Government & Politics

Shirley Helzberg’s Crossroads proposal prompts big clash over Kansas City TIF development incentives

Tax incentives to renovate a site at 1640 Baltimore Ave. are being challenged. Craig Scranton (left) of BNIM and Peter Lacy of Lacy & Company toured the building, which BNIM hopes will house its headquarters.
Tax incentives to renovate a site at 1640 Baltimore Ave. are being challenged. Craig Scranton (left) of BNIM and Peter Lacy of Lacy & Company toured the building, which BNIM hopes will house its headquarters. jsleezer@kcstar.com

The boxy red-brick warehouse at 1640 Baltimore Ave. in downtown’s Crossroads Arts District hardly looks like a battleground.

But the property that Shirley Helzberg, one of Kansas City’s premier developers and philanthropists, is proposing to remake as the BNIM architecture headquarters has become the backdrop for a fierce and perhaps defining community debate.

At issue is whether it’s time to stop doling out so many tax subsidies downtown and west of Troost Avenue.

You might say it’s the project that asks: Has tax increment financing in Kansas City reached a tipping point?

Tour of dilapidated building at 1640 Baltimore, in the Crossroads Arts District, where the use of TIF project money is being challenged to renovate the building as the new BNIM architecture headquarters. Jerry Riffel, the lawyer for building devel

A campaign to put the project to a public vote has thrust the city’s TIF program into the limelight. A group of Kansas City school district parents and civil rights advocates says the $5.2 million in incentives that the City Council approved for Helzberg’s $13.2 million project redirects too much tax money back to the development and away from the school district.

They feel so strongly that they’re trying to gather 3,400 referendum petition signatures by Dec. 8, seeking to overturn the deal.

For Helzberg and her supporters, this is a fabulous project that can’t happen without the incentives and should not be held hostage to a petition drive. They believe the revival of the Crossroads area is still fragile and the world-class, cutting-edge environmental headquarters that BNIM would create in a blighted building there would benefit the entire city.

“Don’t make my case the one,” Helzberg said, arguing that the project shouldn’t become the centerpiece for a TIF policy fight. “This is what they’re trying to do to change the whole system for the taxing jurisdictions. To me, I think it should be that you look at individual projects.”

Tour the planned BNIM headquarters at the heart of a dispute over the use of TIF development incentives. Video by John Sleezer/jsleezer@kcstar.com

Opponents of this deal say they have nothing against Helzberg or BNIM, both of whom have a long history of positive civic engagement in Kansas City. But as long as the city keeps providing incentives for dynamic places like downtown and the Crossroads, activists say, there’s no motivation to address the East Side’s truly needy neighborhoods.

“The city, I feel like, is financing all these projects on the backs of Kansas City public school children and other taxing jurisdictions in areas that maybe are approaching the point where projects should stand on their own merit,” said Jennifer Wolfsie, a Kansas City parent leader working on the petition drive.

City Council members usually have the final say on TIF, and they voted resoundingly for this project. But if the committee of petitioners gets enough signatures, it could force an election where the public would have a say.

Most council members agree the BNIM headquarters’ benefits in jobs, neighborhood revitalization and national environmental prominence outweigh the cost in redirected taxes.

“I think it’s an outstanding project,” said Councilman Dan Fowler. “You can’t do that degree of rehabilitation and revitalization and making the structure green without that kind of incentive. And (the building) might have to be demolished otherwise.”

That may be the building’s fate if the project gets delayed much longer, which the development’s supporters point out will mean less money, not more, for the school district.

BNIM design director Steve McDowell said the company needs to be in its new space by December 2016, when its lease in the nearby TWA Building runs out. Already, that’s an extremely tight construction schedule.

“We’re under a really terrible time frame,” he said.

The Kansas City TIF Commission has called a special meeting for 8:30 a.m. Tuesday at 1100 Walnut St. to discuss how to keep the project moving forward, even in the midst of the petition effort.

McDowell estimates moving to another temporary space would cost hundreds of thousands of dollars. Plus, the company had planned a major technology upgrade in the new headquarters and doesn’t want to have to do that twice.

McDowell says the company looked at numerous headquarters sites, including near 18th and Vine streets, but it couldn’t finance that on its own. The Crossroads is where their employees wanted to be, and Helzberg was a willing development partner. Plus, McDowell contends the area still needs help.

“In Kansas City, we have a tendency to start a lot of things and not finish. Downtown is looking good, the Crossroads is looking good, but they both have a long ways to go,” he said, adding the area needs more development and density to remove remaining blight and truly thrive.

