City Hall may deny extended tax breaks for one of its major employers this week.
And more denials could be on the way if the Wichita City Council approves a new economic incentive policy Tuesday.
The proposed policy comes as companies increasingly fail to add jobs and expand at the rates they projected when the city exempted property taxes for them.
That's happening for a couple of reasons: the economic downturn, and new technologies that are replacing employees, particularly in manufacturing.
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This leads the city and its taxpayers to some questions:
Do companies that are cutting jobs deserve tax breaks because they buy new equipment to sustain themselves in Wichita and increase pay to those they keep?
Are industrial revenue bonds, once aimed mostly at attracting businesses and fending off competition from other cities, also becoming a tool to simply slow the pace of job losses?
Wichita State University economist John Wong said the game has changed.
It used to be that cities used industrial revenue bonds — which often amount to property tax exemptions — to lure new manufacturing jobs.
Manufacturing, unlike some service jobs, brings new money into an area and sends products out.
Now, as manufacturing jobs vanish and go overseas, the focus of incentives is shifting toward job retention.
"It's almost like if you keep your share (of jobs), it's almost like getting new jobs," Wong said.
Meanwhile, other cities may offer better incentives and steal the jobs away.
"It would be best if nobody did this and it was a level playing field," he said.
The new economic development incentive policy that city officials want council members to approve on Tuesday could lead to more companies losing tax exemptions — though most still would qualify.
It's unclear how many would fall below the proposed threshold, City Manager Robert Layton said.
The staff is proposing that the council extend tax exemptions for two companies and reject an extension for one.
Here's how the proposed policy would work:
When the economy is bad, businesses that seek extended tax breaks would have to meet two of three tests.
One would check to see whether the company added as many jobs as it projected when the tax break was granted.
Another would check on whether the company invested as much as it said it would to expand its production.
The third would recalculate the cost-benefit ratio to ensure that for every dollar exempted, at least $1.30 is coming back to the economy in other ways — such as salaries or sales taxes.
The policy would be triggered only when the economic index calculated by WSU drops by more than 5 percent a year. The index is based on measures including home sales, employment rate and production rates.
When the economy isn't bad, tax breaks would hinge on job creation and capital investments. That translates into more employment and, once the tax exemptions expire, more property on the tax rolls.
Based on the proposed policy, city economic development officials recommend approving tax break extensions for about $2.4 million in property for Dean & DeLuca and Big Dog Motorcycles.
Dean & DeLuca has added 184 of the 230 new jobs it committed to, but it has completed its construction and, based on WSU calculations, has a 1.47-to-1 cost-benefit ratio.
Big Dog, meanwhile, would get a tax break on $1.4 million of property. It finished its investments (a new building) and added 79 jobs when it had projected 40.
But with the economic downturn, it has laid off 221 workers, according to city documents. Its cost-benefit ratio is at minus-2.3-to-1.
Coleman's tax breaks
Coleman Co. is the first that wouldn't pass the proposed policy.
It has deep roots in Wichita and, as of last May, had 910 employees.
Since 1993, it has spent more than $45 million on a new headquarters, and has expanded manufacturing facilities and equipment. It also said it would add 200 jobs.
The city encouraged that by making it all exempt from property taxes.
But after adding 130 jobs, Coleman cut 217 as it restructured and felt the economic pinch experienced by most businesses.
That would make it ineligible for tax exemptions, but the city has extended the exemptions on a year-by-year basis.
Now city officials recommend that the City Council deny another extension.
The cost-benefit analysis Wichita State University conducted shows Coleman's tax break extension is a losing proposition for the city — for every dollar the city invests, it only gets 70 cents back.
Coleman's spokeswoman, Joan Carter, said the company invested more than twice as much as it projected. And, she said, although the company didn't add the jobs, its payroll is larger than it was in 1999.
"The dollars actually circulating in the community have increased in our annual payroll," she said.
The company also plans to add 30 jobs in its plastics division in the first quarter of next year — though it is also sending 50 to 55 jobs to the Kansas City area in its new warehouse.
"Coleman is counting on the city's continued support," Carter said in an e-mail.
City Council members will likely have a debate about whether to deny Coleman an extension of its tax breaks.
"The evaluations they do make it very black-and-white," Mayor Carl Brewer said. "We look at each on a case-by-case basis."
Council member Sue Schlapp said it's difficult to see companies lose jobs but that these are tough economic times.
"Do we want to exacerbate the loss?" she asked. "We may be upset that a company doesn't create 50 or 100 jobs. But if the company leaves and we lose 400 jobs, it's a totally different issue."
Council member Jeff Longwell said the city probably needs a better way to measure its investments as industries have to add new technologies that lead to job losses.
He said perhaps there are other ways to keep businesses thriving here.
"Too often, we look at this as all or nothing," he said. "It's OK to find middle ground on these things."