Monday, April 21, 2008

Which city, Overland Park or Lawrence, is practicing smart growth?

Lawrence has been on a spree of approving retail shopping centers that are not needed. The City Commission approved a second Wal-Mart. It approved another shopping center at 6th and Wakarusa, far beyond the square footage called for at that intersection. It approved two large shopping centers at 6th and the South Lawrence Trafficway.

This excessive approval of retail development proposals has been going on for some time, and it is harmful to the community. It hurts the downtown generally by siphoning spending away. It makes it impossible to complete various downtown redevelopment projects, such as Downtown 2000, which has left the taxpayers paying for an empty parking garage building. It hurts the capacity of other downtown projects to attract tenants, such as the Hobbs-Taylor building. It adds to the stock of vacant and deteriorating space found all over town.

Lawrence has developed retail space at a growth rate of 3.0 percent per year from 1995 through 2007. Yet, inflation adjusted retail spending--a good measure of demand for this space--has grown by only 0.9 percent per year during the same time period. Thus, Lawrence has allowed its supply of retail space to grow at over three times the pace of growth of demand for that space. This means that new space, if absorbed at all, simply takes demand away from existing space. The result is widespread vacancy, deterioration, and blight.

Overland Park is a nearby city confronting similar growth problems. It is interesting to note that Overland Park has kept the pace of growth of retail supply in line with the growth in demand for that supply. From 1990 through 2007, inflation adjusted retail spending in Overland Park grew by 2.1 percent per year. During the same years, Overland Park allowed its stock of retail space to grow by 1.7 percent per year.

Overland Park is practicing smart growth. It is keeping the growth in supply in balance with the growth in demand. As a result Overland Park’s retail market is in much better shape than is Lawrence’s retail market. Lawrence is not practicing smart growth, and it is paying the price.

What happens when developers control the pace of growth?

The Planning Commission tends to worsen these mistakes by granting the developers unlimited extensions of time in which to develop. When these developments initially go before the Planning Commission and the City Commission, they promise to initiate development within 18 months. Several have failed to move forward because they cannot find sufficient tenants. Rather than admit a mistake, they ask for--and receive--extensions of time to look for tenants. The Planning Commission should admit the mistakes of approving these unneeded developments and refuse the extensions.

Lawrence city government is controlled by the coalition of developers who contributed heavily to get pro-developer individuals elected to the City Commission. These elected pro-developer city commissioners have appointed pro-developer friends to the Planning Commission. This means that developers are getting all that they ask for, even when it runs contrary to the community’s plan which calls for balanced growth.

There is value in smart growth. It prevents loss of value to existing centers. It protects the existing downtown. It helps maintain a healthy level of investment in existing shopping centers. It promotes redevelopment plans.

Lawrence is losing value rapidly. Smart growth can help resolve that problem, but we need leadership that understands the harm that results from letting developers set the pace of growth. We need leadership that understands that smart growth will not happen by itself; we need to consciously plan for our future and work hard to achieve it.

What does the tax abatement report really say?

On Friday, the Lawrence Journal World stated, “The [Public Incentives Review] committee on Thursday unanimously approved its annual report, finding that all eight companies receiving tax breaks are in compliance with the city’s economic development policies.”

This is not what the Public Incentives Review Committee (PIRC) did. The PIRC made no finding of compliance or lack of it. Rather, the PIRC swept the high level of non-compliance under the rug as it has for many years in the past.

The newspaper also said, “In total the companies had exceeded their job creation projections by 87 full-time jobs and 123 part-time jobs.” This is a case of looking at the glass as one-quarter full rather than three-quarters empty.
Here are the facts:

· In terms of making the promised investments, of the 11 currrent abatements, only 8 delivered, 2 fell well short, and 1 chose to lease the property.

· In terms of paying wages at or above the average found in the community, 4 of the 8 firms have substantial numbers of workers being paid from $3 to $6 per hour below the community average within each occupation group.

· In terms of producing the promised jobs, 4 firms fulfilled their promises, 1 firm fell 2 workers below the promised amont, and 3 fell well below the promised job production.

