A new study says that tax increment financing, a development tax incentive that is often credited with reshaping Kansas City’s skyline, does not lead to economic development benefits in Kansas City.
The study, carried out by T. William Lester, an associate professor in the University of North Carolina Department of City and Regional Planning, says economic activity in areas that are part of TIF districts was “not discernibly greater” than similar areas without TIF.
“In other words, the development seen in TIF areas is what would have been expected in the absence of the TIF program,” Lester’s study concludes.
The study was sponsored by the Show Me Institute, a libertarian think tank in Missouri that’s generally critical of corporate subsidies.
TIF is an enticement that lets a developer capture new property and economic activity taxes generated within a district to pay for eligible development costs.
There are 74 TIF districts across Kansas City. It’s associated with development ranging from the Power & Light District in downtown to the Linwood Shopping Center on the East Side.
Critics of TIF say developers only have to reach a low standard — known as the “but for” test — in order to justify TIF and that the tool stunts budget growth in taxing jurisdictions like school and library districts.
Proponents of the incentive say dozens of economic development projects would have happened without TIF because it would otherwise be too costly for developers to undertake on their own.
Lester’s study compared areas in Kansas City that received TIF to similar areas that never received the benefit. Census data, employment figures and TIF data were used to in the analysis.
“Overall, the analysis conducted in this study finds no support for the claim that TIF generated tangible economic development benefits in either Kansas City or Saint Louis,” the study said.
It conceded that economic activity does occur in TIF districts, but not at a level greater than similar areas where TIF does not exist.
Lester’s report mirrors a 2011 study by the East-West Gateway Council of Governments in St. Louis, which found that $2 billion in TIF subsidies for retail developments did not lead to increases in regional sales tax revenue or a large increase in jobs.
Kerrie Tyndall, director of economic development for Kansas City, said TIF has been a useful economic development tool.
“Obviously not every TIF is successful, but I think it’s accurate to say that many have yielded significant results and that clearly our community is better off now than 15 or 25 years ago,” Tyndall said in a statement.
Tyndall pointed to the effects seen at various TIF projects in Kansas City.
One example was the Civic Mall, approved in 1994 and led to the development of the Charles Whittaker Federal Courthouse, a Federal Aviation Administration building and other developments north of City Hall. The assessed value of the property in 1994 was $7.8 million, and by 2016 grew to $38.5 million.
Another example was the Hickman Mills TIF that cleared blighted land in south Kansas City and led to property values doubling since 1992.
Kansas City contracted for a study of its economic development incentives. The study by the Council of Development Finance Agencies is expected at the end of January.