Government & Politics

Despite large Power & Light District crowds, taxpayers are still on the hook

Fans watching a big screen in the Power & Light District celebrated in October when they saw the Royals win the American League pennant.
Fans watching a big screen in the Power & Light District celebrated in October when they saw the Royals win the American League pennant. The Kansas City Star

We all remember the capacity crowds packing downtown’s Power & Light District, first during World Cup soccer, then for the World Series.

It was as good as it gets for the downtown entertainment district that has had its share of challenges since it opened in late 2007.

“It was huge,” recalled City Councilwoman Jan Marcason, who accompanied friends from southern Overland Park to Johnny’s Tavern in the district one night while the Royals were battling San Francisco in the World Series.

“It’s finally beginning to be what we envisioned,” Marcason said of how the Cordish development has become a magnet for people throughout the area, especially during major sporting events, including Big 12 basketball tournaments.

Turns out, though, that even with all that, Kansas City taxpayers are still on the hook for millions of dollars in subsidies for the district, and will be for years to come.

True, during the World Series, all those revelers did buy their share of burgers and beers and it was a sales bonanza for the district. Kansas City finance analysts say just-released state data show sales for the Power & Light District were up more than $1 million in October, a 15 percent increase from the same month in 2013.

That translates into an additional $50,000 in sales tax revenue for the city to help pay down the massive debt on the district.

But there’s the rub. Even with a double-digit bump in sales, it’s not nearly what was anticipated in 2004, when consultants projected that new city and state tax revenues paid by the district’s residents and businesses would be able to cover the debt.

“I don’t think there will be a point at any time in the foreseeable future, probably the next 20 years, where it actually pays for itself,” acknowledged City Manager Troy Schulte.

Nick Benjamin of Cordish, executive director of the Power & Light District, thinks the debt shouldn’t overshadow all the positives, and in other ways the city’s investment has more than paid for itself.

“The point of Power & Light and the city’s investment wasn’t solely for Power & Light,” he said. “It was to revitalize downtown. It’s hard to argue that’s not happening.”

Benjamin notes that the district’s sales from 2008 to 2014 more than doubled, although he wouldn’t provide dollar figures, saying that is proprietary. He said the district managed to survive despite one of the country’s worst recessions and is now poised for major growth, especially with additional residential development.

“It’s hard to find another urban project of this size and this ambition that opened between 2007 and 2009 that has made it,” Benjamin said. “That’s a function of Kansas City’s tremendous amount of potential, and it was a great decision that Mayor (Kay) Barnes had. There was a Great Recession. But if you look where things are headed, there’s a lot to be excited about.”

Still, critics resent how much city money is going downtown that might otherwise have gone to the neighborhoods.

“That debt was issued with almost no safety cushion,” said former city councilman Dan Cofran. “It was reckless.”

He praised the project but said it should have been scaled back and done in phases.

The city no longer guarantees that kind of debt, and leaders say they’ve learned their lesson. Mayor Sly James has even said that new resolve is guiding, and probably delaying, a deal for a new downtown hotel.

A slow start

Back in 2006, the city issued $295 million in bonds to help the Cordish Co. of Baltimore build the seven-block entertainment district. About two-thirds of that funding was for site acquisition, parking garages and other public infrastructure, including sewers and streets.

The city guaranteed the debt, but the consulting firm C.H. Johnson estimated the district itself would generate $18 million to $20 million in taxes to cover that annual debt service.

It didn’t come close. The district opened later than anticipated, just prior to the collapse of the nation’s economy. It took longer to lease than expected. Sales, property and earnings tax revenues to help pay the debt have ranged from $4.5 million to $5.4 million in recent years, according to the city.

But, Schulte noted, that’s only about 25 to 30 percent of what’s needed each year. Taxpayers are covering the rest.

In fiscal year 2014, which ended April 30, the total debt service was $19.6 million but the district only generated $4.7 million, so taxpayers picked up the $14.9 million tab. That’s money that wasn’t available for police, fire, code enforcement and other services.

Last year, the city refinanced the debt, which lowered the payments from 2015 through 2019 but extended the debt schedule from 2033 to 2040. The district is estimated to generate $5.4 million this fiscal year and the taxpayer obligation is projected to be $8.5 million. Next fiscal year, the district is projected to generate $5.5 million, meaning the city will have to pitch in $9.5 million.

