Column One
A tale of 2 cities in the Midwest
How the money, politics and ideals of a pair of billionaires — Koch and Buffett — shaped the fortunes of Wichita and Omaha.
Just as they left their imprints on a nation and a world, Charles Koch, who hails from Wichita, Kan., and Warren Buffett, a folksy son of Omaha, have changed the trajectories of their hometowns. Today, their cities, like many scattered across the Plains, are working to reinvent themselves at a time when economies are threatened and a pandemic grows.
A race is on to draw in millennials from overpriced coastal areas to seed a Midwest revival, and the competition for young professionals is fierce. Neither Wichita nor Omaha is an obvious magnet. Both have struggled with brain drain in recent decades. They have lost manufacturing jobs, population growth has slowed, and resignation has settled in.
But both cities are known for one hot commodity: those engaged local billionaires, both of whom consider themselves experts on prosperity.
Koch, 84, is the chief executive of Koch Industries and is worth an estimated $48 billion. He’s a notorious political power broker instrumental in steering the Republican Party toward its current minimalist approach to taxes and government services. Tax cuts coupled with spending cuts, his theory goes, goose the economy and attract jobs.
Buffet, 89, is the CEO of Berkshire Hathaway and is giving most of his $72-billion fortune to philanthropic causes. He champions public services — especially education — as the rising tide that lifts communities, and he believes that taxing the wealthy is the way to pay for those services.
The influence of these billionaires and their philosophies has been spreading in these twin cities for decades. Millennials are on the move. Which metropolis will capture their imaginations?
Within days, Rathbun realized his mistake: His hometown, the birthplace of Pizza Hut and White Castle, has a storied history as a fast-food laboratory. No one at the restaurant, he said, understood the importance of high-quality, local ingredients.
Rathbun resigned and, in 2008, drove west to hustle a job in Denver’s celebrated farm-to-table food scene. Wichita, he hoped, would stay in his rearview mirror forever.
Midwesterners take pride in talented offspring — young professionals with the potential to build businesses — leaping to larger ponds. But a lot of talent has left Wichita, and the city is struggling.
During the decade ending in 2018, Wichita’s job growth declined 3.2%, with stagnant average annual wages, while nationally, employment expanded and wages rose. The city’s standard of living rose just 4.6% in that decade, according to the Brookings Institution’s Metro Monitor 2020.
For generations, Wichita’s economy revolved around homegrown aircraft manufacturers such as Beechcraft, Learjet and Cessna. At the city’s zenith in 1980, independent oil producers added to Wichita’s swagger. Median household income was 8.4% higher than the national average.
Since then, the city has experienced a long, slow slide. Many aircraft companies moved away or were folded into larger firms. Pizza Hut relocated, and oil and gas production withered. Koch Industries, a chemical and manufacturing conglomerate, remained, a rare heyday holdover that continued to expand.
Wichita’s entrepreneurial spirit seemed to vanish with its founding families. The city missed out on booms in technology and financial services. And with the COVID-19 outbreak, massive layoffs in the remaining aircraft companies “have left the city in economic limbo,” said Jeremy Hill, director of the Wichita State University Center for Economic Development and Business Research.
Back in 2015, the Wichita Community Foundation, a nonprofit supporting charitable investments in the community, knew the city was in trouble and sought out James Chung, a son of Wichita and founder of Reach Advisors, a New York strategy and predictive analytics company.
The foundation had one overarching question: What’s the matter with Wichita?
After months of analyzing government data, Chung declared Wichita in “crisis” in a presentation to city leaders. Among his findings: The flow of graduates returning home from the state’s universities had slowed to a trickle, and new people were reluctant to move to a place they viewed as insular and intolerant compared with similarly sized Midwestern cities.
Wichita, Chung warned, would simply fade away unless it invested in civic renewal. Wealthy citizens, he said, needed to step up and lead the effort to attract a new generation of innovators, entrepreneurs and investors.
Three years later, when the Community Foundation asked him to gauge the city’s progress, Chung reported that Wichita was a “catastrophe.” There was still no investment, he said.
How could that be?
Kenneth A. Kriz, a former WSU professor who studied at the University of Nebraska and is now a professor of public administration at the University of Illinois at Springfield, offered this insight: “To understand Wichita, look at Omaha.”
