Up In The Air

WICHITA, Kansas – The city of Wichita, Sedgwick County, and the state of Kansas have all long assisted aviation companies with financial incentives to promote economic growth and jobs to the state. Economic incentives have been successful, in large part, in establishing Wichita as the so-called “Air Capital of the World.”

Unfortunately, however, in what has recently been a painful realization for Kansans and their elected leaders, a series of aviation layoffs have crippled the state and local economy the past decade. This, after pledging millions of dollars in incentives to keep and create jobs in the local economy, only to be stung.

up-in-the-air-graphicIn a KSN investigation months in the making, aimed at looking out for the city’s aviation workforce, we sat down with city representatives responsible for drafting contracts like these to learn more information about the process of doing so, and how city leaders are looking out for Wichitans’ jobs, specifically in the aviation sector.

“That aviation downturn has hit us especially hard,” said Tim Goodpasture, from the Office of Urban Development for the city of Wichita. “It has been a very, very slow recovery. We’re just kind of inching along.”

The Air Capital of the World: A Painful Process

In 2011, the state of Kansas, city of Wichita, and Sedgwick Co. collaborated efforts to keep Hawker Beechcraft in town.

Former Wichita city council member, Michael O’Donnell, told KSN at that time, “The city, county, and state have a huge investment in Hawker, and we obviously have a lot on the line and we want to keep them here. Obviously, every job is vital to our economy.”

The city of Wichita paid out $2.5 million in incentives in exchange for 4,000 jobs.

Wichita Mayor Carl Brewer explained the contract.

“The rule was if they dropped below, then we would prorate and we would pull dollars back if they fell below that particular number,” said Mayor Brewer.

The Hawker Beechcraft – Wichita agreement, which contract was signed May 24, 2011, had the safeguards in place in case the company failed to uphold their end of the jobs deal.

The contract maintained that, “If at the end of any year during the five year pay-out period, HBC employs fewer than 4,000 workers, the subsequent incentive payment will be reduced proportionally.”

In the May 2011 contract drafted with the city of Wichita, Hawker Beechcraft was held accountable for maintaining jobs in the area on an annual basis, forcing HBC to pay back immediately if those jobs were not maintained at any time.

Wichita & Bombardier – Contractually Enough?

After filing a series of Kansas Open Records Requests with Wichita city leaders and the state of Kansas, KSN continues learning more about the latest aviation industry incentives provided by the city of Wichita and Bombardier. Their contract signed November 23, 2011.

“The city and the county each provided a million dollars as a matching grant for an economic development administration grant,” said Goodpasture.

This money was used to build a parking facility at Wichita Learjet, near Wichita’s Mid-Continent Airport.

The money to fund Bombardier’s parking facility, however, is only a portion of incentives the 2011 Wichita City Council signed off on, per contract, which will provide for a nearly $53 million expansion at the local facility.

The city’s contract with Bombardier is made up of very different job safeguards than the Hawker Beechcraft agreement, pertaining specifically to time.

$1M / 3,750 person years = $266.67 per person year
$1M / 3,750 person years = $266.67 per person year

The City of Wichita: Contract Clawbacks

“The way we structure our clawback is such that it is done at the end of the seven years,” said Goodpasture. “So, in any given year, they may be deficient, but in the cumulative, they may be at or above the total projected amount.”

Job creation data, then, in this contract, is based on an average. Per contract, Bombardier cannot be penalized for failing to create jobs during a specific year, even laying off a certain number of Wichita employees, so long as after the seven year time period, in 2017, Bombardier meets the contract’s job quota stipulations.

Tim Goodpasture maintains that despite layoff numbers making headlines, Bombardier is on track with mandated job creation.

“So far, we’re three years in to reporting and we are very pleased to announce that it’s been [a] very successful project and Learjet has been above their employment levels every year,” said Goodpasture.

However, when KSN reached out to Bombardier to confirm that, we were told they cannot provide the exact number of new hires, per year, since 2011. Even still, representatives with Bombardier maintain also that they have met their expectations outlined in the contract.

While the contract does not stipulate the following, because it is not yet 2017, it does say, “A ramping up of employment at its Wichita plant will reach a high of 625 new jobs by the end of 2014.” That data won’t be reported to the city of Wichita, we’re told, until February 2015.

Wichita city leaders, even over time, have remained optimistic.

“One thing we know for sure is that we’re not going to regain the jobs in the big chunks that we lost them in. When jobs go away, they go away by the hundreds and thousands, and when they come back, they come back in the dozens and hundreds,” said Janet Miller, a Wichita City Council member, in June.

WEB EXTRA VIDEO | Tim Goodpasture explains Bombardier Clawbacks

Checks and Balances?

201105-contract
Click for Hawker contract

The question still stands. After comparing two contracts, one of which failed to agree to their mandated expectations (Hawker Beechcraft), did the city of Wichita provide adequate checks and balances to be certain residents’ tax dollars and the city’s valuable incentives aren’t wasted?

The contract with Bombardier also states that Learjet would be required to repay the $1 million grant if the company “terminates, relocates, or does not make all of the capital improvements agreed to…”

Also, likely paying some of the grant funds back if new job creation falls short of 450 at the conclusion of 2017.

Until that time, Wichita must wait. The city, again, cannot act on Bombardier job creation or layoffs, per their signed contract, until that time.

“We do have clawbacks in our agreements. We do monitor what’s going on, and we are trying to make sure that companies are compliant with that which they’ve promised to the community,” said Goodpasture.

Despite the generations of peaks and valleys in the aviation industry, city representatives with the Office of Urban Development told KSN that they will hold Bombardier accountable.

When asked if the city is going to be aggressive if Learlet does not uphold the contract, as far as jobs are concerned, Tim Goodpasture said,” Absolutely. It’s in the agreement. It was very clear to the company.”

City of Wichita: Cost-Benefit Analysis

WEB EXTRA VIDEO | Goodpasture explains cost-benefit analysis

KSN Investigation Over Time:

Contractual Agreements: Industrial Revenue Bonds (IRBs)

It’s a financial term not everyone understands or already knows…

An industrial revenue bond (IRB) is a unique type of revenue bond organized by a state or local government. The bond issue is sponsored by a government entity but the proceeds are directed to a private, for-profit business.

The city of Wichita has assisted Learjet with Industrial Revenue Bonds, or IRBs, and property tax abatements since the company was founded in 1961.

In June 2014, the Wichita City Council also unanimously approved $52.7 million in Industrial Revenue Bonds to provide Bombardier Learjet the funds for a new paint facility, delivery center, and equipment that will reportedly mean 450 new jobs through 2018.

Read the details here.

Stories | City council approves Bombardier Learjet IRBs | KSN investigates: Bombardier IRB agreement | Bombardier IRB contract lacked layoff safeguard

Bombardier: Lear85 Program

Click image to visit Bombardier's Learjet 85 program site.
Click image to visit Bombardier’s Learjet 85 program site.

KSN also learned that the 170 Bombardier layoffs that made headlines in the summer of 2014 are directly related to the Lear85 program specifically. Bombardier drafted a separate contract with the state of Kansas pertaining to job numbers for this particular program.

When KSN asked city leaders why the state of Kansas allowed Bombardier to complete a separate contract for one specific program, essentially prohibiting the city of Wichita from tallying layoffs in the Lear85 program to count against the city’s May 2011 contract, we were directed to the state.

WEB EXTRA VIDEO | Lear85 program as separate

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