Fasten your seat belts: The path for Kansas City redevelopment projects to get public subsidies is going to get bumpier.
Exactly which projects could be stopped cold is unknown. But it’s clear after the collapse last week of the BNIM office project — which sought property tax abatement to redevelop a building in the Crossroads Arts District — that abatement critics are emboldened.
Some existing proposals for the Crossroads, downtown, Crown Center and especially the Country Club Plaza already face stiff opposition to their abatement and incentive requests. Opponents argue that those neighborhoods are vibrant enough that they do not need development incentives.
Other critics want public subsidies channeled to redevelopment east of Troost. Still others oppose plans because of the heft of the incentives.
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Abatement challengers, including school, library and county taxing jurisdictions, have already displayed strong disagreement with a plan that seeks about $52 million in property tax abatement, sales tax assistance and other tax exemptions to convert the vacant former Federal Reserve Bank building to a hotel at 925 Grand Blvd.
That $148.5 million redevelopment plan was narrowly approved in December from the Tax Increment Financing Commission and has yet to get the City Council’s approval. Commissioners representing the Kansas City Public Library, Kansas City Public Schools and Jackson County gave it an emphatic thumbs down.
Meanwhile, real estate developers and their attorneys are making a strong pitch to keep a welcome mat down for major redevelopment projects and their investors.
“But for the appropriate use of taxing incentives, we’re going to lose important development in our city,” warned Roxsen Koch, a development attorney who represents multiple real estate projects.
Koch is among those worried about a ripple effect from BNIM’s decision to abandon a move to a vacant building at 1640 Baltimore Ave. owned by Crossroads redeveloper Shirley Helzberg. The company said it was forced to look elsewhere in the area because of delays caused by a group of petitioners who called for a public vote on the project’s development tax incentives.
“This isn’t good,” said Spencer Thomson, a development lawyer. “There’s definitely a shift to more opposition, more scrutiny, more throwing up obstacles. How will the petitioners feel when BNIM goes to Overland Park or somewhere outside Kansas City?”
The petition leaders, including Kansas City school board candidate Jennifer Wolfsie and other parents and social justice activists, objected to a $5.2 million tax-increment financing agreement that would have redirected school property taxes to help cover the $13.2 million redevelopment.
Phil Glynn, vice president of economic development with Travois, a Crossroads-based housing development firm, said the failure of BNIM’s TIF project is a wake-up call.
“If you want a deal to go through smoothly, you need to do a deal that’s giving the community something it doesn’t already have and in a part of the city that actually does suffer from blight,” said Glynn, who served on the TIF Commission until Mayor Sly James removed him for voting against the BNIM financing.
Glynn said Kansas City needs to get serious about defining real blight and using taxpayer money to address crime, job growth and urban core redevelopment.
But, while Glynn and others believe Crossroads redevelopment should be able to thrive without public subsidy, the development community disagrees.
“The bottom line is whether there’s enough revenue upside to attract a developer to any location,” said David Macoubrie, executive director of the Planned Industrial Expansion Authority, one of the local entities where board members have authority to approve tax abatements.
“There are still a lot of surface parking lots, a lot of vacant buildings in the Crossroads and downtown,” Macoubrie said. “I hear them saying, ‘When do we declare (development) victory?’ Well, I don’t think we’re there yet.”
Developer Jon Copaken agreed that incentives still are needed downtown and in the Crossroads.
“We dug a hole for ourselves through 30 years of neglect, a generation of looking outside the urban core,” Copaken said. “Now we have a high interest level and demand for this area, and a lot of good things are happening. You don’t want a process or mentality where you’re going to lose the momentum.”
The ‘but for’ test
Local concerns about stopping momentum were heightened by the filing last week of HJR 91 in Missouri, a proposal that would amend the state constitution by stating in part:
“Counties and other political subdivisions are hereby prohibited from authorizing any redevelopment plan, as defined by law, without the approval of the majority of the qualified voters of that county.”
Sponsor Rep. Andrew Koenig, a Republican representing the St. Louis area, said he thinks the proposal could be a tough sell in the legislature but that it would succeed if put to a public vote statewide.
“I think it’s wrong for the public to subsidize private development,” Koenig said. “It pulls money out of the school districts and the cities. And many of these projects don’t create jobs. They just shuffle them around.”
Development attorney Thomson takes a different view of broad public opinion about development incentives.
“There’s a small contingent out there that simply doesn’t believe in TIF. They think it’s a corporate giveaway, and don’t believe the ‘but for’ test is legitimate,” Thomson said. “They think TIF projects would go through without incentives, but that’s just not the case. Developers will not put themselves at great financial risk without a reasonable expectation of return on investment. And our city does a good ‘but for’ test.”
The “but for” test is a required third-party analysis that determines expected rates of return with or without incentives. The studies are used to help the city and its tax abatement commissions decide if the proposal merits public incentives to proceed.
At the same time, Thomson said he understands the taxing districts’ complaints.
“Districts that get their money from property taxes are being treated unequally by the state’s TIF laws compared to districts that get their money from sales taxes,” he said. “The fight ought to be addressing the structure of the state statute.”
Missouri law allows property tax abatement on the added value of projects — the expected assessment above their existing pre-development property taxes — of up to 100 percent of real estate taxes. That compares to a 50 percent cap on sales tax redirection for development projects. The length of available abatement varies by agency, with 10 to 23 years the usual range.
That statutory difference partly explains why the city of Kansas City, which receives revenue from sales taxes, usually appears to be a stronger supporter of development projects that seek property tax abatement than school and library districts that rely on property tax money. The county, which receives both property and sales tax income, often falls in the middle in reaction to incentive plans.
Chester Neumann, a retired assistant superintendent with the Grandview School District who was on the TIF Commission in the late 1990s, said the TIF process has been a “slow-moving train wreck” that should have been addressed long ago.
Instead, he said, a “highly deserving project” fell apart over the past failures to work out fair returns for the taxing jurisdictions.
Kevin Masters, who represents Kansas City Public Schools on the TIF Commission, agreed. He said there needs to be a way to benefit the taxing jurisdictions when negotiating large public subsidies. (Some of that benefit already is being negotiated when developers agree to make PILOTS, or payments in lieu of taxes, to the taxing districts.)
Michael Grimaldi, spokesman for Mayor Sly James, said the mayor has proposed several ideas to address those concerns.
“Those ideas have been met with ultimatums that don't take into account issues like the Border War (with Kansas) and the increased costs associated with doing business in an urban area,” Grimaldi said. “The Mayor will continue to work to find the right balance that addresses concerns about incentives without risking jobs and investment.”
Cindy Circo, a former city councilwoman who now chairs the Tax Increment Financing Commission, said she’ll watch to see whether any existing redevelopment proposals pull out because they don’t want to deal with prolonged fights.
“I see things like the BNIM project as a long-term investment,” Circo said. “If we don’t invest now, we end up hurting the district when projects don’t get done.”