Plaza’s property tax bargain astounds critics. Average KC taxpayer ‘is getting screwed’

When Kansas City’s famed Country Club Plaza sold for $660 million last year, the Kansas City School District figured to get a nice boost in its property tax collections.

The sale price was more than five times the Plaza’s value as listed on the Jackson County tax rolls. And while other local property tax recipients, such as city government and the public library, aren’t allowed to cash in big on soaring property values (a 5 percent bump is the limit), the school district has no such restrictions and was eagerly awaiting a windfall possibly worth millions.

“Lets face it, that’s a big-ticket item for us,” said Kevin Masters, the district’s head of governmental relations.

But the big payday is not to be, The Star has learned. The district will get only about $750,000 more than last year, thanks to forces beyond the school district’s control.

First, the county assessment department low-balled the market value of the Plaza’s 26 properties, setting the total at $375 million rather than anything close to the purchase price. The county has not explained why in any detail.

Then the Plaza’s owners capitalized on the county’s failure to adjust the values of properties that weren’t part of the sale in and around the shopping center. That was a big opening for an appeal because state law says comparable properties should have comparable values.

When it was all over, the shopping center was valued for tax purposes at just $145.5 million — less than a fourth of what its current owners paid for it in early 2016.

The upshot: the Plaza’s tax bill will be more than $3 million lighter than it might have been had the county’s original $375 million assessment stuck. While the school district will still benefit from an 18 percent increase in the Plaza’s assessed value over its 2016 value, the outcome was a huge disappointment for the district.

“It goes without saying we’d much rather have revenues from a $300 million-plus valuation than a hundred and something valuation,” Masters said. “But at the same time, it’s not just about money. We want a fair and equitable process.”

While the dollar figures and percentage changes in values were more extreme than in most property reassessments, the Plaza’s case is far from being an outlier. Commercial property assessments in Jackson County often bear little relation to market realities, critics say.

They say the way the system works is both unfair and inequitable, not only for taxing districts, but mostly for average taxpayers. By setting below-market values on the Plaza and other commercial properties, government shifts more and more of the financial burden for running government to other taxpayers.

Add in the tax breaks that many big property owners enjoy and the tax burden shouldered by homeowners, whose assessed values tend to fall more in line with market realities, grows even heavier.

“It should make everyone angry that the new owners (of the Plaza) have just been handed a windfall,” said Crosby Kemper III, who heads the Kansas City Public Library and is co-founder of a libertarian think tank, the Show-Me Institute.

“Who’s getting screwed here? The average Kansas City taxpayer is getting screwed.”

Commercial properties in Kansas City are notorious for being undervalued on the tax rolls, which Kemper calls “a scandal” and “terrible public policy.”

He’s not alone in his criticism.

“The reputation that Jackson County has for having values that are extremely off is absolutely, positively true,” said Steve Katz, CEO of the Property Tax Advisory Group, a Leawood firm that helps companies lower their property tax bills. “The values are so far off and wrong that it hurts not only every school district, but every other other jurisdiction, as well.”

Raytown’s school superintendent, Allan Markley, was so upset by the disparity in what commercial real estate sells for and what the county says it’s worth for tax purposes that he filed suit in 2016 against the Jackson County Board of Equalization.

From a sample of two dozen commercial properties, he presented evidence of a $23 million difference between what those properties sold for and what the county said they were worth. Extrapolate that countywide, he told The Star at the time, and “it goes from a $23 million problem to a hundreds-of-millions-of-dollars problem.”

But the case, which centered on the board’s refusal to even consider his complaints, never went to trial, and no one since has mounted a similar effort to make reforms.

The county says its commercial valuations, as measured by the state tax commission, are close to the standard set by the state.

County ‘proud’ of reassessment

Setting property values for tax purposes every other year and collecting those taxes on behalf of the county and other taxing districts annually is one of Jackson County government’s prime functions, along with running the jail and tending to the county’s roads and bridges.

County Executive Frank White’s administration disputes critics’ contention that commercial property values are way out of whack. Officials defend the job they did this cycle determining the market values for every house, storefront, factory and farm field between the state line and Oak Grove.

“Missouri law requires that the nearly 300,000 parcels of real property in Jackson County be reassessed every two years,” Ed Stoll, the county’s acting chief administrative officer, said in a prepared statement in answer to The Star’s inquiries about the Plaza’s reassessment. “The Jackson County Assessment Department takes this responsibility very seriously and is proud of the results of our 2017 reassessment.”

