Overland Park officials say tax break deal based on faulty math. They want it revoked
Three Overland Park City Council members are calling for the city to rescind a tax break deal granted to a company that plans to expand, saying the agreement was “filled with inaccuracies” that overestimated the creation of new jobs and undersold the cost to the city.
After the November election but before new council members were sworn in this month, the City Council approved a 10-year property tax abatement for Dimensional Innovations, a design and fabrication company at the city’s northern edge, off the intersection of Interstates 35 and 635. With the company promising to add 225 employees to its 187-person workforce over the next decade, the City Council approved the deal with a 9-1 vote.
Councilman Faris Farassati was the lone “no” vote, arguing a successful, growing company is not worthy of subsidies, especially in an area of Overland Park that is not considered blighted. Some council members have questioned Farassati’s motives because he recently announced he is running for mayor.
During the heated discussion in mid-December, the rest of the City Council highlighted what the “cool company” brings to the city, including revitalizing the slow-to-develop area of northern Overland Park. Tensions grew as Councilman Chris Newlin responded to Farassati’s opposition by slamming down his fist.
“Jesus! It’s right here in your face,” Newlin said, pointing to a cost-benefit analysis report that estimates the city would receive $3.51 back for every dollar invested.
Councilman Scott Hamblin, who unseated former councilman Rick Collins in the November election and took office earlier this month, agrees with Farassati that the tax breaks were not warranted. He started looking at the data and said he found several red flags.
Collins’ son, Tom Collins, is an executive at Dimensional Innovations — a connection that concerned Farassati and Hamblin. Rick Collins abstained from voting on the tax abatement deal.
“The information in this packet might be good for a commercial advertisement, but it’s not justifiable for us to hand over tax dollars to a private entity,” Farassati said. “It might look good on an ad. But it doesn’t have enough merit to authorize the transfer of public money.”
Councilwoman Gina Burke, who initially voted in favor of the tax abatement, made a motion on Monday night for the City Council to reconsider the agreement at its meeting next week.
The council members said they believe the tax breaks should be rescinded because the City Council was not provided with a thorough, accurate analysis on how the subsidies would affect the city.
The move could be an early sign of what’s to come on the City Council increasingly at-odds over the use of tax dollars for private development.
Request to revoke tax breaks
When approving the tax abatement, many Council members applauded Dimensional Innovations for staying in Overland Park for 26 years and choosing to expand in the city.
The company designs and builds architectural features across the country for corporations and professional sports franchises. It built the large book spines outside the parking garage at downtown Kansas City’s Central Library, for example.
“We’ve been growing really fast for the past seven years,” CEO Tucker Trotter told the Council last month. “We have moved 100 people to a new location in Lenexa several years ago, and that decision resulted in some inefficiencies. We’d love nothing more than to get everybody back together in one facility.”
The City Council agreed to issue $14.6 million in bonds to help with construction costs, and granted a 50% property tax abatement for the first phase of expansion and creation of 147 jobs. The tax abatement would increase to 65% during the second phase of expansion and creation of 78 new jobs, with an average salary of $75,000.
During the December meeting, City Manager Bill Ebel said the estimated value of the tax abatement would be more than $350,000 over the next decade.
Hamblin argued the cost to the city has been severely underestimated. Hamblin said the estimated cost is based on the property’s current value, and does not include the added value once the $14 million construction project is completed.
And he continued to find issues with the data as he continued researching, he said.
In the report submitted to the Kansas Department of Commerce, Dimensional Innovations is categorized as a chemical manufacturing plant. The department based its cost-benefit analysis on that claim.
The department relied on an employment multiplier used nationally to estimate spin-off jobs created from construction of such a plant. Its report claims 705 direct and indirect jobs would be created over the next decade.
Hamblin said the formula contradicts the guidelines in the cost-benefit analysis. The report states the calculation is typically one indirect job created for every 10 new jobs. Hamblin argued that means only 248 jobs would be created, not 705.
During the December meeting, Trotter said Dimensional Innovations plans to add 40,000 square feet of manufacturing space, plus reconfigure offices and add a new wing for professional service jobs.
Tyler McLenon, director of finance for Dimensional Innovations, said the company added more than 60 new positions last year. It plans to continue expanding at that rate or faster, he said.
A new City Council
The council members also find issue with the number of out-of-town visitors estimated to come to the company’s headquarters each year after the expansion. The city’s report submitted to the state claims 3,500 will visit and stay the night in a hotel.
McLenon said last month the company’s headquarters typically greets 25 visitors each day, and around 6,500 visitors from in town and out of town each year. He said that includes school district, university and professional groups.
“We also bring a lot of visitors to what we call the theater of D.I.,” he told the Council. “Clients want to interview us, check out our operation and see their project in motion.”
Farassati argued the report is an example of the city “rubber stamping” development applications submitted by companies.
“We are not saying anything corrupt happened here,” Farassati said. “But we need to have accurate data when we are considering the use of taxpayer dollars.”
The city’s use of tax breaks for private development was a major talking point during the November election. The request to rescind the tax abatement is the first sign that development deals may be harder to approve now that new council members have taken office.
Farassati and Hamblin are calling for the city to reform its policy for granting tax incentives, arguing there needs to be more analysis and discussion before deals are approved.
The City Council will consider whether to revisit the tax abatement at its meeting on Feb. 3.