But some of the big insurance companies stayed and prospered, and a shift to telecom and tech services in the 1990s,
“Finance and professional services, which typically provide a lot of good jobs, are much bigger sectors in Omaha than Wichita,” said Alan Berube, deputy director of the Brookings Institution’s Metropolitan Policy Program, which oversees Metro Monitor 2020. Manufacturing accounts for only 8% to 9% of Omaha’s gross domestic product, he said; in Wichita, it accounts for one-third of GDP.
Jobs in Omaha grew 6.6% in the decade ending in 2018, with average annual wages rising 8.8%, pushing the standard of living
“The general sentiment in Omaha is people feel fortunate to live there,” said Chung, who compared the city to Wichita in his study. “Omaha does a great job of investing in itself.”
Heritage Services is a case in point. Since 1990, this low-profile Omaha nonprofit, backed by some 100 mostly anonymous residents, has raised $725 million in private donations, which, when combined with matching public
The chairman of Heritage Services is former Kiewit Corp. Chief Executive Walter Scott Jr., 89, an early Berkshire Hathaway investor and board member and informal advisor to Buffett’s daughter, Susie Buffett, 66.
Warren Buffett gets credit for a measure of Omaha’s wealth; some of his friends and neighbors were early investors in Berkshire Hathaway, a holding company with a diverse portfolio of hundreds of businesses. Although little of his direct philanthropy has been locally focused (Buffett is giving much of his fortune to the Bill & Melinda Gates Foundation), investors in his company became local philanthropists. More important, his bequests to his daughter’s Sherwood Foundation have made her a top-tier donor in Omaha. (Warren Buffett declined to be interviewed for this story.)
Susie Buffett has made supporting Omaha’s least-advantaged residents her mission, and she started with the city’s public schools. If America’s powerful families had to put their children in public schools, she likes to say, everyone in the country would get a first-rate education.
Buffett began her philanthropic work in Omaha in 2000, when she opened her first Educare center, an early childhood education program that originated in Chicago. Working in partnership with Omaha Public Schools and others, she has now built two birth-to-kindergarten centers and three infant-toddler centers with no-cost, all-day child care, as well as family counseling, healthcare and meals.
In the last two decades, Buffett has broadened her support across all of Omaha’s public services, giving a total of $1.3 billion to her hometown and state. In addition, through the Susan Thompson Buffett Foundation, honoring her mother’s commitment to women’s health and education, Buffett annually awards 1,000 need-based full college scholarships to Nebraskans.
Buffett believes in partnering with public entities and in following their lead. She also believes a community that takes care of its most vulnerable members fosters a better life for everyone.
“We all want to attract new young people to live in Omaha and make the people who grew up here want to stay,” she said.
“Susie digs in where the need is greatest, addressing poverty at the root of the problem,” said Omaha Mayor Jean Stothert.
When Stothert asked Buffett to support Omaha’s $300-million riverfront redevelopment, she wrote a check for $50 million. An additional $200 million came from other Omaha philanthropists. And Buffett gives more than money, said Mark Evans, a former Wichita schools official who recently served as the head of Omaha Public Schools: She has rallied broad support for public education and other services — a civic spirit Wichita lacks.
Koch is among Wichita’s leading philanthropists. The Charles Koch Foundation, other family foundations and Koch Industries, a private corporation, have given a total of $90 million to Kansas-based philanthropies during the last 20 years, according to spokesman David Dziok.
While Koch Industries has made its top executives wealthy, unlike Berkshire Hathaway it did not mint a generation of multimillionaires. There’s nothing like Heritage Services in Wichita.
Koch’s philanthropy reflects his belief in “individual empowerment” and “self-actualization,” his spokesman said. The leading beneficiary of Koch’s gifts is WSU, which has received $21 million for sports facilities, scholarships and academic programs.
Koch’s other local donations include $14.8 million for the Mary R. Koch Arts Center (known as Mark Arts), an institute located on Koch family property, across the street from his home; and $20 million to Youth Entrepreneurs, a high school program, available nationally, that Koch and his wife created to teach students “entrepreneurial thinking.”
In recent years, Koch has given $360,500 to a Wichita high school program, Rise Up for Youth, serving 600 at-risk teens each year through activities and mentorships stressing self-determination and self-respect.
But Koch’s influence extends well beyond his philanthropy. He was instrumental in a political initiative that brought Kansas to its knees.
Koch Industries had been pushing for tax relief for years, threatening to leave the state if it didn’t get it, said Steve Morris, a Republican former state Senate president. This time, with the salesmanship of Koch-supported, supply-side economist Arthur Laffer, Brownback delivered.
