A public squall blew through Kansas City in recent weeks when a group fought tax abatement that would have helped architectural firm BNIM relocate in the Crossroads Arts District.
The protesters delayed and eventually killed renovation of a vacant building owned by redeveloper Shirley Helzberg. They said Kansas City was granting too many tax breaks to too many wealthy developers in too many thriving parts of town.
On Wednesday, Mayor Sly James responded to those complaints with an idea to focus public development incentives on Kansas City’s most disadvantaged census tracts, mainly areas east of Troost Avenue.
“It’s not that people don’t want to develop on the East Side,” James said. “It’s that they can’t get a return on investment.”
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The concept, floated under the name of a Shared Success Fund, would help reduce developers’ risk a little bit by channeling small amounts of city funds — maybe just $100,000 a year to start. The funds could help developers tackle projects that otherwise would be unaffordable because they can’t get financing or hefty enough lease or rental rates to make adequate returns on investment.
“We need to close the funding gap,” James said, noting the difficulty of getting bank loans or other investor interest in distressed areas. “This adds another tool to the (economic development) toolbox. … We need to help build up an area so that rents rise and you get” a return on investment.
James said the plan actually has been gestating for about a year. It would divert the portion of developers’ payments in lieu of taxes — that now go to the city — into the Shared Success Fund.
Those payments, known as PILOTs, are negotiated payments from developers whose projects are approved for temporary property tax abatements. The PILOTs are designed to make up for some of the reduced taxes while the abatement is in effect.
While much needs to be worked out, James made it clear that the proposed fund would assist only “catalytic” developments that have the potential to create jobs and encourage nearby economic advancement primarily east of Troost.
“You can put a castle in the middle of the ocean and expect things to grow around it,” the mayor said.
Initial plans calls for the money to go to “projects that are commercial developments, involve capital investment in commercial real estate, generate high-quality jobs, leverage other public/private investment and have a long-term impact,” according to the city.
No funds would go to liquor merchants, firearm or scrap metal dealers, pawnshops, payday loan operations, cigarette or smoke shops, tattoo or piercing parlors, or adult-oriented businesses. And to protect against double-dipping into city funds, entities that receive Public Improvement Advisory Committee funds also would be ineligible.
An ordinance to create the fund needs City Council approval.
Significant details are yet to worked out. But James said the city needs to remedy years of East Side neglect and focus long term to help developers consider “severely distressed” areas.
The fund proposal adds to other recent responses — pro and con — to tax abatements that have been granted for apartment, hotel and office developments downtown and in the Crossroads, Crown Center and especially the Country Club Plaza. Among them:
▪ On Tuesday, a group of citizens urged Port KC commissioners to slow down the spate of incentives that eliminate or reduce property taxes that finance public schools, libraries and other agencies. They said such abatements should focus on truly blighted neighborhoods.
▪ In December, the city agreed to allocate $1 million to acquire properties and spur redevelopment at the intersection of Armour Boulevard and Troost. That incentive is to help MAC Properties extend its successful apartment redevelopment projects eastward beyond Troost, where lower property assessments and lower rents now stymie redevelopment.
▪ Taxing jurisdictions, such as Jackson County, Kansas City Public Schools and the Kansas City Public Library, are drawing a harder line against incentive plans. Their representatives on the Tax Increment Financing Commission have been voting no on some recent abatement proposals.
The taxing districts also are demanding earlier input on tax abatement deals considered by the Land Clearance for Redevelopment Authority and the Planned Industrial Expansion Authority, two of the agencies empowered to authorize tax breaks.
James told a City Council committee that City Hall has done a poor job of “telling the net impact of incentives” or sharing stories “loud and clear” with data that show the increased tax income that tax-abated projects eventually have produced.
The mayor’s appeal was backed by testimony from people presenting the Crossroads, a labor council and a West Side development organization. All said the city shouldn’t back away from assisting projects that produce jobs and further investment, whether in up-and-coming or needy areas.
The recent abatement furor has kindled attention to temporary property tax breaks granted to developers by development agencies that determine a worthy project wouldn’t produce a reasonable return on investment “but for” the abatement.
Depending on the agency, abatements typically run for 10 to 23 years and reduce by 50 to 100 percent the property taxes that would be owed on the increased value of the developments. The developers continue to pay the current tax base, which usually is minimal given the blighted condition of properties deemed eligible for abatements.
Abatements have long frustrated school, library and county jurisdictions that might have gotten more revenue from a successful, reassessed project in, say, three years instead of 23. Thus, nearly all abatement deals are made more palatable by negotiated payments in lieu of taxes, made by the developer.
Nick Benjamin, the Cordish Companies official who is heading development of Two Light, a luxury downtown apartment tower that began construction this week, said this week that his project’s PILOTs cover the abated property tax amount. But that’s not always the case, and that’s helped spark public reassessment of the incentives.
James credited Kansas City attorneys Charles Renner and Wesley Fields, who specialize in development law, and City Manager Troy Schulte with forging the Shared Success Fund concept. Renner represents development clients, including some who seek tax abatements. Fields advises the TIF Commission.
James said the proposal calls for creation of a mayor-appointed advisory committee empowered to consider applications and distribute funds to eligible developers for approved projects in economically distressed census tracts.