Bid to reduce development incentives hits opposition in Olathe

An effort to reduce the scale of financial incentives offered to warehouse and distribution companies in Olathe ran into opposition Tuesday by members of the City Council and developers who warned that reducing those tax breaks could steer projects elsewhere.

During the council’s regular meeting, city staff recommended revising the city’s tax abatement policy regarding warehouse, distribution and logistics projects.

Currently, newly built projects located within three miles of the Interstate 35 interchange with Lone Elm Road qualify for property taxes cuts of 50 percent for up to 10 years.

Instead, staff recommended reducing the size of the qualifying area to property immediately around the interchange and to reduce the tax abatement to 45 percent.

Finance Director Dianna Wright told the council that as part of the city’s annual review of its industrial revenue bond and tax abatement policy, staff had determined that the city was spending two and a half times more to maintain city streets used by heavy trucks traveling to and from these logistics businesses than it did on regular arterial roads.

At the same time, Wright said, those businesses were paying their workers an average of $42,733, less then the Johnson County average wage of $48,873.

She noted that the city’s policy has been that companies receiving tax abatements should generate a high number of jobs and/or above-average wages.

As a case study, Wright looked at the Pacific Sunwear distribution facility, which was built in 2008 as part of the I-35 Logistics business park at 155th Street and Old 56 Highway.

The company requested a 50 percent tax abatement, saying it planned to build a 600,000-squre-foot facility and create 240 new jobs with average salaries of $41,346 by the end of the abatement period. The city estimated that even with the abatement the project would still generate $891,690 in new revenue during the 10 years.

Wright said that with the abatement period about to expire, Pacific Sunwear has built only 446,612 square feet and hired 155 people with an average wage of $38,515. In total, the property is expected to generate only $593,417 in property taxes, which she acknowledged had been affected by the 2008 recession.

Meanwhile, the city’s public works department estimated it would spend an additional $145,000 over 10 years maintaining streets surrounding the warehouse complex with a special heavy duty asphalt that better withstands truck traffic.

Wright said reducing the qualifying area for the incentives would help concentrate logistics businesses nearer to the Interstate and reduce their use of city streets. Shrinking the size of the tax abatement, she said, would make sure the businesses still provide enough revenue to make up for the added street maintenance.

A number of developers active in warehouse and logistics criticized the proposal, telling council members that Wright hadn’t included all the financial benefits that logistics businesses provide, such as much lower use of water and sewer than other types of development on the same piece of land.

They also warned that reducing the size of the abatement would make Olathe less competitive with surrounding cities that already offer more, For example, Lenexa offers 55 percent tax abatement for 10 years and the Port Authority in Kansas City is offering 100 percent tax abatement for 15 years in places like the Northland Park Distribution Center and CenterPoint.

“I think it would be a huge misstep for the city,” said Daniel Jensen, director of development for Kessinger/Hunter & Co., which is developing the I-35 Logistics Park. “If nothing else, it’s perspective. People think, ‘This city is reining in incentives and this city is giving more incentives. I think I’m going to go where I’m more wanted.’”

Those arguments seemed to resonate with council members who recommended Wright bring the topic back for more discussion and analysis.

Councilman Larry Campbell said he didn’t want to change the rules on someone who bought property within the three-mile zone or who had made plans for a warehouse project based on the expectation of the 50 percent abatement.

“To me the benefit is the investment,” Campbell said. “To me, it’s taking agricultural ground out there that was not paying much in property taxes and now we’re getting quite a bit. So just (looking at) the average salaries doesn’t concern me.”

Other business

▪ The council continued until Dec. 20 a planned public hearing on the proposal to create a STAR bond district around the former site of the Great Mall of the Great Plains on 151^st Street.

City Attorney Ron Shaver said that under state law the Kansas Department of Commerce must determine that a STAR bond project district is eligible before it can be approved, and city staff is still negotiating with the department. STAR bonds allow developers to use local and state sales taxes generated by a redeveloped property to pay off half of the debate on a project.

▪ The council also bid farewell to City Clerk Tracy Howell, who is retiring on Dec. 16 after working 28 years for the city and serving seven years as city clerk. He will be replaced by David Bryant III, who has served as Howell’s deputy.

David Twiddy: dtwiddy913@gmail.com

This story was originally published December 11, 2016 at 1:30 PM with the headline "Bid to reduce development incentives hits opposition in Olathe."