities and states paying between $100,000 and $225,000 per position to lure aviation jobs from Wichita.

One key to public support might be more accountability and transparency about business tax breaks, some city officials said. Urban development officials acknowledged last week that their numbers don’t provide a clear picture of the tax breaks and their costs.

Here’s how tax exemptions — abatements in city lingo — work now:

A company that wants to start or expand can seek city-sponsored financing known as industrial revenue bonds. Those bonds, which are bought privately and involve no city taxpayer liability, also carry eligibility for up to a decade of tax breaks, or abatements, to help finance projects.

The council approves a maximum bond amount, which carries with it a maximum tax abatement. When the project is completed, the project costs and abated taxes can be lower than the initial estimates.

The tax breaks are first available for five years, and can be extended for another five years if the business meets job creation and capital investment goals in the original bond agreement with the city.

What city staff hasn’t been doing is taking the final project costs and value, and the final amount of abated taxes, and tying those figures back to the original city estimates. Those original estimates were provided — and not identified as estimates — to The Eagle earlier this fall by the city finance department in response to an open records request for the total jobs created and taxes abated in the past 10 years.

City urban development director Allen Bell said Friday his office “hasn’t had access” to actual appraised values for improvements or abated taxes tied to those improvements. That information is kept by the county appraiser’s office and would be available after improvements are completed and appraised.

City Manager Robert Layton said past council policy has been to monitor tax abatements through job creation and business capital investment — not by the valuation of improvements and the actual amount of tax revenue exempted.

“No one has ever asked for the additional information,” Layton said. “I have no problem with enhancing the information we provide the council.”

Council member Jeff Longwell said that he thinks the current council policy provides enough information for council and the taxpayers.

“I’m not sure I want staff spending the time to go back and look at those values unless we’re in a default situation, where we have to go back and do some clawbacks,” he said. “I don’t think there are any better protections for the taxpayer than personal guarantees and clawbacks.”

Greater transparency

Some council members disagreed with Longwell on Friday, saying that the actual amount of abated taxes in each project is important to them. However, none wanted to comment further.

“I don’t think there’s anything I can responsibly say about this deal at this time,” council member James Clendenin said.

The council appears solidly behind greater tax abatement transparency — perhaps through a public Web site updated monthly or annually. Such ideas first floated at City Hall by Vice Mayor Pete Meitzner and council member Jeff Blubaugh.

“This is a healthy discussion,” Blubaugh said. “We now have an opportunity to go back and watch these metrics and quantify their performance more often, and we should. How often, I don’t know, but we need to look at the entire amount of money these projects put back into our economy.”

“Other states are transparent. I see no reason why we shouldn’t be,” Meitzner said.

Tools for jobs

The debate over how to track tax abatements comes as city officials grapple with a shortage of resources to recruit new jobs and fight off efforts to pirate existing aviation jobs, officials with the Wichita Metro Chamber of Commerce and Greater Wichita Economic Development Coalition said Friday.

The city has lost 16,000 jobs since 2008, according to analysts.

Paul Allen of Allen, Gibbs and Houlik, said flatly that Wichita isn’t a serious player for big job providers. He cited $10million in incentives in Topeka – including free land and wind generation – to land the Mars plant there.

“Not something we could do. Without tools like tax abatements, we’d be in serious jeopardy,” he said. “We have to have the discussion as a community whether we’re competitive enough in the job market and how are we going to compete going forward.”

And recent aviation job losses – Spirit to North Carolina, Boeing to South Carolina – where individual jobs left the city for six figures in incentives have the officials convinced that Wichita must beef up its financial war chest to compete. Lost jobs rarely return, Allen said, and the costs of replacing valued employees can outweigh by several times the costs of keeping them.

Wichita can’t afford to lose those jobs to the big bidders, Allen said, because of the trickle-down effect of the spending they generate.

“Ask the barbers and the dry cleaners if the Spirit employment is important to them,” he said.

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