New County Commission majority turns skeptical about economic incentives

The saying “elections have consequences” was never truer than when it comes to local economic development.

The election of Jim Howell in November tipped the balance of the Sedgwick County Commission. He joined Karl Peterjohn and Richard Ranzau to make up a 3-2 majority on the commission skeptical of economic development as it has been practiced in Wichita – and around the country – for years.

Economic development, at least as practiced by the Greater Wichita Economic Development Coalition since it was founded in 2003, usually involved the use of financial incentives, often in tandem with deals offered by the state. Those incentives could include waiving taxes, free land, free job training and forgivable loans.

Since its founding, the group said it has coordinated deals that created more than 20,000 jobs and invested more than $1.4 billion – which exceeded its goals. Only about two-thirds of the deals contained local financial incentives.

However, the GWEDC’s success rate since the recession has been spotty, exemplified by the fact that the Wichita metro area now has about 20,000 fewer jobs than it had in 2008.

The new commission majority objects to incentives for philosophical reasons, saying such breaks are a form of playing favorites. They also say that incentives often go to companies that would have moved or expanded anyway.

The three say they aren’t vowing that they would never offer an incentive.

“Well, I’d say I’m opposed to things that don’t work,” said commission Chairman Richard Ranzau. “And I’m convinced they don’t work.”

“Has the economic development effort generated the level of return on new jobs that are high-paying and stable? No,” Peterjohn said.

“I am skeptical and willing to consider them, but I want to know that they make a difference,” Howell said.

How to compete

For proponents of incentives, economic development is all about the risk of doing nothing. They say they hate to play the incentive game, dislike paying for jobs and acknowledge they may be manipulated by companies and site consultants.

But they know cities and states from coast to coast and from north to south are making offers to lure companies. The question is whether Sedgwick County and Wichita are going to compete.

Sedgwick County and the City of Wichita help oversee the GWEDC, along with a number of private companies. The county supplies $300,000 a year for the organization, plus incentives through tax abatements, infrastructure improvements and forgivable loans. Until very recently, GWEDC was an affiliate of the Wichita Metro Chamber of Commerce, but is now part of a new independent umbrella group called the Greater Wichita Partnership.

In recent years, companies have gotten more aggressive about asking for incentives, particularly cash, said Bill Buchanan, Sedgwick County manager.

“It’s clear the companies hire economic development gurus and try to squeeze as much out of you as possible,” he said.

At the same time, residents of Sedgwick County are anxious about the local jobs picture and the area’s economy. Officials feel intense pressure to find ways to grow both, and generally have to take what companies say on faith.

“If the businesses says do something for them or they will reduce their footprint, who are we to say it’s not true?” he said.

A very public example of this was the aggressive play by Louisiana that led the state of Kansas and the two local governments in 2010 to pledge Beechcraft $45 million in grants over five years to keep 4,000 jobs and its product lines in Wichita. It was trumpeted at the time by Gov. Mark Parkinson and Mayor Carl Brewer as a deal critical to locking up a key employer for Wichita.

But Howell said Beechcraft is a perfect example of a bad deal for the taxpayers. That money went somewhere, he said, and Beechcraft still wound up declaring bankruptcy. After it emerged from bankruptcy, Beechcraft was bought by Textron.

Howell thinks the incentives money was largely wasted.

“You know what, we probably delayed that sale by a year with our own tax dollars,” he said. “It was going to happen anyway.”

A message seeking comment from Textron was not returned.

Objections to incentives

The distaste for incentives varies among the three, depending on the incentive. Howell said he might support some incentives, such as industrial revenue bonds, but it has to be for a very good reason. Peterjohn said he has voted for a few deals in past years.

Ranzau said that in lieu of an incentive program, the county can boost economic development by improving the business climate for all companies.

“We need to address the issues that businesses say matter most,” he said. “The two issues are regulations and taxes. We need to focus on that.”

When asked about his plan to promote economic development, Ranzau talked about rewriting the building code to eliminate unwritten rules that he said inspectors enforce and to remove some discretion from building inspectors.

Businesses need more certainty and lower costs to justify spending money and adding workers, he said.

“The freedom model has worked best, which allows for individuals’ property rights, entrepreneurship and having people just going out and doing it,” he said.

Howell also said that voters in November rejected a sales tax proposal, in part because of a provision that would fund economic development efforts. Of the total $400 million sales tax initiative, about $80 million was to go to economic development, and of that, $16 million would have gone to incentives.

“The people spoke,” Howell said. “They are tired of the idea that we are making these deals with select businesses. They’re just skeptical. There’s a lot of negative feeling. It feels like cronyism.”

The three have already voted to take the county out of some organizations, including the Regional Economic Area Partnership, a regional economic group.

Ranzau said he didn’t know if the county will exit the GWEDC, but Wichita Mayor Jeff Longwell said his impression is that it will.

“I’m not sure the new majority wants to play in the same sandbox as everybody else,” Longwell said. “They pulled out of REAP because they are skeptical of the organization. It makes up part of the framework of the new (Wichita Area) partnership. I’m going to make a stretch connection that if they are so adamantly opposed to REAP, they’re out (at GWEDC).”

Future impact

If Sedgwick County opts out of some of GWEDC, how will that affect economic development?

It’s not clear.

There are still plenty of moving parts in the future structure of economic development groups, with the creation of the Greater Wichita Partnership and important initiatives on boosting trade and regionalism developing.

Gary Schmitt, chairman of the board of the GWEDC and head of commercial lending for Intrust Bank, said it’s hard to say exactly what shape economic development will take in the future – and he doesn’t want to lose any tool.

“I don’t think we can take incentives off the table,” he said. “We have to look at each deal that we have. We would all be premature to remove any cash incentives or any incentives related to job training or infrastructure.”

County Commissioner Dave Unruh said a united, and supportive, front by local government is critical for creating the sense of trust that companies seek in choosing a location. They’re about ready to spend a lot of time and money and want assurance that local government will follow through on their commitments.

Having the commission discourage incentives and pull out of economic development groups doesn’t help, said Unruh, who along with Commissioner Tim Norton complete the five-member county commission.

“I think it’s pretty damaging, actually,” Unruh said. “When we have an elected body that is averse to economic development, and sometimes with not-the-most-friendly language, that impacts our prospects. Site developers do their homework and when looking for a site, they might start passing us over.”

The county manager is part of the weekly transaction team that receives updates on prospects working with the GWEDC. County commissioners must approve some of the incentive packages, particularly any that involve spending.

Longwell said the impact of losing the county’s participation in incentives, in reality, may not be critical.

The state and city of Wichita are more active in granting incentives, he said. And, he said, that he, too, opposes the use of cash or forgivable loans, so that may not be a point of difference.

Still, he said, the loss of the county as an active player in economic development organizations, such as the GWEDC, will hurt.

“Without the county it won’t be as effective as it could be,” he said. “When a site selector comes and looks at the offer sheet and it says: The state is in for so much, the city is in so for much, but the county won’t be contributing. What message does that send?”

This story was originally published May 6, 2015 at 4:59 PM with the headline "New County Commission majority turns skeptical about economic incentives."