Incentives at heart of Wichita debate over sales tax jobs fund

Sheet metal student Cindy Claiborne is one of the Wichita Area Technical College students being trained for jobs at Spirit AeroSystems. Their training is being paid for by a grant from the state and is similar to the type of job training programs that could happen locally if the sales tax passes. When the students graduate at the end of this month, after two months of training, they will have entry-level jobs waiting for them at Spirit.
Sheet metal student Cindy Claiborne is one of the Wichita Area Technical College students being trained for jobs at Spirit AeroSystems. Their training is being paid for by a grant from the state and is similar to the type of job training programs that could happen locally if the sales tax passes. When the students graduate at the end of this month, after two months of training, they will have entry-level jobs waiting for them at Spirit. The Wichita Eagle

There’s no doubt that the recession was hard on Wichita, with the loss of 20,000 jobs – mostly in aviation – in just a few short years.

City officials want to get back those jobs with the help of part of the proposed 1-cent sales tax.

And although just a fraction of the sales tax money would be used for traditional incentives, the issue is at the center of the sales tax debate.

Of the total $400 million sales tax initiative, about 4 percent, or $16 million, would go toward traditional incentives to offset business costs for moving or expanding.

The sales tax would collect nearly $400 million over five years to go toward a water supply ($250 million), job development ($80 million), transit ($39.8 million) and street maintenance ($27.8 million).

The job development portion aims to create 20,000 jobs in the next five to seven years to replace those lost in the recession.

Forty percent, or about $32 million of the jobs fund, would go toward infrastructure for things like Wichita State University’s new innovation campus. Another 40 percent would go toward workforce training, including re-training for production workers and grants to local colleges and training institutions.

The last 20 percent would be used for incentives.

‘They’re not coming here’

When the Center for Economic Development and Business Research at WSU did an aerospace competitiveness report for the state in 2012, director Jeremy Hill said it found that Wichita has many of the assets companies look for.

“They should want to come here automatically,” Hill said. “Your labor cost is cheaper, your infrastructure is built for aerospace or similar types of products, your supply chain would work well, your government structure works well, your education works well, your labor market is skilled. We looked at all these factors. This is the perfect environment, not only for aerospace but other kinds of manufacturing.”

“But they’re not coming here and you have to ask why. One is really that incentive. It is a part of what happened. It’s the playing field at the national level.”

Competitiveness is ratcheting up nationally, Hill said, while much of Kansas, including Wichita, uses minimal incentives compared with places like Oklahoma and Texas.

“It’s not that our companies are getting up and leaving, they’re just putting new product lines somewhere else and not here.”

The $16 million incentives part of the jobs plan is the most risky component, Hill said.

“There are legitimate concerns for giving these companies incentives that are footloose,” Hill said. “But in this environment we have to think about it.”

Wichita should look at what’s been done in other communities when they have faced economic crises, Hill said.

“When you go to Des Moines and Oklahoma City, some of these communities had a turning point, had a problem. Pittsburgh, Pa., Chattanooga, Tenn., all had a point where they made investments and it paid off longer term,” Hill said.

“Almost all of those cities had an event like ours where they were devastated and decided they were going to make a change and then they had growth and the growth was long term.”

Oklahoma City case study

Cities like Oklahoma City have recovered jobs faster than Wichita.

In 2007, Oklahoma City funded a $75 million jobs program through a bond issue, said Roy Williams, president and CEO of the Greater Oklahoma City Chamber of Commerce. The bond issue put to voters also had separate propositions on the ballot for infrastructure, transit, fire and police and streets.

Now, Oklahoma City is going through “a phenomenal growth spurt,” Williams said.

“We’re one of the fastest growing per capita income cities in the U.S. and one of the fastest growing populations,” he said. “We can’t attribute 100 percent to this incentives program, but a component of it has given us the ability to get more projects that we would not have gotten if we had not had it. We’ve even gotten some projects from Wichita.”

Those projects include 900 former Boeing Wichita jobs.

Oklahoma City also took another 900 Boeing jobs from Puget Sound, Wash., and 550 Boeing jobs from Long Beach, Calif., he said.

“It doesn’t matter if you like incentives or not. If you want jobs and to compete, you’ve got to do it. That’s life. That’s the environment you live in,” Williams said. “If you take the attitude that ‘They would have come here anyway’ or ‘We don’t need to do that,’ good luck with that. Everybody wishes that wasn’t the case, but it is.”

“Incentives play a critical role in the ability for cities to attract and grow jobs. … I know some people philosophically can’t get there, but that’s the way it is.”

When a company relocates or expands to a new area, it’s probably not producing much of a profit, Williams said, which puts a squeeze on its finances. Companies then look for communities willing to “help (them) out during that time and in the long term it will pay them back with good jobs and investments. They want a community that does more than just say ‘good luck.’

“We’re not here to subsidize you but we’re here to help in that transition time while you’re growing more or relocating. It sends a message to the company that they’re in this with you and not alone,” he said.

Plan comparison

The Oklahoma City jobs plan shares some similarities with the one Wichita officials have proposed.

Both offer incentives only to companies that are growing primary jobs with certain wage levels. A primary job makes a product or service that will be sold outside of the local market.

