Development stance divides Lenexa council

08/08/2014 7:00 AM

08/13/2014 8:42 AM

The Lenexa City Council on Tuesday night debated the pros and cons of increasing residents’ property taxes by two mills, which would provide an additional $1.8 million in revenue for road improvements and maintenance that currently are not fully funded.

An increase of two mills — to 31.173 mills — would add $57 a year in taxes on a $250,000 residential property, according to city documentation.

No one addressed the council at the city’s public hearing on the budget but the council discussed the proposed budget.

If the council were to approve the increase, the city’s fiscal 2015 budget would increase to $122.5 million, up 5.6 percent from the current fiscal year’s budget of $116 million. In June, city staff proposed a budget of $121 million for 2015, which would keep the mill levy rate at its current 29.173 mills.

Lenexa must adopt its final 2015 budget by Aug. 19 to certify the budget by Aug. 25, as required by state law.

Council members focused their discussion on using the additional revenue to help pay for the second and third phases of construction of Ridgeview Road between 99th Street and Kansas 10, a $15.1 million project.

Six of the eight council members and Mayor Mike Boehm expressed support for the increased mill levy and said that the Ridgeview project was crucial for stimulating economic development and easing traffic congestion in the area.

Proceeding with the project now would give the city a price break because on-site contractors are building the Johnson County Gateway project for the Kansas Department of Transportation, several council members said.

Ward 3 Councilwoman Amy Slater and Ward 4 Councilman Andy Huckaba expressed opposition to the property tax increase.

Ward 3 Councilman Lou Serrone said that the Ridgeview project would create an economic opportunity where none exists.

“Who in their right mind would sit here and say ‘I think it’s a good idea to raise somebody’s taxes’?” Serrone said. “The flip side of it is I not only have to think of the good of the individual that’s out there in the community, but I have to think of the good of the whole, and I have to think about the future and the legacy we’ll leave as governing body members.”

Slater countered by saying that raising property taxes on the whole city for the Ridgeview project “represents a very stark and pointed departure” from the council’s approach to funding development projects.

“I think that development should by and large pay for itself,” Slater said. “We did nothing to consider making cuts instead of increasing the mill levy. We should have discussed it in May.”

But Ward 2 Councilman Thomas Nolte, regarding the idea that developments should pay for themselves, said that Lenexa “is the opposite of that.” The city has bought ground for City Center, Sam’s, Costco and a bridge from Lenexa to Overland Park, he said.

“We have bought nearly every deal that has been done in this town, and we continue to buy deals,” Nolte said. “We have probably one of the most aggressive economic development groups in the metropolitan area.

“We hand them and create for them 17 incentive packages that they can offer development, and it has paid off,” he said. “We are the attractive, go-to location, and I think our tax base proves it. Fifty-three percent of our tax base is paid by business, not by homeowners.”

Lenexa has been using these economic development tools for 40 years, Nolte said after the council meeting. Other municipalities in the Kansas City area try to emulate Lenexa’s approach, he said, which embodies “an entrepreneurial mentality.”

Lenexa has “a good track record of funding projects with good return on investment, so we have a triple-A rating,” Nolte said during the meeting. “Development doesn’t pay for itself: We do.”

Nolte said that he wasn’t “keen on taxes” but that “for me, it’s tax versus debt. I prefer less debt.”

The city tracks and compares estimated dollar values of incentives it gives to developers, and returns in sales tax revenue generated on each development project, but it doesn’t do so comprehensively, for all incentives given for all projects, city Chief Financial Officer Doug Robinson said.

“We look at it on a project-by-project basis,” Robinson said. “We look at each project on its own.”

Lenexa City Administrator Eric Wade said that he intends to create a summary of the projects the city has granted incentives to and the returns generated.

But because state law prohibits cities from publicly disclosing certain details of sales tax revenue, the city can’t quantify for the public the exact dollar values of sales tax revenue generated from incentives granted to developers, Wade said.

He gave a hypothetical example, though, of a $20 million tax abatement the city would give to a developer for a project.

“That means 50 percent of those tax revenues are coming in that weren’t before,” he said.

Lenexa doesn’t use traditional tax-increment financing, which includes general-obligation debt, which a city must back. Lenexa instead uses TIF bonds without backing, Wade said.

“The market may or may not buy it before the building is built,” he said. “I think that what the citizens of Lenexa tell us is that they like the quality of developments in the city.”

For the Ridgeview project’s second and third construction phases, city staff estimates that tax-increment financing revenue would total $1.7 million a year, compared with an estimated debt service of $1.08 million a year. Sales tax revenue from the project is projected to be $3.3 million a year.

After the meeting, Slater said that she had heard more opposition than support for the proposed tax increase, both from her constituents and residents citywide.

The city’s recommended 2015–2019 Capital Improvement Program of $187 million would pay for 35 projects, including improvements to streets and bridges, traffic signals, parks, stormwater infrastructure, city facilities and equipment.

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