In May 2012, the Kansas Legislature passed the largest tax cuts in the state’s history, eliminating a variety of business taxes, including those on limited liability corporations such as Koch Industries, as well as cutting individual income taxes.
“We were supportive of the tax cuts and showed [Brownback] exactly how to do it,” said Dave Trabert, chief executive of the Kansas Policy Institute, which is considered by Kansas movers and shakers like state Sen. Barbara Bollier to be Koch’s voice in the state. To make the cuts work, legislators just needed to “wring 8.5% out of spending,” Trabert said, noting that public schools were a good place to start cutting.
The Legislature balked at such deep cuts. “Those cuts would have devastated our schools,” said Bollier, a retired suburban Kansas City physician. Even the Tax Foundation, a Washington think tank that advocates low income taxes, slammed the cuts for “incentivizing tax avoidance.”
With the state facing insolvency, in July 2017, Bollier and other moderate Republicans joined Democrats to reverse two-thirds of Brownback’s tax cuts. Bollier later switched parties and is now running for U.S. Senate. If elected, she would join a growing class of Kansas Democratic leaders, including Gov. Laura Kelly and U.S. Rep. Sharice Davids.
“Koch is what’s wrong with Kansas,” said Bollier. “Kansas Republicans are his willing puppets.”
At a time when its cities are losing population, “the cuts left Kansas without the funds to invest in attracting young families,” said Kim Rueben, director of the State and Local Finance Initiative at the Urban-Brookings Tax Policy Center.
“Priorities have changed,” said Rueben. “Businesses now are chasing workers, not tax cuts.”
States and cities, she said, need to protect their tax base to support the services millennials want — chiefly, good public schools.
Koch declined to be interviewed. Dziok said Koch defends Kansas’ tax cuts, with the caveat that their economic benefits depended on equally deep spending cuts.
Fidelity chairman Clark Bastian, 68, said Chung’s report “shocked” him. The bank escalated a $51-million expansion of its downtown offices, adding amenities like a rooftop park to make the bank more appealing to the young professionals it had been trying to recruit. More immediately, the family launched a website to facilitate active discussion of the issues Chung had raised.
“We have momentum,” said Aaron Bastian, 38, Clark’s son and the bank’s president and CEO, citing a growing list of new downtown commercial developments.
Fidelity helped launch a 10-county regional effort to court out-of-state millennials that included ChooseWichita.com, an outreach site to aerospace workers in Los Angeles and other key cities who might appreciate Wichita’s affordable lifestyle.
Earlier this year, in a bet-the-farm bid to attract millennials, Wichita leaders floated a monumental $1-billion plan to build new downtown performance spaces and transform the city’s riverfront.
“There is an interest in change,” insisted Mayor Brandon Whipple, 37, a recently elected Democrat who replaced Jeff Longwell, 60, who had close ties to Koch. Whipple said it is his job to inspire residents to invest in the city. To date, Koch has been notably absent in Wichita’s downtown redevelopment efforts.
A low cost of living, such as that in Wichita, became a necessity, so he returned. What surprised him was the city’s food scene. Ambitious young chefs were thriving, helped by young farmers growing produce in hoop houses. Now he’s the executive chef at Siena Tuscan Steakhouse in a boutique hotel in downtown Wichita.
“I get to be the mentor for young cooks I needed when I was coming up,” he said.
Better restaurants signal good things to come in Wichita. But young professionals are in demand everywhere, and they want more, said Jordan Rappaport, senior economist at the Federal Reserve Bank of Kansas City.
“The key to attracting this upcoming generation is good public schools,” he said. “It is the definition of an affordable lifestyle.”
Millennials are also looking for places that have invested in public infrastructure like parks and have recreational and cultural activities. And they’re interested in jobs with a future. Omaha is a rising star in the race for a new generation of entrepreneurs, according to Ross DeVol, who runs Heartland Forward, an institute focused on economic renewal in the Midwest.
“Nebraska started making investments in knowledge-based economies much earlier than Kansas, particularly at its state universities,” he said.
Wichita lags in entrepreneurial activity that can translate into fast-growing new companies, DeVol said.
Last year, a delegation of Wichita civic leaders made the five-hour drive north for a meeting with Omaha’s Heritage Services. The Kansans had one question for their Nebraskan counterparts: How do they persuade their wealthy residents to be so generous?
Omaha has confidence civic projects will succeed, the Wichita delegation was told. You can’t make people pull out their wallets. They have to want to do it.
