Planning is key to area’s economic future

By Paul Harris

For the Manhattan area economy, 2012 will be a year of wait-and-see. While 2011 will be remembered for its continued growth, including a strong employment rate, consistent sales activity and the expansion of K-18, the focus during 2012 will primarily be on planning.

The planning is necessary because according to census projections, Manhattan could see an increase of nearly 17,000 people in the next eight years. The 2010 census put the city’s population at about 53,000.

Concerns

The city, according to Bernie Hayen, director of finance, is in great shape.

But there are areas of economic concern, notably the Department of Defense and also the city’s bond ratings. With troops withdrawing from Iraq, the Pentagon is expected to cut its budget by 20 percent, an action that may or may not impact Fort Riley. Hayen said the city just has to be patient and wait for the government’s decision. He added that if Defense cuts impact Fort Riley, that is more likely to hurt Junction City because that is where the lower-income soldiers live.

Because of the continuous growth, Hayen said the city’s debt continues to grow. It currently stands at $265 million. Standard and Poor, Moody’s and Fitch have the city rated AA2, which is the second-highest bond rating.

“It gives the commission heartburn when we keep asking for money,” he said. “When you are a growing community, that happens.”

The growing debt means that despite Manhattan’s continued growth and continuous good news, the city needs to be careful. The city is paying for a majority of its growth and debt service on sales taxes and moral obligation. Moral obligation is comparable to a handshake, where the city is given lower rates with an expectation that it will pay on time. A decrease in population or a major corporation leaving could create problems in drumming up sales tax revenue.

“That is why people get nervous when a corporation starts cutting stores like Sears and Kmart recently announced,” Hayen said. “One store closing down is not huge, but you have an issue if major stores start closing down.”

Another possible concern is if the Kansas Legislature decides to remove the sales tax from grocery store purchases. Sales tax revenues grew here during 2011, but such an action could undermine 2012 revenue projections.

“Dillons west is the biggest grocery store when it comes to sales tax, and creates more sales tax revenue than Dillards, Sears, and J.C. Penney’s combined,” Hayen said. “That’s why I was really excited when Hy-Vee decided to come in to town.”

Hayen said he rates the city’s economic grade on a scale of 1-10 at a 9.

“The only thing keeping it from a 10 is the debt and the possible troops withdrawals,” he said.

 

Development

The reason behind Manhattan’s economic success during tough economic times around much of the country is due to Fort Riley, Kansas State, and the soon-to-be-constructed NBAF facility.

The university has already started to receive calls from other bio companies about coming to Manhattan to be near the NBAF, even though construction is not expected to begin until 2017.

The biggest economic boost could come from the expansion of K-18, although it might require the biggest balancing act. The idea of expanding the connection between Manhattan and Fort Riley has been tossed around for two decades. “The governor came forward with funding 10-15 years earlier than anyone expected,” city commissioner Rich Jankovich said.

Jankovich said the highway’s widening, which also involved raising the nearby land and thereby reducing the threat of flooding, has sparked interest from businesses. The problem, according to county planner Monty Wedel, is figuring out how much of the nearly 25,000 acres will be zoned for commercial, agricultural or industrial. Those discussions will begin and continue through 2012 Wedel said. A committee will discuss the possibilities with key stakeholders in the area over the first couple of months of 2012.

Jankovich and Wedel agree that the airport is a major transportation hub and needs to be protected.

“If you don’t and you ruin the public investment, you have “shot yourself in the foot,” Wedel said.

There have been discussions about lengthening the runway another 1,600-1,800 feet. That would allow the airport to bring in larger planes and possibly part of the aerospace industry.

Flights were added to Chicago and Dallas during 2011.

Right now, the city and the county are trying to figure out the best way to maximize the needs of an expanding Ogden, Manhattan, and Riley County.

“The big concern is making sure the development does not outstrip capacity and the development does not have adequate services or infrastructure,” Wedel said.

 

Housing

In mid-December, Assistant City Manager Lauren Palmer held a housing roundtable, where real estate professionals and the public gathered to discuss the Manhattan housing market. The major issues for current residents are affordability and growth. Two rivers and the Flint Hills physically bind Manhattan. Any continued growth is going to be expensive.

“It’s not cheap to build a bridge,” Palmer said. In the 2012 Kansas Housing Markets Forecast by the Center for Real Estate at Wichita State University, home sales are expected to rebound to 580 from 2011, when sales dipped to 570. That was the lowest sale total in five years. Single-family building permits are also expected to increase from 2011, from 165 to 170. Home prices are expected to appreciate at a rate of about one-tenth of one percent in 2012. That may not sound like much, but it’s better than the 1.6 percent drop in 2011.

The study does state that the Manhattan market has remained fairly stable through the recent recession.

Dave Urban, president at ESB Bank, said foreclosures at his bank are non-existent. “We just don’t have any on the radar.”

He attributes that in part to Manhattan’s current economic success.

“We don’t have a huge concentration in heavy industry, which has high unemployment rates,” he said. In fact, the area has consistently measured among the “least stressed” in the nation, according to an Associated Press gauge that factors in foreclosure rates, unemployment and bankruptcies.

Hayen expects Manhattan to continue to thrive throughout the next decade. “We have definitely raised our national profile,” he said. “Plus young professional will always see Manhattan as a place to come back to or stay and work at.”









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