Tax breaks for Kansas City developers are an issue. Can discussions underway change that?
For years, tax-subsidized development has been considered essential to reshaping Kansas City. It has also drawn criticism for promoting growth in well-to-do enclaves at the expense of urban school districts and economically-depressed neighborhoods.
In 2020, as demands for economic equality have grown, a movement to reform how and where the city encourages growth has gained energy.
In quietly held discussions, ideas from disparate groups have taken shape. The Greater Kansas City Chamber of Commerce, East Side political leaders and a once-obscure agency that began its existence as landlord for a riverfront casino could be poised to take on significant new roles.
That agency, the Port Authority of Kansas City, would operate a new nonprofit to administer many of the tax incentives sought by developers, under a preliminary proposal.
Missing from the proposal, a copy of which The Star obtained, is any mention of the Economic Development Corporation of Kansas City (EDC), the dominant player in Kansas City’s tax-subsidized redevelopment, particularly its downtown.
Development is big business in Kansas City. So, too, is the public investment — tax breaks, incentives and subsidies — that fuels new construction.
In 2018, about $175 million in tax revenue that would ordinarily flow to City Hall, school districts, libraries and other public agencies has instead paid for private development in the form of tax breaks or retirement of public debt associated with projects in Kansas City. That was a 74% increase in redirected taxes since 2009, according to city documents.
Such incentives are the subject of increasing scrutiny and tension. Residents have expressed frustration with City Hall’s attention to subsidizing commercial development instead of maintaining streets and picking up trash. School districts say their budgets have suffered.
Critics also take aim at the disproportionate use of incentives in wealthier areas — downtown, the Country Club Plaza, Briarcliff, for example — instead of economically distressed areas like the East Side.
Proposals for reform have historically inched along. This year’s discussions in Kansas City appear to have momentum.
“I think this idea of equity and inclusion is certainly an area for assessment as we look at the impacts and outcomes of the incentive tools and how they’re used,” said LaDonna Gooden, an executive fellow with FUSE Corps, a nonprofit that supports local government, who is helping Lucas’ office to develop a strategy.
The Greater Kansas City Chamber of Commerce, a regional business advocacy group, has also recognized the inadequacy of the current framework.
“We can clearly look at development in distressed areas and understand that all the incentives that are out there today are not spurring on the kind of economic redevelopment or development that you want to have,” said Joe Reardon, chief executive of the Chamber.
Reardon said the Chamber is working on proposals to promote equitable development in economically struggling areas and support taxing jursidctions, particularly urban school districts.
One would provide capital for start-up businesses in neglected areas, as well as a way for developers to get approval for partial tax abatements if they meet certain requirements.
A separate proposal by Kansas City council members Melissa Robinson and Ryana Parks-Shaw, who both represent districts that comprise the East Side, would school districts and other taxing jurisdictions more say in how incentive deals are crafted and approved. That ordinance remains pending a vote by the full council.
Port KC proposal
Under the new proposal, Port KC president Jon Stephens and the governing board appointed by Mayor Quinton Lucas would lead a new 501(c)4 nonprofit to evaluate projects’ eligibility for tax incentives.
Port KC would be responsible for what’s colloquially known as the “alphabet soup agencies,” owing to their arcane acronyms and the menus of tax breaks they offer. They include the Land Clearance for Redevelopment Authority (LCRA), the Planned Industrial Expansion Authority (PIEA), Enhanced Enterprise Zone (EEZ) and the Industrial Development Authority (IDA).
These agencies, while not well-known to the public, carry significant clout. They are where developers can obtain reduced tax rates for as long as 25 years on land that’s undergoing improvement.
Stephens, who has run Port KC for the last two years, said discussions about a new role are preliminary and ultimately up to the city council and the mayor’s office.
“I think it’s a great time in the city it’s a great time in the country to have these public conversations about what is the value of economic development how do we do it so that it is equitable and fair for all,” Stephens said.
For decades, those “alphabet” agencies have been run by the Economic Development Corporation. In particular, the EDC was a key player in the early 2000s, when an array of tax arrangements were used to transform Kansas City’s then-moribund downtown.
In recent years, however, budget cuts have diminished its size and influence. Funded by City Hall and fees from the projects its agencies administer, EDC has been without a permanent chief executive since Bob Langenkamp left more than a year ago.
City Hall cut $500,000 from city funding earlier this year. In 2010, the EDC’s budget was more $9 million. By 2018, it had shrunk to $5.3 million, according to its most recent tax returns publicly available.
