Connected Kansas City builders don’t pay their share of taxes. Here’s a partial fix

Ulysses S. Grant was known to say that in war, anything was better than inaction or indecision. Doing something was always necessary to make sure that the enemy was responding to you, not dictating to you. Even doing the wrong thing was preferable to inaction, as you could realize it was wrong, stop what you were doing and do something else. Gen. Grant may have saved the Union and helped free millions from bondage with those beliefs, but clearly he never served on a tax increment financing commission.

That key part about realizing that what you are doing is not working and doing something else could be a vital lesson to the members of the various Kansas City tax incentive boards. Kansas City, like many other American urban areas, has been generously handing out tax incentives like candy on Halloween for decades now. These subsidies include tax increment financing, enhanced enterprise zones, subsidies offered through the Land Clearance for Redevelopment Authority and several property tax abatement programs authorized under Chapters 100 and 353 of Missouri law. Over the past decades, Kansas City has given out billions of dollars in total incentives to attract and retain business and development. In 2018 alone, the total tax abatements in Kansas City were worth $175 million in foregone taxes.

Do these incentives work? If by “work,” you mean giving economic development officials and politicians the appearance of “doing something” for the voters, then I guess they do work. But if you’re asking whether the incentives grow the economy in a way that both exceeds the cost of the incentives and extends beyond the growth that would have happened without them, the answer is decisively no.

In 2018, the Kansas City Council requested a study of the impacts of economic development programs such as the subsidies described above on Kansas City. The council wanted an independent, comprehensive review of the costs, benefits and risks of the use of these subsidies. That is not what the council received. The report presented to the council by the nonprofit Council of Development Finance Agencies was biased propaganda with indefensible and wildly exaggerated claims of huge fiscal benefits from subsidies. This report stands in stark contrast with the overwhelming majority of economic studies about the benefits of local tax subsidy programs. The independent academic research has been consistent in finding that these programs produce either no benefit or very limited benefits that in no way justify the expenses.

An ordinance now before the City Council would tighten limits on the amount of tax subsidies included in the many types of economic development incentives used by Kansas City. The proposal would cap the maximum subsidy at 70% of the tax otherwise owed. This would guarantee that, at a minimum, the person or entity who received the incentive would pay at least 30% of their taxes. Maintaining a wide tax base to support public services is important in order to avoid high tax rates, and these reforms are a step toward accomplishing that. The ordinance would guarantee that future economic growth supports local taxing districts with at least 30% of future tax revenues. This would help lessen the consistent demand to increase taxes on the many people and businesses that do not have a tax subsidy. While these reforms would still allow overly generous incentives and subsidies, the tighter limits on them would be a worthwhile change.

It is long past time for Kansas City to adopt significant revisions of the use of tax subsidies within the city. The tax subsidies that would be limited by this ordinance do not grow the economy. Instead, they reduce the tax base and they favor politically connected entities over the majority of the city’s residents. They are part of a failed race to the bottom. This new ordinance would be beneficial to the overall Kansas City community. With it, the various boards that oversee tax subsidies could at least slow down the harm they are doing and start walking in the right direction. Ulysses S. Grant would approve.

David Stokes is director of municipal policy at the Show-Me Institute, a 501(c)(3) nonprofit dedicated to promoting free markets and individual liberty.