Kansas City is trying to reform developer tax incentives. But no one is quite happy
After eight months of discussions, delays and amendments, a City Council committee again faces the question: Should Kansas City limit generous tax incentives long granted to developers?
Many advocates and officials say it’s time. But there’s little agreement on the latest version of the plan.
Kansas City Public Schools Superintendent Mark Bedell, whose district sees tens of millions of property tax dollars funneled each year to development, says the proposal doesn’t go far enough.
The district sees twice as much money per student go to development than any other Kansas City district. The dent on the KCPS budget, compared to majority-white districts north of the Missouri River, is “completely inequitable,” Bedell told The Star last week.
“When people make comments that Black lives matter … then we got to see you back it up with how you vote on these projects that often divert funds away from supporting those that need it the most,” said Bedell, noting that nearly 90% of KCPS’ students are children of color.
For years, Kansas City officials have worked to cut down on the generous programs that have granted millions in tax breaks or redirections to develop downtown offices, luxury apartments and bar districts. Those deals keep the city from immediately reaping the profit of developments.
But more often, they cost school and library districts, mental health funds and county government dearly.
Now a proposal, sponsored by Councilwomen Melissa Robinson and Ryana Parks-Shaw, is back on a City Council committee agenda for Wednesday. But eight months on, not many are completely happy with the result. To some, that means there’s more work to be done. Others think it’s time for council to vote, even if the reforms aren’t as sweeping as early proposals suggested.
“I don’t know that it goes far enough for us to feel that we can endorse what the offers have been,” Bedell said.
Joe Reardon, president and CEO of the Greater Kansas City Chamber of Commerce, said the current version of the legislation doesn’t reflect the discussions school districts, taxing jurisdictions and developers have been having. The chamber, he said, has been acting as a host for those negotiations.
“But we also know that the council needs to consider and ultimately take action,” Reardon said. “We’re respectful that you can’t have dialogue forever.”
But Robinson said there wasn’t enough support for some deeper cuts that have been proposed.
“Obviously, this is an incremental step vs. a broad sweeping reform,” Robinson said, “but we have to have the political will to get these things done.”
Evolving legislation
Momentum toward reforming incentives began building last summer. Amid nationwide protests over police brutality and racial justice, the City Council was considering granting another 13 years of tax breaks to BlueScope, a West Bottoms company that had already been receiving assistance for 20 years. The company said it had been offered incentives to move across the state line to Kansas.
Bedell at the time called the deal an example of systemic racism.
“Financial decisions can be moral ones and this request is a violent economic practice that would never be inflicted on the majority-white school districts in the Northland,” he wrote then.
The council rejected the deal, and a day later, Robinson and Parks-Shaw introduced legislation meant to give schools south of the Missouri River more of a say in deals that direct new tax proceeds away from their students. In December, BlueScope announced it would stay put.
Early on, the legislation would have capped tax incentives to just 50% of the property, sales and other taxes generated by the development for 10 years. School districts pushed for language allowing them to opt in or out of projects with longer-term or deeper incentives.
The City Council and boards and commissions, mostly appointed by the mayor, decide whether projects get incentives. But school and library districts, whose funding relies more heavily on property taxes, often stand to lose the most when those taxes are abated to spur development.
It was a sweeping reform compared to current city policy, which allows up to 75% abatement for 10 years and 37.5% for 15 more. Even passing the current policy, offered by Mayor Quinton Lucas when he was a councilman, was an uphill climb.
Now the legislation trims that 75% to 70%. Instead of 37.5% for 15 years after that, developers could get 30% for five years. And while cutting many incentive deals from 25 years to 15 is significant, there’s no language about school districts opting in or out. And it contains exceptions for housing projects that include affordable units and development in continuously distressed census areas. Robinson said the council might also consider exempting projects involving historic properties because of the high cost to redevelop them.
Robinson said she had some “heartburn” about how little the council was ready to cut incentives.
“But … it’s better than what we do have.”
