Rubber stamp for TIFs is no longer a given

The earth shook a bit in October when the Shawnee Mission school board considered whether to veto a financing deal for Meadowbrook redevelopment in Prairie Village. At issue was whether the Shawnee Mission School District would put the kibosh on a popular financing tool known as tax increment financing.

Two months later, tremors are still being felt, as elected officials eye tighter school budgets and looming tax lids. Tax increment financing, or TIF, is being scrutinized as never before by the governmental bodies that stand to lose short-term revenue.

Shawnee Mission officials have been hard at work on a formal TIF policy. Overland Park has joined the conversation by adopting a new policy limiting, among other things, the amount of new tax revenue developers can use from a TIF to 90 percent. Johnson County commissioners also took a closer look at TIF and other special financing vehicles during an informational work session recently. The county has so far not elected to write its own policy.

Tax increment financing is a type of incentive that allows cities to help developers with some of their upfront costs as a way to convince them to locate in certain areas. A city offering the incentive sets the boundaries for a special taxing district. The future property value increases coming as a result of that development generate higher tax revenue that is temporarily dedicated to pay development costs. When the TIF term eventually expires, usually in about 20 years, local governments reap the benefits of the increased property values.

The financing district uses only money that comes from increased values. The original property taxes owners would pay without any development still goes into school, city and county coffers.

But there’s a hitch. School districts and the county also lose out on the short-term property tax increases, and they have no say in the development plan or how the districts are set up. Their sole power comes from their ability to veto the plan. If that happens, the city must dissolve the TIF district and start over.

It’s that arrangement that put the Shawnee Mission district in the somewhat ticklish position this fall on Meadowbrook. Board members had to decide either to give up property tax revenue that could have helped pay the costs of added students that might come from the development or go down as the entity that killed a popular proposal for a new county park.

There are 34 TIF districts in Johnson County, according to a study by Gilmore & Bell, a law firm specializing in public finance. Many of those lie in cities in the Shawnee Mission district, although a few are in Olathe and De Soto districts. The Blue Valley School District, where development is newer, has not had a TIF.

“By and large, the TIF industry, if that’s what you want to call it, is in the Shawnee Mission School District,” said Deputy Superintendent Ken Southwick at a recent media roundtable.

“We’ve been inundated with potential TIF projects,” Southwick said, adding that the number comes to some $3 billion worth of financing breaks for developers. That number includes all the tax incentives being considered, but all of those projects may not necessarily pan out, he said.

The potential loss of those revenue increases is felt particularly hard in the part of the budget the district uses for capital expenses — the desks, classroom space and equipment needed to teach the additional children coming to the district in part because of all that development.

Shawnee Mission doesn’t want to hogtie development efforts, Southwick said. “What we do want is to be able to maintain our infrastructure.”

Southwick and Superintendent Jim Hinson say they welcome the increased attention the financing option has received since Meadowbrook. Because of an extremely tight state budget, school districts in Kansas are keeping a close eye on their budgets and the possibility of more changes directed by the Kansas Legislature.

Other school districts have not been as affected by the financing tool. Blue Valley has never had a TIF to consider, but Interim Superintendent Al Hanna believes it’s just a matter of time.

The district covers an area of mostly newer development in Overland Park, Leawood, Olathe and unincorporated Johnson County. School board members there have not to this point needed a formal policy on TIFs.

Even so, Hanna said the financing vehicle remains on most districts’ radar because of the way school district budgets are compartmentalized. With strict rules on what tax sources can fund, TIFs end up having the biggest impact on capital costs, he said.

The Olathe school district has not had occasion to veto a TIF district and there’s no written policy on them, said school board president Rick Schier. “What we do have is open dialogue with the city,” he said.

“My personal opinion is if nobody had TIF it would be great,” he said. “What we have to do is monitor them and watch. Would the development happen with or without the TIF?” he said.

The tax incentive is also not often used in the De Soto district, although it does have a written policy requiring information to be discussed by the school board.

De Soto school board member Mitch Powers, who once spoke out as a private citizen about the impact of a proposed Shawnee TIF district, said the loss of property tax revenue is especially important to the district because De Soto’s lack of retail and industrial space means homeowners carry a bigger burden.

District officials must weigh the short-term loss against the long-term benefit, he said. “The only thing I ask for is information, transparency and what they view as the impact to the district,” Powers said.

Although Johnson County also loses on the revenue increase in a TIF, county commissioners rarely do a deep analysis of the numerous notifications they get from the cities. Commission Chairman Ed Eilert, the former mayor of Overland Park, has expressed a reluctance to interfere in city efforts to promote development.

“We don’t want the feds telling us what to do. We at the county say we want local control,” Eilert said. “If I was in a city, I would say, ‘County, don’t pass judgment on me.’ ”

Commissioner Michael Ashcraft, however, often asks for more information about the measures and has broached the idea of a written policy. And at a recent workshop on tax incentives, he wondered whether Overland Park’s 90 percent policy could lead to a future with a different cap for every city.

Charles Hammer of Shawnee has spoken at numerous county, city and school board meetings urging elected officials to curtail the use of tax incentives. He characterizes them as unnecessary tax giveaways to millionaires.

“They tell us it’s because what they call ‘tax incentives’ creates jobs,” he said in a recent visit to the commission. “Particularly in Johnson County, that’s mostly a lie. Free enterprise creates jobs, nowhere better than here. This is where the shoppers live; here there is no need to build strip malls with tax money, with school money.”

The difficulty is that once incentives are given, it can be hard to stop, Shawnee Mission superintendent Hinson said. He recalled a recent hearing before a state special committee filled with testimony about why developers should keep their tax incentives.

“So at the end of the day, if we’re going to increase funding for education, where does that money come from?” he said. “Who’s going to willingly give up their abatements and their credits in order for this to happen? That’s the solution that people are not overly willing to talk about.”

This story was originally published January 5, 2016 at 5:30 PM with the headline "Rubber stamp for TIFs is no longer a given."