Is Kansas City tax-break heaven — or tax-break hell?

Kansas City Hall

Kansas City Hall

It’s high time to spend the taxpayer funds necessary to answer this extremely crucial question: Have Kansas City’s political leaders wisely spent hundreds of millions of dollars on public subsidies for private development?

The best way to answer that question is to hire an independent consultant to thoroughly review it, then tell the people of Kansas City whether they live in tax-break heaven or tax-break hell.

Hmm, this idea sounds familiar. Indeed, the City Council told City Manager Troy Schulte 10 months ago to conduct a comprehensive study of this issue. Here is the story from The Star; here is the council’s resolution.

Finally, this is happening:

A City Council committee on Wednesday and probably the full council on Thursday will decide whether the members want to spend up to $350,000 on consultants “to evaluate the impact of the city’s use of development incentives,” as The Star’s Steve Vockrodt reported.

So go ahead and spend the money — but only if City Council members such as Katheryn Shields, Quinton Lucas, Heather Hall and others are convinced  the eventual outcome is not already rigged.

Mayor Sly James and plenty of people in the economic development crowd have long claimed that the public incentives have done wonders but that City Hall hasn’t been able to get this good-news story out to the people.

In reality, the city doesn’t have the factual statistics to solidly prove that the many years of tax breaks have performed the economic miracles claimed for  them.

The biggest opponents of the city’s contentions have been leaders of  taxing districts, especially the Kansas City Public Library, Kansas City Public Schools and Jackson County, as well as others. They have legitimate concerns about the amounts of public funds doled out to developers.

But many of these concerns also can’t be “proved” with hard data. The tax-break skeptics have some of the same problems that City Hall does. They all need better, independently reached conclusions about what’s really going on.

It’s disappointing that Kansas City officials are 10 months into this process and just now on the cusp of hiring a consultant. One last problem: The supposedly impartial study isn’t expected to be done until May 2017.

4 Thoughts.

  1. Blast From The Past: Yael Was Wrong In The Beginning, But Learned A Hard Lesson By The Last Paragraph

    The $295 Million Mall Taxpayers Bought Kansas City

    Story by Sandy SmithTwitter
    Published on May 18, 2015

    Occupying an entire city block with restaurants, bars, nightspots and shops, KC Live is the shiny center of the city’s Power & Light District, a popular destination on the edge of downtown. Packed with families and young adults during the weekends and on game days, the district would have been unimaginable in Kansas City 15 years ago. “The area was a ghost town then,” recalls Yael T. Abouhalkah, an editorial writer for the Kansas City Star and former local news reporter. “People didn’t go there and they had no reason to. … [now] it gets a lot of suburban people to come downtown, which is not something we had before.”

    Even if you’ve never been to Kansas City, Missouri, KC Live may seem familiar. Developed by Baltimore-based Cordish Companies, the entertainment district is one of more than a dozen similar complexes the family-owned company has built or begun work on in the years since it ventured into urban redevelopment with its work on Baltimore’s Inner Harbor in the 1980s. Branding itself as “the leading international developer of large-scale, urban revitalization projects and entertainment districts,” Cordish has perfected a formula for turning underutilized downtown real estate into highly profitable, suburbanite-friendly destinations where retail and bar and restaurant chains mix with local tenants and open-air gathering spaces ideal for screening a game, socializing with friends or watching a performer.

    Typically, Cordish partners with another group on its large, multi-phase entertainment district projects. In some cases, as with Xfinity Live in Philadelphia and Ballpark Village in St. Louis, the partner is a private company with interests in entertainment or sports. The more common model, however, is the public-private partnership, a development model that Cordish has helped to define since the late 1970s. President and CEO David S. Cordish first learned about working with government when he took a sabbatical from the family company to serve as the first director of the federal Urban Development Action Grant (UDAG) program created by the Carter administration in 1977 to spur private development in distressed urban centers. After returning to the company in the 1980s, David Cordish formed a new division to specialize in the kinds of collaboration these projects demanded.

