Kansas City may gut its affordable housing policy under an ordinance being considered by the City Council.
The proposal would be a major rollback of the city’s affordable housing ordinance, passed in 2021, which requires any developer getting a tax break to “set aside” 20% of housing units at affordable rents.
If a developer doesn’t want to provide those affordable housing units, they have the option of paying an “in lieu” fee to the city’s affordable housing trust fund.
That trust fund, bolstered by a $50 million investment from taxpayers in 2022, has provided funding for more than 2,400 affordable housing units.
The proposed change would slash that in-lieu fee by 95% — from $100,000 per unit to just $5,000.
The proposed ordinance, introduced by Mayor Quinton Lucas, is part of an effort to bring the developer requirements at city-run economic development agencies in line with the practices at the Port Authority of Kansas City, or Port KC.
Port KC has been under fire from labor groups and affordable housing advocates for years. Critics contend the agency has provided a convenient alternative for developers who want to dodge the city’s requirements — but still want a break on their property taxes.
Those city requirements include the housing set-aside and a law that developers must pay construction workers a prevailing wage.
After months of picketing outside Port KC headquarters and Kansas City Hall, labor groups won concessions from Port KC that the agency will now enforce prevailing wage requirements.
But on the second day of negotiations between Port KC, labor groups and City Hall, leaders slipped in the major rollback of the city’s affordable housing requirements.
Port KC ratified the agreement on Monday. And now, the agreement is headed to the Kansas City Council.
Labor groups eagerly expect the council to approve the negotiated changes to prevailing wage requirements. But some affordable housing advocates are asking that the council remove changes to the affordable housing set-aside before approving the ordinance.
Closing the Port KC loophole
When Kansas City first passed its affordable housing set-aside in 2021, members of the City Council viewed it as a foundational step in creating more affordable housing.
The idea was that if a developer is getting a tax break from Kansas City, the city should set a standard of what it expects the developer to provide in return.
In this case, policymakers wanted to make sure that the city wasn’t only getting luxury apartments like Three Light, but mixed-income buildings that could bring lower-income families closer to amenities like quality grocery stores and public transportation.
“I think we need to get to a point where an incentive isn’t an automatic right,” Lucas told KCUR at the time. He sponsored the ordinance with Councilmember Melissa Robinson, who represents the 3rd District.
Others, like then-Councilmember Dan Fowler, were concerned that the set-aside requirements would cause developers to turn away from Kansas City and build in neighboring cities.
Immediately after the ordinance passed, developers rushed to file plans for 31 projects in the three months before the effective date. Once the set-aside kicked in, the development pipeline dried up at the city’s economic development agencies.
Enter Port KC.
The set-aside was written so that it would apply to any economic development agency in Kansas City, which explicitly included the Port Authority. But in reality, Port KC has not followed the requirements of the set-aside.
Port KC is a unique economic development agency because it was created by Missouri statute, not by the city of Kansas City. That means that even though Port KC has the ability to give tax breaks to developers on land within Kansas City, the City Council does not have the legal authority to regulate how and when that happens.
(Kansas City Hall does have one check on Port KC — the mayor appoints every member of its governing board.)
Once the set-aside ordinance was passed, developers didn’t need to turn to places like Overland Park or Leawood. They still could get a tax break from Port KC for any project within the city limits and pretend that the set-aside requirements never existed.
The Kansas City Business Journal reported that since the set-aside was passed, Port KC has advanced 15 housing proposals that would have been subject to the set-aside rules. None of those proposals includes the required number of affordable units, nor are they making in-lieu payments for the required amount.
Developers working with Port KC are still making in-lieu payments to the city’s housing trust fund, but those payments are much lower than the city’s $100,000 requirement. An analysis performed by the Kansas City Housing and Community Development Department and obtained by The Beacon shows that across nine projects, Port KC has collected an average of $17,500 per affordable unit.
That’s the reason Lucas is sponsoring an ordinance to loosen the set-aside program he championed five years ago.
Port KC adopted its own set-aside policy on March 23, setting an in-lieu payment of $5,000 per affordable unit that a developer would be required to provide. That’s just 5% of the $100,000 per unit that the city currently requires — and less than one-third of the $17,500 per unit Port KC was already asking from developers.
And if the City Council approves Lucas’ revision to the set-aside, city incentive agencies will also only collect an in-lieu payment of $5,000 per unit.
“This makes consistent across the agencies the dollar amount on the set-aside,” Lucas said. “The Port Authority should not be the only place where activity is done.”
A ‘devastating’ change
Affordable housing advocates in Kansas City were shocked to learn that the city was considering such a dramatic change to the set-aside ordinance.
Setting the payment-in-lieu at $5,000 per unit is effectively ending the affordable housing set-aside, said Geoff Jolley, the executive director of Kansas City’s Local Initiatives Support Corp., which advocates for affordable housing and financial stability.
“You will not see a single unit produced in an incentivized development,” Jolley said, “if the alternative is the developer can just write a $5,000 per unit check.”
That change, he said, is “devastating.”
“I would wholeheartedly support having a conversation and a review of the success of the set-aside ordinance as currently drafted,” he said. But not “until we have data points and an evaluation to actually look at.”
Lucas asked the Housing Department at City Hall to put together a memo with some recommended changes to the set-aside ordinance, including a suggestion for how much to charge developers for an in-lieu fee.
That memo, sent on March 10 and obtained by The Beacon, recommended $21,000.
The Beacon asked Lucas where his proposal for $5,000 came from, if not the Housing Department’s recommendations.
“That’s come from, I think, an average of Port Authority past practice,” Lucas said, “really trying to use this to at least set a floor, understanding there may be future negotiation as to what a higher set-aside might look like.”