It is true that the total number of jobs at all firms given tax abatements is in excess of the total number of jobs promised. The firms that met the promised number of jobs produced more extra jobs than the shortfall experienced by the firms that failed to meet their promises. However, this statistic would have merit only if the jobs would not have been generated in the absence of the tax abatement. This is simply not the case.

The tax abatement is a needless giveaway. The firms would have produced the jobs without the tax abatement. Some of the firms have made public statements to this effect. All of the published research on tax abatements finds this to be true. Property taxes are too small a percentage of a firm’s total operating expenses to be crucial to the decision to build or expand. However, lower taxes are always helpful to enhance profits; thus, firms ask for the tax abatements even when they are not important to the decision to build or expand. The firms will even lie to the City saying that without the tax abatement the firm cannot build or expand.

What the report shows is that Lawrence has an ongoing problem with its tax abatement program. In a normal economic development program, non-compliance should be minimal. The PIRC should be discussing what to do with no more that one firm that is out of compliance. Instead, the PIRC is trying to cover up the fact that non-compliance is normal in Lawrence. Six of the eight firms are substantially out of compliance in at least one of the important areas or investment, wages, or jobs. This is not a new or temporary condition; it has been going on for years.

The City has been misled. It has been told by business advocacy organizations, such as the Chamber of Commerce, that tax abatements are needed to attract firms even though the experience both locally and nationally says the opposite. The City has been led into a position of offering abatements, almost automatically, to firms just for the asking. Yet, these firms fail to make the promised investments, fail to pay wages comparable to other firms in the community, and fail to produce the promised jobs. In many cases, the firms go out of business before the City can hope to realize any benefits. (Note that the PIRC report is deficient in that it only reports on existing abatements; it does not report of the firms that have been given abatements that went out of business such as Davol or E&E.)

An ongoing problem of non-compliance hurts the City. Not only does the City not get the jobs and wages and taxes promised, but it cannot negotiate effectively with future firms. Word is out; Lawrence is a pushover town. A firm can promise much, produce little, and still keep its tax break.

The City of Lawrence is confronting a severe budget problem. Revenues are not flowing into the City as expected. Planned expansion of the library has been scrapped. Social service agencies saw their budgets cut (although the Chamber of Commerce was given even more taxpayer money to further its failed economic development activities). Discussion has already been started on possible elimination of the bus system, the public transit needed by many people of low-income. We would all have been better served if we had not offered needless giveaways to firms in the form of tax abatements. Those lost tax revenues are sorely needed.

Saturday, April 12, 2008

How should Lawrence conduct its economic development efforts?

It is time to change the role of the Chamber of Commerce.

Recent developments present an opportunity.

The City of Lawrence, Kansas does not conduct its economic development planning through city staff. Rather, the City hires the Chamber of Commerce to conduct these tasks.

In the wake of controversy and legal embarrassment, the Chamber of Commerce is about to replace its Executive Director.

This provides an opportunity for the City to rethink how it goes about conducting its economic development efforts.

Definition of economics development.

Economic development means helping a city achieve higher levels of employment as well as attracting higher levels of tax revenue from non-residential sources than would otherwise be the case. This usually involves:

Outreach: This means advertising the City to prospective businesses who might locate here.

Subsidy packages: This means generating analysis to determine whether or not the city should offer incentive packages to firms to locate here or to firms already here that may expand. These incentives may come in many forms. They may take the form of tax reduction through rebates or refunds. They may offer financial assistance through various forms of loans, which may come at below market interest rates. They may offer cost reduction through providing land, buildings, and infrastructure at reduced prices.

Planning: This means conducting research to identify weaknesses in the local economy and to identify the needs of the community in the future. This research should monitor which sectors of the economy suffer from the greatest levels of unemployment and underemployment. It should also project the needs of the community for future employment and use this research to guide future actions.

Current state of economic development in Lawrence.

For many years, the City has hired the Chamber of Commerce to conduct its economic development activities. The Chamber provides some outreach services. The Chamber has supported numerous applications for subsidy packages from the City to private firms without analyzing the need for the subsidy packages. The Chamber conducts little to no planning research.

The record.

The record of the Chamber of Commerce in the field of economic development is one of failure.