Robinson and Parks-Shaw introduced the legislation in June. Since then, the council’s Neighborhood Planning and Development Committee has delayed voting nearly a dozen times. All the while, the Greater Kansas City Chamber of Commerce has been convening discussions between developers and school districts to find some compromise.
Jon Copaken, a developer, said developers want reforms to create more certainty that if they go through the process to seek incentives, they should be fairly confident the subsidy will be granted.
While developers often say diminished tax incentives would kill development, Copaken didn’t go that far. But he said the 50% cap proposed earlier in negotiations, wasn’t generous enough.
“I think where we’re headed is doable,” Copaken said, adding that maybe 80% of projects could still happen. Maybe 20%, the riskier projects, would not.
Incentives and schools
For the last two decades, Kansas City has used tax incentives, including tax-increment financing, or TIF, to revitalize downtown.
The city used tax incentives to help develop the Power & Light District, luxury downtown housing and the convention hotel. Developers and some officials credit tax incentives with turning Kansas City’s downtown around.
But the costs to the city and taxing jurisdictions have been significant.
Between May 2019 and April 2020, incentive deals redirected nearly $14.9 million in property taxes from City Hall, according to the city’s Comprehensive Annual Financial Report.
Combined with school and library districts, mental health funds and the counties, the amount of property taxes redirected to fund development was $79.6 million. The city also redirected $79.2 million in sales, utility and other non-property taxes.
That doesn’t include other offers Kansas City makes developers — such as backfilling shortfalls or direct cash infusions into projects.
For example, Kansas City will be paying off debt from the KC Live! bar district downtown until 2040. The district opened in 2007 and doesn’t generate enough money to pay off the bonds issued to build it without the city’s assistance.
Kansas City Public Schools says the funds abated from its budget between 2017 and 2020 grew by 60%. In 2020, the value of property tax abatements within KCPS was worth a quarter of the district’s local revenue.
The district lost out on more than $2,000 per student to tax incentives between May 2018 and April 2019. Across the districts lying least partially within city limits, the average is $650.
In that same period, Hickman Mills saw $651 in revenue per student abated. In North Kansas City, it was $379.
Copaken and other developers have long argued that development creates new tax funds. Even if districts don’t get all of the new revenue generated by a site, they’re often getting more than they would if the land sits vacant.
“There’s a lot of other taxes and earnings and jobs and things that are being created that also benefit the various taxing jurisdictions,” he said.
He added that a small property tax increase on the city’s nearly half million residents might generate more funds than taking money from developers.
“Not even talking about what’s fair — what’s the best way to get the school districts more money, and it may not be just this intense focus on new projects … but focus on the tax system as a whole,” Copaken said.
During the BlueScope debate last summer, Councilwoman Heather Hall, who represents the Northland, acknowledged the disparity. But she said she and her 1st District seatmates, past and present, have been clear with developers that they won’t lend their support to projects unless they have the school district on board.
She suggested her colleagues south of the Missouri River do the same.
But a version of the legislation that would have given a more formal role to the districts in the process didn’t get traction among council members, said Parks-Shaw.
Negotiations
For months, developers, district officials and council members have been working behind the scenes on the legislation while it gets pushed off the council’s docket time and again.
Right now, Copaken said, nobody is quite satisfied with the legislation.
“I personally feel that things are closer than they may appear, but the real answer is I don’t know,” Copaken said.
That mutual feeling that nobody is quite happy, though, might signal that the city has found a happy medium, said Parks-Shaw.
“We have been very inclusive in the process, really trying to find the right mix or the right ordinance that … would allow us to continue to have development but in a more equitable manner,” she said.
But for KCPS, which is most adversely affected by the current system, it’s not enough.
KCPS submitted recommendations to the council, including that the affected taxing jurisdictions should get much earlier notice that a developer has applied for incentives. Often, the district says, it is left out of discussions until development proposals are underway. The district also wants to see every project get a rigorous third-party financial review and that incentives are worth no more than 20% of a project’s overall cost.
The council’s Neighborhood Planning and Development Committee meets at 1:30 p.m. Wednesday. If the committee passes the ordinance, it moves on for consideration by the full City Council.