But the Housing Department’s analysis showed that Port KC has been asking developers for more than three times that amount, on average $17,500 per unit across nearly 2,000 housing units developed with Port KC incentives.
So, The Beacon asked Port KC why its estimate of $5,000 was different from the Housing Department’s analysis.
“That was a proposal from the city as they looked internally at their numbers” said Port KC CEO Jon Stephens, “and what they think would be beneficial, and what they think aligns. As we’ve looked at our (numbers), I think over all of the approved and proposed projects in the pipeline, we’re probably closer to that $5,000 number.”
Erin Royals, the president of the Kansas City Community Land Trust, said she’s skeptical of whether the changes are based on research and data to accomplish a policy goal. She’s a Ph.D. candidate in geography, and as a researcher, she said that claims need to be backed by evidence.
“When it comes to our policies,” Royals said, “there is not nearly enough reliance on data or evaluation. (That’s) one of the things that really struck me about these proposed changes to the set-aside ordinance. What are you basing this on? Are you basing it on some anecdotes that you heard from some developers?”
KC Tenants, the citywide tenant union, has come out against the proposed change to the set-aside ordinance.
The union has been a political force behind the set-aside ordinance for years — with one member getting arrested in 2022 during a City Council meeting where the policy was debated.
“Kansas City does not lack development,” KC Tenants wrote in a statement. “It lacks housing that people can actually afford.”
“Ordinance 26086 does nothing to make housing more affordable,” the statement continued. “It allows developers to benefit from public support without supporting what the public actually needs — truly affordable homes.”
Diagnosing the affordable housing problem
By and large, Jolley said, the affordable housing set-aside ordinance has been effective at what it set out to do. That is, making sure that developers are thinking early on about how to integrate affordable housing into their projects that would not have been included before the ordinance passed.
“The set-aside was the initial step that the city has taken over the last five years to really start to tackle the affordable housing crisis in any meaningful way,” he said. “We started to see some willingness to include some level of affordability. And that, to me, is success in moving the broader development community in the incentive agencies towards a more equitable solution.”
Jolley said that the set-aside is the foundation of Kansas City’s affordable housing policy. And he worries that disturbing that foundation, by cutting the in-lieu fee by 95%, could destabilize the progress Kansas City has begun to make.
“It makes sense to review policies every few years to evaluate their efficiency,” he said. “But I think I would start with: ‘How’s it being enforced currently? What’s the level of compliance currently? How can we strengthen those things?’”
Dan Moye, the vice president of land development at the Economic Development Corp., said that the set-aside could use some tweaking.
Moye works closely with developers who are applying for tax incentives on projects, and he said he runs into problems with the ordinance’s lack of flexibility.
The current ordinance requires that a developer set aside 20% of units as affordable for families making 60% of the median income. Otherwise, they’re required to pay $100,000 per unit — or $4 million for a 200-unit project.
But if a developer can only afford to set aside those units as affordable for families making 80% of median income, the developer would still be required to make that $4 million payment-in-lieu.
And that $4 million payment could be enough of a financial hit that the developer can no longer afford to set aside any units as affordable at all. The unintended consequence is that a project that would have been mixed-income housing ends up being market-rate or luxury housing to cover the cost of the payment-in-lieu.
“Being able to say, ‘OK, how do we pull that lever and make it work, on a case-by-case basis, with an explanation and transparency?’” Moye said. “I think that’s what everybody’s looking for.”
Jolley said that when the set-aside ordinance was initially proposed, it was actually a consideration whether to allow developers more flexibility in how to meet the requirements.
Ultimately, he said, the council was worried that overcomplicating the policy would make it more difficult for developers to comply.
Lucas also is concerned that the costs associated with the affordable housing set-aside are being displaced onto the taxing jurisdictions like school districts and libraries.
The mayor’s concern is that the set-aside requirements are increasing costs for developers because they’re either making a payment-in-lieu or they’re charging lower rents. So to make ends meet, that developer will then ask incentive agencies for a larger tax break to cover that additional cost.
So in effect, a bigger tax break — at the expense of the school district — will cover the cost of affordable housing.
“I think a fair critique could be, every one of those (pledged dollars to the housing fund) are actually taxing jurisdiction dollars,” Lucas said.
Debating development standards
One possible alternative to the set-aside, Lucas said, could be to offer affordable housing projects a streamlined permitting process.
That would encourage developers to include affordable units in their proposals because they don’t want to waste time and legal fees on permits, variances and city planning hearings.
Lucas even proposed an ordinance before he was mayor to do just that, but the ordinance never came to a vote. He said he plans to polish it and bring it back to the council for consideration.
“I was going through old ordinances thinking about this very thing,” he said. “I think it was a mistake for me not to push that ordinance further. I plan to reintroduce a version of that because I do think that we need to balance it correctly.”
The ordinance revising the set-aside has been assigned to the Finance, Governance and Public Safety Committee of the City Council, which is chaired by Councilmember Andrea Bough. She represents the 6th District at-large.
Bough is not completely sold on the proposed change to the set-aside. She told The Beacon that the existing ordinance has not been as effective as the council would have hoped, but she and other council members have some concern about going as low as $5,000.
“People say going to Port KC is easier,” Bough said. “Why is it easier? Well, they don’t have all these requirements.”
But at the same time, she said, Kansas City Council has created those standards for a reason.
“We can’t say they don’t add cost to the project,” she said. “But that’s a policy decision we made because we have citizens that we want to uplift … Sure, it may be easier to go to Port KC, but if we are providing public dollars for a project, then we also have to respect the fact that we have public policies there in place for a reason.”
This story was originally published by The Beacon, a fellow member of the KC Media Collective.