Right now, McDowell said there’s not a Plan B if the petition drive succeeds, but BNIM will have to look at other options if that’s the case.

Fowler and other members of the council fear BNIM’s predicament could have a chilling effect on Kansas City’s momentum, even if the referendum doesn’t end up on an election ballot. Because Kansas City’s referendum petition threshold is now less than 3,500 signatures, this could halt other ambitious development plans.

“We can’t govern by referendum,” said Councilman Scott Wagner. “Pretty soon there won’t be any projects, because no one will risk going though such a process.”

Big investment

For years, tax increment financing has been Kansas City’s development tool of choice for projects in blighted areas. It allows developers to capture 100 percent of new property taxes generated by the project’s improvements over 23 years, along with part of the sales and earnings taxes.

School district advocates calculate that of the $5.2 million in tax redirection to Helzberg’s development, the district will lose nearly $2 million of that. City and county governments, libraries and other services also are affected.

Helzberg and her lawyer, Jerry Riffel, argue the district will be worse off if the vacant warehouse continues to languish.

They point out the district gets just $20,600 in property taxes from the property, while it would get more than $100,000 per year from payments in lieu of taxes and other spending with the development.

Helzberg thought the project was a go, especially after the school district agreed to accept payments in lieu of taxes and a $50,000 scholarship donation. Critics say the district made a bad deal and they don’t have to accept it.

Helzberg, who has spent tens of millions of dollars redeveloping Crossroads buildings since 2002, bought the property at 1640 Baltimore Ave. in 2005 for $1.8 million.

She acquired it after an electrical supply company vacated it, with hopes of benefiting the neighborhood. She says she tried for years to find a willing tenant, with no takers, until BNIM figured out this ambitious new use.

A recent tour showed the three-story building is dilapidated and must be gutted to be useful as office space. It needs a new roof, plumbing and mechanical systems, and even the outer brick walls must be replaced.

What’s proposed is a national environmental design model, built to the highest energy efficiency standards, while turning an adjacent asphalt parking lot into a community park. The property is envisioned as a learning lab for students, the business community and out-of-towners, while retaining 75 jobs and adding at least 45 more.

Helzberg is investing more than $5 million of her own money, including the purchase price, and plans to get a bank loan of about $8 million to complete construction. But she says she needs the TIF for the cash flow to pay that back, and other financing alternatives won’t work.

Helzberg, one of Kansas City’s wealthiest and most generous benefactors, says she cares as much about Kansas City schoolchildren as anyone. Most notably, she and her husband have invested $40 million to build the facility that houses the K-12 University Academy charter school.

Her downtown developments already generate nearly $475,000 in annual property taxes, much of which goes to the schools.

But she says her real estate company is a business, not a charity.

“I do all the real estate,” she said. “All of the funds and all of that have been personal. It’s not from our foundation.”

When asked why she can’t invest more of her own money into the BNIM project, she responds, “I’ve done as much as I can.”

Parents’ perspective

For the referendum petitioners, including Kansas City public school parents, it was finally time to draw a line in the sand against tax redirections away from the school district.

The low petition signature threshold makes it easier to challenge a City Council-passed ordinance.

“This then becomes the only way we can feel our voice is being heard,” said Wolfsie, who argues school and library concerns have often fallen on deaf ears at council committee meetings and elsewhere.

While the city keeps subsidizing downtown developments with future tax revenues, she said, the school district has a $240 million maintenance backlog and is forced to close schools. She said these projects should benefit the schools financially as well as the developers and cites negotiated deals that have done so for the Northland schools.

Jan Parks, another petitioner with MORE2 (Metro Organization for Racial and Economic Equity), says the city should concentrate on East Side development.

“In Kansas City a lot of times, TIFs end up being used in areas which are not truly blighted, and the areas where they really should be used, they’re not being used,” Parks said. “I would say this is a test case.”

Critics say the Crossroads has come far enough that it no longer needs subsidies. Exhibit A, they say, is a $46 million Courtyard by Marriott and Residence Inn being built without incentives by a Tennessee-based developer just three blocks from 1640 Baltimore.

Riffel hopes the hotel does well but says the Crossroads still has plenty of blight, and office development there still needs help.

Some have suggested that if this TIF grinds to a halt, some other project can go into 1640 Baltimore without incentives.

Helzberg responds that’s unlikely.

“I’m going to give this a little more time and then I’ll just tear the building down,” she said. “And then I’ll go back to the taxing jurisdictions to get the taxes reduced. Because it will reduce if it’s just a surface parking lot.”

Lynn Horsley: 816-226-2058, @LynnHorsley

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