Even if you think you know the basic sales tax rate in your state, county and municipality, there’s a good chance you’re paying a half cent, a penny or even 1 1/2 cents more when you hit the cash register.
Shopping centers and other developments around the Kansas City area are collecting higher sales taxes through creation of community improvement districts. These CIDs and their transportation development district cousins now dot the metro area like chocolate chips in a cookie.
Usually, they’re popular financing alternatives to tax abatement, tax increment financing or other public incentives. But a luxury hotel’s request to impose a CID sales tax near the Country Club Plaza has left a sour taste in some mouths.
When the InterContinental Hotel this month sought CID approval for a 1-cent sales tax to help pay for $16 million in deferred maintenance upgrades, the Kansas City Council and others asked tough questions — particularly because the law requires private property to be declared “blighted” before it qualifies for a CID to improve or reconstruct the property.
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“We have used the word ‘blight’ like Kleenex,” said Councilwoman Heather Hall, asking why the hotel owners couldn’t use their own money for the improvements.
“This is a slippery slope, to create a precedent for this,” Hall said. “Where does it stop?”
One answer may come Thursday, when the council is scheduled to vote on the InterContinental’s request.
Meanwhile, some background to understand the debate: CIDs and TDDs are legal entities that give property owners the right to collect add-on sales taxes on the goods and services they sell, to pay for public and, often, private property improvements.
For all private projects, the law requires the property to be declared blighted according to legal definitions. That in itself raises taxpayer hackles. If the InterContinental is blighted, what isn’t?
Under CID law, the definition of blight is equally as broad as its definition of public benefit. Cracks in the sidewalk, frayed carpeting and mold in the air conditioning ducts all meet the definition, according to property specialists hired by development agencies to investigate blight claims.
Aside from being a tax-abatement alternative in Missouri — where most sales taxes require a public vote — a CID doesn’t need a public election. It needs only a majority vote of the relevant property’s owners, and that can be an easy “election,” especially if there’s a single owner.
In many cases, CID or TDD approvals raise the sales tax above 9 or 10 percent, depending on a community’s base tax rate.
Even if they create higher prices at the cash register, “it becomes in some respects the path of least resistance,” said Kansas City Councilman Scott Wagner, noting that schools, libraries and other taxing agencies haven’t challenged CIDs like they battle TIFs or property tax breaks. Sales tax increases, in essence, add tax revenue rather than taking dollars away, he said.
That doesn’t appease Kansas City resident Dennis Chenoweth, who frequently attends City Council meetings and follows development issues. He noted that if the InterContinental raised its room rates to pay for its targeted improvements, it would be taxed on that higher income, but a 1-cent CID essentially camouflages that increase.
“With a CID for this particular instance, they are wanting to do that for the routine maintenance that ought to be done by running their business,” Chenoweth argued, worrying that as CIDs pile up, Kansas City will be known as “taxachusetts.”
Nonetheless, supporters expect the InterContinental’s request to prevail. They counter that the tax largely will be paid by out-of-town guests and is a way to preserve one of Kansas City’s most prestigious hotels.
InterContinental general manager Don Breckenridge said the hotel’s previous owner group did significant capital improvements since a $15 million facelift in 2007-2008. He said a new ownership group that took over in January will invest millions more of its own money into additional improvements — which extend from the parking garage to the lobby and restaurant, to the 366 guest rooms.
Furthermore, Breckenridge said, a CID even was recommended in the Midtown/Plaza Area Plan, a community redevelopment guideline, as an appropriate financing tool.
“This CID program is a great example of how public/private, business-friendly initiatives can be successful without tapping into existing taxpayer dollars or public funds,” he wrote in an email to The Star.
Breckenridge noted that in the economic downturn since 2010, the hotel’s assessed valuation dropped more than $1 million. These improvements, he said, will increase the hotel’s value, which will actually translate into more tax dollars for the city, schools and libraries.
City Manager Troy Schulte is inclined to agree. “This is a relatively painless way to not have to have conversations about a tax increment financing or an abatement issue to renovate,” Schulte said. “We need high-end hotels in this city.”
When they are truly “community improvement districts,” CIDs sit well with both the public and policymakers.
Two well-regarded CIDs serve Kansas City’s downtown and River Market neighborhoods, providing about $3 million a year to pay for the “yellow jacket” crew of safety and maintenance officers who work on the streets seven days a week, a key factor in the areas’ resurgence. A Main Street CID adopted that same approach. These also are examples of CIDs that have public space benefits; they don’t need a blight designation.
Another CID, for a Martin City improvement district used for infrastructure and community beautification along 135th Street in far south Kansas City, also gets solid approval.