Stoll wrote that the county’s initial decision to set the Plaza property’s value at $375 million “was based on the information then available to the county in the 2017 reassessment.” But subsequently, that figure was cut by more than half after “the county was provided with additional information that led the county to determine that it was appropriate to adjust the market value of those 26 parcels to $145,555,751, an increase of approximately 18% over 2016.”

He did not elaborate.

Likewise, the Plaza’s owners are not apologizing for requesting a reduction in its taxable market value.

Michigan-based shopping center developer and management company Taubman Centers Inc., which co-owns the shopping district with the real estate investor Macerich Co., claims the county’s initial June valuation of the center at $375 million was “inaccurate.”

Plaza manager Meredith Keener declined an interview, but said in a prepared statement that the Plaza followed the standard appeals process, “working first with the assessor’s office, then with the Board of Equalization.”

That included “numerous discussions” with the assessment department and the county’s legal department.

“Ultimately,” Keener wrote, “we reached an agreement that was approved by the Board of Equalization and we are satisfied with the outcome.”

Big disparities

Commercial properties are among the toughest to put a value on in any jurisdiction. Should the value reflect only the cost of the land and replacement costs of the buildings? Or should it be based on the real estate’s potential for making money from the business?

Regardless of how the number is reached, the Jackson County assessment department web page states that “market value is the price the property would bring when offered for sale by a person who is willing but not obligated to sell it, and is bought by a person who is willing but not obligated to purchase it.”

For whatever reason, Jackson County set the value of the more than two dozen properties that were part of the $660 million sale of the Plaza at $375 million. On a percentage basis, that was in line with values the county set on two office buildings in the Plaza area that also sold in 2016 but were not part of the shopping center deal.

Like the Plaza, those buildings were formerly owned by Highwoods Properties. The sale price announced for Park Plaza at 801 W. 47th St. was $14.1 million, but it’s on the 2017 tax rolls at $8 million. Similarly, the Plaza West office tower sold for $32.7 million, but the county set the market value at $16.2 million.

The difference: Neither of the new owners appealed their valuations, which weren’t much higher than what they had been valued at for years.

The county’s previous market values for Plaza properties, however, were far lower, suggesting to some that they had been woefully undervalued for a long time. Now suddenly, the county was suggesting the buildings were worth two and three times what they were valued in the past, potentially upping the property tax bill from $3.7 million to more than $7 million.

Masters at the school district remembers when he first heard that the Plaza planned to contest the amounts on its reassessment notices.

“It raised a lot of questions,” he said. “We got concerned when they filed their appeal.”

District officials breathed a little easier when the company’s initial informal appeal was denied, but became anxious again when the Plaza’s legal team, led by former Jackson County Executive Mike White, asked for a formal hearing.

“Our flags went up at that point,” Masters said.

As well they should have, as White knows the process inside and out and amassed a lot of evidence to show how, as he saw it, the Plaza was being treated unfairly.

Regardless of that $660 million sale price, White argued, comparable properties needed to be valued for tax purposes comparably. At an Aug. 28 hearing before the Board of Equalization, he pointed out instance after instance of other Jackson County shopping centers that saw small percentage increases in their market values.

The biggest hike was 17 percent for Hartman Heritage Center in Independence, while Crown Center’s value went up 2.7 percent and the Power & Light District 2.8 percent.

The Country Club Plaza’s values increased 209 percent on average.

Perhaps most striking of all, however, was a map of the Plaza area showing the shopping center’s market values going up by triple-digit percentage amounts, while it didn’t look as if those increases had been taken into account in setting the market values on buildings across the street or alley that were not part of the Plaza sale.

To observers with knowledge of how the assessment process should work, the failure to do a better job equalizing values guaranteed the county would lose on appeal.

When asked, Stoll did not address The Star’s questions of why the county did not better equalize the values of the Plaza properties and its neighbors.

The Kansas City Public Library’s chief financial officer, Debbie Siragusa, is still stunned at the Plaza’s big valuation reduction, from $375 million to $145 million.

“That’s $230 million gone in one fell swoop,” she said.

It’s not a budget killer. But it could mean coping with a one-year shortfall of nearly $350,000, Siragusa said, depending on whether the lower Plaza real estate value was reflected in the countywide valuation number she based her tax levy on in late September.

“While we might be able to recoup it next year,” she said, “this year is now.”

The county will get another crack at it in 2019 when the next reassessment is done. Until then, one thing’s for sure: Critics say the Country Club Plaza will be getting a bargain when it writes that check to the county treasurer.

“Why are the taxpayers not mad about this?” Kemper said.

This story was originally published October 15, 2017 at 7:00 AM with the headline "Plaza’s property tax bargain astounds critics. Average KC taxpayer ‘is getting screwed’."