The Kansas City Council is once again tackling economic incentive reform, but balancing demands from schools and developers is proving a heavy lift.
The issue has been debated at City Hall for years — advocates for schools and libraries argue that the arrival of luxury high-rises and office towers downtown has come on the backs of Kansas City’s students, who miss out on millions of dollars when the city gives tax breaks to real estate developers.
The business community, meanwhile, says those incentives are necessary for Kansas City’s growth.
Behind-the-scenes conversations have continued for months, and a new compromise that would cap most tax breaks and reduce their timeframes is scheduled for a council committee discussion this week. Neither the school districts nor the business community are fully supportive yet, but some say it’s time to act.
“I feel that it is a great compromise and I feel like it’s something we all can support,” said Councilwoman Melissa Robinson, a co-sponsor of the measure.
Under Kansas City’s existing program, approved in 2016, most developers are limited to a 75% tax abatement or redirection of new taxes back to the developer for 10 years, and 37.5% for 15 years after that.
The latest reform proposal would cut that to 70% for 10 years and 30% for the next five. It aims to give clearer direction to developers and create consistency among different economic development agencies. Exemptions would apply in distressed areas or for projects that provide affordable housing or job growth.
Robinson and Councilwoman Ryana Parks-Shaw introduced the reform measure last June. The initial draft required most developers seeking tax abatements to get written approval from the affected school district.
But after months of stakeholder discussions, that provision was removed.
Big impact on schools
School district concerns stem from the impact tax breaks for developers have on dollars for students.
A Kansas City analysis of development deals found that between May 2018 and April 2019, property tax abatements and redirections cost school systems nearly $47 million. Of that, Kansas City Public Schools missed out on more than $28 million, or more than $2,000 per student.
(Analysis from Kansas City Public schools, which included public charter schools within their boundaries, had a lower figure.)
The impact was also significant for Hickman Mills and Grandview students. Meanwhile, the loss to the Park Hill School District in the Northland was $97 per student.
“None of us wants to end or slow economic development,” Parks-Shaw said. “Ultimately we’re trying to create parity in the process and establish more equity across the board.”
Other jurisdictions, like libraries and mental health services, also miss out on tax revenues from incentive deals.
Parks-Shaw acknowledged that balancing the needs of developers against that of schools, libraries and other taxing jurisdictions is hard.
“What’s the sweet spot, so to speak?” she explained.
She said many people believe allowing tax breaks for 20-25 years is too long. But some say reducing that to 15 years is too short. Meanwhile, school districts say 70% abatement is still too high, and not every development should get the maximum tax break.
“Nobody is totally happy,” Parks-Shaw said. “Which kind of makes you think maybe we’re doing something right.”
Robinson has her own preference, for no more than 10 years at 50%, except in economically distressed areas. “However,” she said, “we have to do what is also politically acceptable.”
Supporters of a 50% cap took that to Kansas City voters in June 2019, but it was soundly rejected.
Ongoing debates
Kansas City has had fierce development debates for years. In December 2019, the council approved a deal to entice the financial services firm Waddell and Reed to move from Overland Park and build a $148 million headquarters in downtown Kansas City.
The deal provided for a 75% abatement for six years and 37.5% for nine years, a roughly $24 million incentive package.
It shaved nearly $9 million from Waddell and Reed’s original request after significant pressure from Kansas City Public Schools. But Mayor Quinton Lucas said the school district should have been brought into the negotiations earlier. And Robinson, a former KCPS board president, said schools still forego too many millions of tax dollars for too many years.
The building is under construction, but Waddell and Reed has since been sold to an Australian firm, so its long-term future in Kansas City is in doubt.
Since the reform proposal was introduced last summer, the school districts and other stakeholders have had productive discussions, said Kenny Southwick, executive director of the Cooperating School Districts of Greater Kansas City.
“The school districts want to be complete supporters of economic development. We want to be partners,” Southwick said.
The Chamber of Commerce sent a letter Jan. 13 to the council saying they couldn’t support the latest proposal and urging more negotiations. Chamber officials declined to comment on their specific objections.
Some council members say they don’t want reforms to be so stringent that they drive development to competing cities.
“I don’t think we should treat all development the same,” said Councilman Lee Barnes. He’s frustrated that in recent months Kansas City has lost out on some light manufacturing and distribution projects.
One example is Urban Outfitters, which plans a distribution center with nearly 2,000 jobs near the Kansas Speedway. In that case, Urban Outfitter chose to locate in Kansas despite a much higher incentive package from Kansas City, illustrating that tax breaks aren’t the only development consideration.
Council members Dan Fowler and Andrea Bough said a crucial reform is to speed up development review.
“Our planning and development process is so slow,” Fowler said, noting that projects can be approved in Kansas in two months while taking six to eight months in Kansas City. “Time is money.”
Bough said she thought a council vote could come soon.
“I honestly think we are very close,” she said, adding that a fair, consistent, predictable development process could benefit both economic vitality and schools. “Ultimately, the long-term goal is to provide predictability in the process, to reduce costs overall, so you may not need a longer and deeper level of tax abatement.”