    In 2006, Kansas City decided to take Cordish up on its promise of downtown transformation. The South Loop area where the company wanted to build was a dead zone, and no other developer had managed to successfully complete a project there. That year, the city issued $295 million in city-backed bonds to help the company build the $350 million KC Live entertainment district. The bonds helped finance about $110 million worth of site acquisition and preparation costs, including infrastructure improvements such as roadwork and a full replacement of the sewage system, a costly fix required under mandate from the U.S. Environmental Protection Agency. A parking garage needed to comply with the city’s car-centric requirements and was also financed with the public money. The remaining funds — about $150 million, according to City Treasurer Tammy Queen — went to Cordish to help construct the half-a-million-square-foot retail, restaurant and bar playground and renovate two historic 1920s movie theaters across Main Street from the entertainment complex, the Midland and the Mainstreet. (Cordish says the amount the company actually received for its development was closer to $70 million, with the remainder going to assist with ancillary projects that Cordish was not responsible for but which were related to the overall Power & Light District redevelopment plan, such as the renovation of the President Hotel.)

    The city guaranteed the debt under the assumption that new businesses and development in the district would generate $18 million to $20 million in taxes to cover the bond’s annual debt service, allowing the city to repay the bond without digging into its already strained general budget. The project would pay for itself, Mayor Kay Barnes argued back in 2006 when defending the project to skeptics in the City Council and press.

    Barnes was off. Way off. The district opened just before the economy crashed. Its thousands of square feet have been slower to lease than anticipated. Annual tax revenues generated in the district have ranged from $4.5 million to $5.4 million in the past few years, according to the city. That means that taxpayers are left on the hook for 70 to 75 percent of the money needed to pay down the debt each year, paying anywhere from $14.9 million in fiscal year 2014 to a projected $8.5 million this fiscal year, according to a recent article in the Kansas City Star.

    The nearly $15 million the city spent repaying Power & Light District debt in 2014 was money it couldn’t spend on public libraries, parks, police, blight cleanup and other public services — no small sacrifice in a city that had a general operating budget of $1.42 billion that year. The debt isn’t going away anytime soon either; last year, the city refinanced, which lowered the payments from 2015 through 2019 but extended the debt schedule from 2033 to 2040.

    “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,” City Manager Troy Schulte told the Star in February.

    The new development has also failed to generate the jobs that many hoped would be the payoff for public support of the complex. “We’ve made great strides in making downtown more conducive to residential and business growth, but we haven’t moved the needle on employment growth in the greater downtown,” says Bill Dietrich, CEO of the Downtown Council, a nonprofit association of business, cultural and civil leaders supporting growth downtown. From 2010 to 2011, after the district had opened for business, employment fell in the zip code and Census tract that includes the Power & Light District and the heart of the downtown, according to Census Bureau data. Cordish says that the district has produced 10,000 jobs for Kansas Citians, but it’s not clear how many of these represent new employment in the entertainment zone, how many of these are temporary construction jobs, and how many come from relocations like that of H&R Block headquarters and the Kansas City Repertory Theatre, another ancillary project sparked by the development.
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    Kansas City Mayor Sly James has since said that City Hall won’t again make deals like the one it made with Cordish, yet the city remains beholden to the agreement in ways that are still emerging. In April, the city and Cordish announced that a plan for a city-subsidized, 24-story luxury apartment tower was moving forward in the Power & Light District. Company officials have said that Cordish will invest more than $88 million into the $105 million, 300-unit Two Light Luxury Apartments building. The roughly $17 million balance, the company said, will be covered by city incentives, including a 25-year tax abatement, subsidies for the parking garage and a $5 million incentive for the high-end units themselves. Under the agreement, the city will pay Cordish $16,666 per apartment unit. The company has said that while it’s too early to speculate on rental rates for the building, a one-bedroom may rent in the range of $1,450 to $1,500 a month. While locals have criticized the city for subsidizing luxury development in the thriving district when many parts of the city lack resources for basic services, the per-unit payment proposed for the Two Light building is actually $10,000 less per unit than the city paid for One Light Luxury Apartments, a sister Cordish tower now under construction and slated to open this fall.

    “We bent over backwards when [Cordish] came in 10 years ago and gave them too much. Now it is way too much,” says Abouhalkah. “It was smart to subsidize the district at the beginning, but we went too far. Now the market is much stronger and still, they keep asking for more. At some point you have to say that the downtown is healthy, now we aren’t going to subsidize development anymore.”

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