Elections

Curbing rampant tax handouts or killing KC’s progress? Voters to decide incentive cap

Kansas City voters will decide next week whether limits on tax incentives granted to developers who build in the city should be reduced.

Question One, as it will appear on ballots in next week’s mayoral and City Council election, would cap at 50 percent the amount of taxes that can be abated or redirected to help finance development projects.

If passed, the proposal, placed on the ballot through citizen initiative petition, would be a second major reduction in the city’s incentive program. In 2016, the council voted to limit property tax abatements and TIF (tax increment financing) benefits to 75 percent under legislation sponsored by councilman and mayoral candidate Quinton Lucas.

Critics, including Phil Scaglia, a veteran political consultant who is managing the campaign opposing Question one, believe further reduction would be “extremely harmful” development in Kansas City.

Roxsen Koch, a development attorney with Polsinelli who opposes Question One, argues it would be especially detrimental to redeveloping parts of the East Side, which the proponents often say is a priority.

Lucas’ ordinance provided exceptions. Abatements are capped at 75 percent unless a project is expected to have a high economic impact or is located in a continuously distressed area. Projects in the planning pipeline before his ordinance passed have been grandfathered in.

The 50 percent cap offers no exceptions. Neither Lucas nor his opponent, Councilwoman Jolie Justus, supports the lower threshold.

Jan Parks, spokeswoman for the Coalition for Kansas City Economic Development Reform, said her group agreed to Lucas’ request to hold off on campaigning for the 50 percent ceiling to see if 75 percent made a difference. In her view, it has not. Projects she doesn’t see as worthy are still able to secure major incentives.

Three Light, the third in a series of luxury apartment high-rises downtown, received a 100 percent property tax abatement, though it will make some payments in lieu of taxes, or PILOTS, to offset the tax break. City staff and development officials have exempted projects, like Three Light, that were in the planning pipeline prior to the 75 percent cap.

A Hyatt House extended-stay hotel planned in the garment district won a 10-year 100 percent property tax abatement followed by five-year 37.5 percent property tax abatement. The latter portion of the deal complies with the Lucas ordinance. Proponents argued the Hyatt House falls into an exempted distressed area.

Those type of projects are what Parks objects to.

“After almost two and a half years, we’re thinking it doesn’t seem to be making that much of a difference,” Parks said.

Opponents, including Koch, argue that Lucas’ policy needs more time.

Parks’ group is often critical of major downtown development projects, especially the spate of luxury apartments built with incentives in recent years. She points to the Traders on Grand building, which she called a “double dip.” The building was granted a tax abatement in 1998 only to sit half vacant until it was offered a TIF in 2016 and converted into luxury apartments.

All told, the building will pay no or only partial taxes for about 40 years.

“They can tell us all they want that when something’s done then you’re going to see an increase in taxes, but when something’s out of commission for 42 years, that’s not right,” Parks said, remarking on an argument used commonly by developers that in the long run the city, school districts, library and other taxing jurisdictions will see more revenue despite the initial abatement

Parks often says her group isn’t anti-development. They says the strict cap proposed in the ballot question could be waived by the City Council for worthy projects, like those in distressed areas.

Critics and city staff don’t believe that’s true.

“We don’t see a whole lot of flexibility in this language,” City Manager Troy Schulte previously told The Star.

Koch said the lack of exceptions in the ballot language could limit the city’s ability to boost development in distressed areas where potential profit margins may be thinner. She said the cap would also be detrimental as the city looks to spur more affordable housing creation.

“There is a lot of areas that need to be redeveloped in our city that simply will not be redeveloped without full flexibility of all the tools we have available to us,” Koch said.

Opponents of the proposal — developers and their attorneys, construction firms, labor unions, architects and the political action committee for the Greater Kansas City Chamber of Commerce — have dumped $177,000 into the Committee for KC Jobs to fight the proposal.

Scaglia, who manages the opposition campaign, said those funds are being used for phone banking, door-knocking, direct mail pieces and digital ads. A website associated with the group boasts a list of endorsements by business and labor groups.

Parks said her group has created yard signs and promoted some ads on social media.

The group’s associated PAC filed a report on Monday that said they raised $2,310 between April 1 and early June. They spent $556.45 having yard signs made.

Their website, KC TIF Watch, has a video urging voters to pass the proposal.

This story has been updated to include the campaign finance report filed by the Coalition for Kansas City Economic Development reform.

Related stories from Kansas City Star

  Comments