“We don’t incentivize a dry cleaner, a mom and pop or a law firm,” Williams said. “Generally, it’s aviation or aerospace, bioscience, energy. General Electric is building a global oil and gas research center. It’s a $125 million investment with an average $125,000 salary.”

The Wichita plan would consider only companies that have wages “equal to or greater than the average wages for that type of business” or “greater than the average wage for all jobs in the Wichita MSA,” according to city documents. An exception could be made for a large number of jobs, according to city documents. The Wichita plan requires that health care benefits must be offered or the wages must be 120 percent of the average wage.

Both plans have a board or trust to oversee funding. The Wichita plan would have a committee of five people, two from the public sector and three from the private sector, on a jobs commission. That commission would look at economic models performed by WSU’s research center and individual proposals to see if they meet certain criteria, like wages, primary jobs and a return on investment of at least $1.30 for every $1 spent.

The jobs commission would be under a citizen advisory committee that would oversee all sales tax dollars.

Oklahoma City’s plan differs from the Wichita plan in that it was funded through a bond issue and did not include job training.

In Oklahoma, the state has a vocational technical college system that is completely subsidized for new and expanding industries looking to train workers, Williams said, so the city didn’t need to put money toward job training.

For example, Oklahoma City recruited Dell Computers, which now has about 2,000 employees there, about eight to 10 years ago, Williams said. The tech colleges did all the screening, put applicants through training and “delivered them to the front door” of Dell, costing the company nothing.

The Oklahoma plan does not give companies incentives until after they have met the requirements.

“It’s performance based,” Williams said. “Until they perform, they don’t get the incentive. So if a company says it’s going to hire 200 people and it only hires 100, it gets half the incentive.”

The Wichita plan gives the incentives earlier but contains clawbacks – a way for the city to get incentives back from companies that do not meet the requirements.

The Oklahoma plan did not set aside a specific amount for infrastructure like the Wichita plan, but some of the incentive dollars were used on parking or roads for companies, Williams said.

Another difference is that the Oklahoma City incentive fund is not functioning in a vacuum. It works in tandem with and mirrors state incentive policies, Williams said.

Safeguards for accountability

Compared with other states and cities, the Wichita jobs plan puts a smaller percentage toward incentives and that isn’t so bad, said Greg LeRoy, executive director of Good Jobs First, a Washington, D.C.-based policy center that focuses on corporate and government accountability in economic development.

“The big picture is, compared to many other uses of new money that states and cities allocate for economic development, it looks like 96 percent (of Wichita’s plan) is going toward public good,” LeRoy said. “That’s smarter, lower risk, more fair to small business and more likely to create business that won’t run away. What’s not to like about that?”

Wichita’s “stingy” plan doesn’t put all of its eggs into a few corporate baskets, which spreads the risk, LeRoy said.

“I’m pleased to hear you’ve got people isolating that money and questioning it, but in the broad scheme of things, it would be progress in our country if every state or city only dedicated 4 percent in economic tax initiatives for company-specific incentives. All too often, most or all the money is used that way,” he said.

The plan’s citizen oversight committee and open meetings and records are crucial components, LeRoy said. Without those, the plan could be “structurally problematic and a blueprint for mischief.”

The Wichita plan has more safeguards for accountability and transparency than many other plans that have been reviewed by Jeff Finkle, president and CEO of the International Economic Development Council in Washington, D.C.

“You don’t typically see the quality of work that was done here,” he said. “Unfortunately, this (plan) is being typecast only as incentives and that’s a misnomer. You can do lots of things that are not just helping one particular business. … You can train people and put in infrastructure that helps multiple firms.”

Trust issues

For voters, the Wichita plan requires a degree of trust, which has been difficult for the city to earn after some previously failed dealings, like the Minnesota Guys.

The developers came to Wichita in 2004 with big ambitions, buying 12 buildings downtown. Ultimately, their investors went into foreclosure and their creditors and taxes went unpaid.

But City Manager Robert Layton says the city has turned a new leaf in its leadership since many of those decisions were made, citing less direct investment in developers and more of a focus by the city to invest in public spaces, particularly with parking lots and the proposed TIF district for Union Station downtown.

“I can’t control what happened in the past. I can control what happens going forward. I’d like to think we’re much tighter,” Layton said.

“The mayor and council have spent the last five years working to develop a sound economic development policy, one that is based on results. And it’s again, like the jobs discussion, it’s an evolutionary process. You have to learn from what’s worked and what hasn’t worked and you also have to look at what other communities have done as well.”

“I think we have sound practices now when it comes to economic development. The idea was to make the public more comfortable with the expenditure of dollars and that they see the public benefit of those dollars.”

The Oklahoma City jobs program has been successful largely because of the plan’s transparency and ability to set a solid policy, Williams said.

“I have seen too many cities randomly say, ‘Do this many jobs and we’ll give you $5,000 a job,’ instead of tying decisions to a policy to create the outcomes that you want.”

“The minute the public distrusts you or you give inconsistent incentives, that’s when you get in trouble.”

Reach Kelsey Ryan at 316-269-6752 or kryan@wichitaeagle.com. Follow her on Twitter: @kelsey_ryan.

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