At a community meeting this month, Councilman Kevin McManus said that “135th Street is a fantastic experiment. The Martin City CID, it has changed the landscape. They just laid the asphalt. It looks amazing. Because of that, businesses want to locate there.”
The Martin City CID, which dates to 2005, was expanded in 2009 to a 300-acre area encompassing about 85 businesses. They levied a half-cent sales tax along with special property taxes for road, curb and sidewalk improvements.
Even Chenoweth, who criticized the InterContinental CID, said true community improvement districts can be positive.
“I think the CIDs for specific purposes on a multiproperty-owned district are probably very good,” he said, adding that they can bring multiple owners together in a common cause, improving the neighborhood and public infrastructure or services. “But a single entity, a single property owner CID is a joke.”
Indeed, some CIDs have earned public criticism as vehicles that protect owners who let their property decline. Critics pointed to physical deterioration at Red Bridge Shopping Center, State Line Shopping Center and Watts Mill Shopping Center. In each case, longtime or past owners failed to invest in improvements in a timely way.
At the 55-year-old State Line strip mall just north of 103rd Street, for example, a family-owned limited liability corporation owned the property since the 1960s. A CID petition filed this year asks for help financing more than $6.7 million in overdue building, parking lot and infrastructure improvements.
“The CID will repay a portion of that, maybe $1.5 million,” said John McGurk, an attorney representing the petitioner. “It’s a good tool to get improvements to get the center in the shape that tenants want.”
And that’s where a delicate balance enters the picture: A CID succeeds if it generates enough taxes to provide the projected funds for updates. If the petition over-reached, if retail sales fail to increase (or even stabilize), the intent can fail.
Since 2000, Missouri’s statute has allowed CID taxes to be used “to construct, reconstruct, install, repair, maintain and equip any …public improvements.” And the definition of “public” is fairly broad.
In Kansas City alone, there are 44 such districts, with requests for five more in the pipeline this year.
“It’s mushroomed,” said Jim Hedstrom, a development specialist who oversees CIDs for Kansas City municipal government. “We’ve never had five at once. This is incredible.”
Hedstrom thinks they’ve increased since 2014 because there’s more awareness by developers and because “it works” to build up a shopping area.
Most of Kansas City’s CIDs assess a 1-cent sales tax increase, although some are just a special property assessment. Of the 44 existing in Kansas City, 14 are north of the river and 30 are in Jackson County. Most are for shopping centers or shopping districts, although a few, like the Skelly office building on the Country Club Plaza, are single-owner CIDs.
Kansas City isn’t alone in the sales tax addition growth. There are CIDs or TDDs north and south, east and west of the state line.
Some city policies are fairly stringent. In Leawood, for example, CID taxes must be used only for building exteriors and infrastructure, such as sidewalks and parking lots, and are prohibited from being used for general building maintenance.
A Hy-Vee grocery store in Leawood in 2014 sought a CID to expand its store at 123rd Street and State Line Road but was turned down by the city. Separately, a nearby Leawood shopping center, Camelot Court, received a 1-cent CID approval for exterior improvements, and two other nearby shopping centers have sales tax add-ons through TDDs.
Overland Park has CIDs or TDDs that add half-cent, a penny or 1 1/2 -cent sales taxes at 11 shopping districts or multiuse sites that include retail.
Lee’s Summit authorizes a half-cent or 1-cent sales tax at 12 locations, through either TDDs or CIDs.
Olathe has four active 1-cent projects, also a mix of TDD and CID approvals.
Across Missouri, St. Louis city has 56 CIDs and three or four in the works, according to Dale Ruthsatz, deputy executive director for the St. Louis Development Corp.
Ruthsatz said St. Louis city has few shopping centers, so most CIDs there are single-site, developer driven. But he said they are mostly for public improvements and garages, not private interior improvements. He couldn’t recall any St. Louis CID like the InterContintental’s request.
In Kansas City, existing CIDs range from large multiuse developments such as Cerner’s new campus under construction in south Kansas City, which eventually will put an add-on tax on retail sales on the property, to big and small retail centers, all the way down to a single building like the InterContinental.
General manager Breckenridge argued that improvements to the hotel are a public benefit, serving as a “positive influence for economic development and job growth in Kansas City.” And he said the hotel has agreed that the blight determination will not be used as a basis for granting any tax abatement or other tax redirection.
Councilman Wagner calls it a balancing act for the council. He wants to make sure that owners take responsible care of the property. And if the CID helps the InterContinental keep its room rates competitive and ensures its viability, it’s a worthwhile economic development strategy, he said.
“It does no one any good to have an InterContinental that no one goes to,” Wagner said. “The reality is, if you don’t use the InterContinental, you will never pay for that.”