Bridgette Williams, the executive director of the Heavy Constructors Association of Kansas City and chair of the EDC, bristles at the idea of getting rid of the EDC.
“I think it’s a mistake,” Williams said. “I think the EDC is the only entity with a vested interest in making all of Kansas City better. I think there are some things that should be restructured inside the EDC, which I think the interim president is doing a good job of trying to work internally to get things restructured.”
Port KC’s fortunes have been steadily improving. First established in the 1970s, the agency for years was primarily known as the landlord for the Isle of Capri casino. It also manages shipping on the Missouri River and owns riverfront property as well as the former Richards Gebaur Air Force Base.
Beginning under former chief executive Michael Collins, who ran Port KC from 2011 to 2017, the agency became involved in more substantial and visible real estate deals. Those included redevelopment of the Board of Trade building on the Country Club Plaza and the Corrigan Station office building in the Crossroads.
Among Port KC’s strengths as a government agency is its ability to grant exemptions from property taxes, which go further than abatements in reducing a project’s tax obligations.
Mike White, a development attorney in Kansas City, lauded Port KC’s profile.
“They’ve had very good staff,” White said. “They have a very good lawyer over there, Mark Coulter. He just goes down to Jefferson City and gets miracles performed.”
One of those marvels, White said, was convincing the Missouri General Assembly to pass the Advanced Industrial Manufacturing Zones Act. AIM Zones are specific to port authorities — there are 15 of them in Missouri — allowing them to establish districts that can retain 50% of state withholding taxes generated by new jobs created.
AIM Zones were instrumental, for example, in Kansas City’s push to land two agencies under the U.S. Department of Agriculture that relocated from Washington D.C.
Those efforts that have won Port KC praise within Kansas City’s development community as an agency that’s ready to make deals happen.
While it is governed by a board of directors appointed by Kansas City’s mayor, Port KC is a state agency independent of City Hall. That raises questions about accountability if it takes on a greater role in granting development incentives.
“I don’t see a concern there from an accountability standpoint, regardless of the future professional staff or anything,” Stephens said, adding that EDC also has state-granted powers.
Streamlining incentives
The Port KC proposal stems from a desire to simplify Kansas City’s often-confounding incentive structure.
“My goal would be to have a one-stop shop incentive agency where everybody comes to one portal and you find all the tools in the belt,” said Kansas City Council member Kevin O’Neill, who represents a Northland district largely comprised of Clay County.
O’Neill, before he was elected to the city council last year, was a director of the PIEA, one of the agencies under the EDC that awards tax abatements.
“I’d be very frustrated to see the Port was awarded a construction project in downtown Kansas City and they bypassed PIEA, TIF (Tax Increment Financing) and whatever,” O’Neill said.
O’Neill is now a Port KC commissioner.
Efforts to streamline incentives have slowly limped along.
During the Sly James administration, AdvanceKC was created to objectively score proposed development projects for what level of incentive, if any, it deserved from the EDC and its agencies.
AdvanceKC was also supposed to prevent the practice of “incentive shopping,” where developers could take a single project to various boards to get the richest deal.
Port KC, however, is not under the EDC and doesn’t answer to AdvanceKC, creating another avenue for developers to seek a deal. Stephens, the Port KC chief executive, said that dynamic opened the door to incentive shopping at one point.
“I can tell you when the commissioners were interviewing me to join Port KC I know Port KC was committed to making sure that perceptions and reality of incentive shopping, that there would not be a harbor, no pun intended, for incentive shopping anymore,” Stephens said.
Phil Glynn, who is on both the Port KC and EDC board, echoes O’Neill’s sentiments about wanting to streamlini. He said the current structure is inefficient, resulting a lack of affordable housing and a gap between the skills employers seek and what the graduating workforce in Kansas City possesses.
Port KC has been involved in seeking affordable housing along the Missouri River, as well as promoting development of the e-commerce and logistics industries in Kansas City, which have been adding jobs at a fast clip.
“To me, this process is not one organization taking something from another or taking on something from another,” Glynn said. “This is a way to take a bunch of different agencies that share the same goals but are sometimes forced to work in silos.”
Williams, the chair of the EDC, said before realigning development agencies, the city needs a better strategy for using incentives and following its own policies.
“At the end of the day there has to be a policy decision made: Is all development the right development...or are we going to use incentives for what they are intended for, which is they are either in a distressed area or it is a development that can’t happen without an incentive,” Williams said. “Right now it appears there’s no bad incentive or bad development.”
This story was originally published September 24, 2020 at 11:59 AM.