Tax Abatements:

The Chamber has actively led the City into a large list of tax abatements. Of the 17 firms granted abatements:

· Only 6 produced the promised jobs and wages.
· The remaining 11 are either out of compliance, out of business, or not reporting.

This record of success is unimpressive. The abatements are:

· Successful only: 35% of the time;
· Non-compliant:
40% of the time; and
· Complete failure: 25% of the time.

(See Annual Reports of the Public Incentives Review Committee.)

Secret meetings:

The Chamber actively sponsored secret meetings to arrange for packages of taxpayer-funded subsidies to private firms. The parties at these meetings included the City Commission, the buyers of the property, and the sellers of the property. The only people excluded were the taxpayers. The Attorney General found these meetings to be in violation of the Kansas Open Meetings Act. (See “AG: City leaders broke law: Morrison proposes open meetings training for settlement” Lawrence Journal World December 1, 2007.)

Failed projects:

The Chamber has led the City into failed projects. The Chamber recently held a celebration of its accomplishments in a building developed, at least partially, at taxpayers’ expense that has remained vacant for years. Many other failures such as Serologicals and Decyphera exist. (See Mark Fagan, “Business Park Marks 20 Years,” Lawrence Journal World April 1, 2008.)


Chamber staff actively resisted any and all efforts by the Public Incentives Review Committee to investigate the level of compliance by firms with the terms of their tax abatements. (See Minutes of the Public Incentives Review Committee.)

Lack of Planning:

The Chamber conducts virtually no planning in its economic development exercises. It has supported proposals for such grandiose projects as the development of 1,000 acres of industrial park space, yet it has failed to produce any planning analysis that would justify such a large facility. (Lawrence Journal World, Group recommends 1,000 acres to assist in creation of jobs, December 5, 2001.)

Lack of Analytical Skills:

The City has recently fielded requests from the developer of the Oread hotel for subsidy through the Tax Increment Financing and Transportation Development District programs. The City had to hire outside consultants to review the subsidy request because neither the City staff nor the Chamber staff possess the capabilities to perform this type of analysis.

What Lawrence needs.

Lawrence needs to bring economic development skills inside City Hall.

The Chamber of Commerce is a business advocacy organization. Economic development strategies need to be good for business, but, more importantly, they need to be good for the City and its taxpayers. Everything that is good for business is not necessarily good for the City and its taxpayers. The Chamber has shown itself to advocate for the interests of business at the expense of the interests of the City.

Lawrence needs intelligent, knowledgeable, highly skilled economic development leadership that is an advocate for the City and its taxpayers.

Lawrence needs economic development planners that can guide the City through detailed negotiations with firms to ensure that a subsidy package, if any, is in the City’s best long-run interests, not simply a giveaway to any business that asks.

Lawrence needs economic development planners that can accurately project the City’s future needs without exaggeration or bias.

Lawrence needs economic development planners that will be open and transparent in the development and analysis of subsidy packages and will understand the confines of the law prohibiting secret meetings.

Lawrence needs economic development planners who will enforce the terms of agreements between the City and private firms receiving taxpayer dollars.


It is time for Lawrence to learn the difference between economic development and business advocacy.

Redefine the role of the Chamber.

The Chamber has lost the respect of the taxpayers by leading the City Commission into failed projects, into illegal meetings, and into tax giveaways that do not produce as promised. The Chamber’s role in economic development should be redefined. The Chamber needs to be heard as economic development issues arise, but the Chamber should not be performing any of the analysis or planning duties.

Bring professional economic development planning expertise onto the City staff.

Bring the job of economic development inside City Hall. Increase the skill level of the planning staff to include:

· Analysis of the feasibility of real estate development projects so that the need for subsidy can be determined by someone who interests lie with the City and not with the businesses who will be subsidized,

· Analysis of market conditions so as to determine the true need for commercial and industrial space, protecting the City from engaging in unneeded industrial parks, retail centers, or office parks that will further expand the surpluses that already exist, and

· Analysis of existing programs to fairly assess their effectiveness so that they can be expanded when they succeed and redesigned or discontinued when they fail.