The debt service bumps back up by 2020 and extends out for years.

The 2014 sales results show just how far off the original projections were, Schulte said. The district would need many World Series crowds to fully cover the bond payments.

“You needed Plaza-level holiday-level sales every day of the year,” said Schulte, who was not city manager when the Power & Light District city obligation was approved.

While the World Series was great for the Power & Light District, it was just one month.

According to the city’s Finance Department, several months last year were below 2013 and overall sales were up only 1 to 2 percent from January through October. Figures for November and December were not yet available.

Benjamin says the picture is rosier, and he projects a 5 to 6 percent increase in total 2014 sales compared with 2013.

Civic boosters say the taxpayer investment was still well worth it to transform downtown blocks from an area of shabby parking lots and haunted houses to a vibrant bar, restaurant and retail scene that complements the Sprint Center, the Kauffman Center for the Performing Arts and conventions at Bartle Hall.

And it has clearly become the “in” place to gather to watch major sporting events such as championship baseball or soccer. The district hosted more than 9 million people in 2014, including those crowds of 10,000 who flocked to the outdoor Live Block.

“There’s an intangible benefit, a non-dollars-and-cents benefit that I feel is important,” Benjamin said. “Whatever the benefit in terms of sales, there was a generational experience in Kansas City. Many thousands of Kansas Citians experienced the World Series with us downtown.”

Benjamin pointed out that the district was the backdrop for much of Kansas City’s national television exposure during championship games.

“ESPN basically broadcast from the Live Block,” he said. “The Power and Light District has become a part of the fabric of Kansas City.”

Progress ahead

Benjamin thinks district revenues are likely to continue growing, as the district has finally reached 94 percent occupancy. More than 50 tenants, including 22 locally owned tenants, have 450,000 square feet of retail space leased.

More is on the way. Yard House will join the lineup when it opens a new 10,500-square-foot restaurant at 1300 Main St. in early spring. Also this spring, VisitKC, the city’s convention and visitors association, is moving its offices at 11th and Main streets to a storefront in the district at 13th Street and Baltimore Avenue.

The biggest effect probably will come from Cordish’s residential developments. The One Light apartment tower, under construction at 13th and Walnut streets, is close to 30 percent leased and has a long list of applicants. About 450 people are expected to live in the 25-story structure when it is completed late this year.

Cordish is in negotiations now with the city to build a second apartment tower, although Benjamin declined to provide specifics on where those negotiations stand. The project would require some level of tax incentives.

Benjamin said Cordish ultimately plans to have four luxury high-rise apartment buildings, which he said would bring 1,800 residents and an additional $54 million in annual sales downtown.

He said another missing piece in downtown’s revival continues to be a major convention hotel. The district definitely sees a bump in sales and activity during major conventions, but it could do even better.

“We’re excited to see that there are new hotel developments planned or in construction already downtown,” he said. “But we believe a large-format headquarters hotel is something that is currently missing from the arsenal of the city.”

But a hotel has been slow in coming, in part because of the financial risk of Power & Light.

“We no longer guarantee economic development debt,” Schulte said.

Schulte said Kansas City could have completed an agreement for a downtown convention hotel two years ago if it were willing to back the debt for an underperforming development, but the city stopped doing that. In addition, the city now hires third-party consultants that don’t have a connection to the developers to make sure revenue projections for incentive projects are conservative and realistic.

A new convention hotel is something Kansas City still badly needs to add to its older hotel inventory, Mayor Sly James told his council colleagues at a recent discussion about the city’s convention business.

“If we’re going to compete with the big boys, we need to be the big boys too,” he said.

But James said it must be the right financial package.

“We will not pull that trigger until we get a deal for Kansas City that makes sense,” he said, adding that he believes the city is getting closer but isn’t there yet.

Neighborhood advocates agree the city should be cautious after the Power & Light experience.

“They made a bad deal,” said Dan Coffey, who has watched the city subsidies for high-profile projects with dismay.

“We’ve pushed infrastructure repairs off to the side and done things that don’t matter.”

Hotels and entertainment districts are fine, he said. But he added, “The things we do for Kansas City should not be on the backs of the taxpayers.”

To reach Lynn Horsley, call 816-226-2058 or send email to lhorsley@kcstar.com.

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