A free email newsletter breaking down the issues that affect Kansans and Missourians the most.
Delivered every Tuesday and Thursday morning
Editor’s note: This story has been updated to include additional abatement data that was reported separately in the Good Jobs First study.
Of the 226 school districts in Missouri, Kansas City students have suffered the highest losses in potential revenue as a result of city-approved tax breaks for developers, a new study shows.
In the 2019 fiscal year, Kansas City Public Schools lost $21 million of potential funding from development projects, according to Good Jobs First, a national policy group focused on accountability in economic development. That figure does not include an additional $7.9 million in tax revenue abated from the Planned Industrial Expansion Authority, another tax abatement program in Kansas City, which the study counted separately.
The most updated data collected by KCPS shows the district lost even more in revenue in the 2020 fiscal year: $38 million.
“That impacts the district in the aggregate of everything that we do,” said KCPS Superintendent Mark Bedell. “Being a 100% free or reduced lunch school district, every penny matters for us.”
This is how that happens: In Kansas City, development projects — anything from a new office building to a new apartment complex, like the One Light apartments downtown — can receive tax breaks from the local government.
Also referred to as abatements, tax breaks can come in the form of the city waiving property taxes for years. And for a construction project that can be worth hundreds of thousands or even millions of dollars, property taxes accumulate over time.
For example, in 2018, the Three Light apartments downtown were approved for a 100% property tax abatement for 25 years — meaning Kansas City Public Schools and other city services that rely on those property taxes would miss out on 25 years’ worth of that revenue. According to a Kansas City Star article, the developer would have had to pay $12.5 million without those tax breaks.
For cities like Kansas City, offering tax incentives is a way to attract developers — the thought is that the money not collected through taxes will instead be generated through the revenue and jobs accompanying the project.
The problem is that for local school districts, property taxes are the largest single source of revenue for public education, according to Good Jobs First.
In Missouri, local property taxes make up 37% of public school revenue, the study found. For Kansas City Public Schools, local property taxes make up about 68% of the district’s overall revenue, according to its financial report from fiscal year 2020.
And the impacts are sorely felt: less funding for Kansas City schools affects school renovations, teacher salaries and services for over 15,000 kids.
For Bedell, it also means a continuation of the historical disinvestment in Kansas City’s poorest neighborhoods — a form of systemic harm.
“Kansas City can only be great if those that are least served, and those that are least represented, are at the table and being involved in the decisions that impact the city as a whole,” he said.
Tax abatements are a national problem — but one that especially hurts Missouri
Good Jobs First collected data from about one-fifth of public school districts in the U.S. that disclosed reportable tax abatements. Researchers found the total gross foregone revenue amounted to $2.88 billion for the 2019 fiscal year. The total represents a 13% increase from 2017 disclosures.
The millions awarded to developers in tax incentives is a national problem — but it’s one that is a particular issue in Missouri.
Developers in Missouri can apply for and receive incentives through a number of programs, like Chapter 99, Chapter 100 Industrial Development Bonds, Chapter 353, Enhanced Enterprise Zones and the Tax Increment Financing Commission, called TIF.
Good Jobs First found that tax breaks approved through these programs resulted in $130 million in net foregone revenue in Missouri in fiscal year 2019, making it the state with the seventh greatest loss in the study’s findings. That amounts to $148 lost per student.
From 2017 to 2020, a KCPS analysis found, the amount of revenue abated from the district and public charter schools increased by 60%.
It’s not that KCPS is anti-economic development, Bedell said. The primary issue with Kansas City’s use of tax incentives, Bedell said, is that the development projects receiving abatements are concentrated in already affluent parts of the city, like the Plaza, Midtown and downtown Kansas City.
But the city hasn’t shown similar reinvestment in communities east of Troost Avenue that have historically suffered from redlining and disinvestment from the city, Bedell said.
“Those tend to be the poorest ZIP codes that we have in this city, that tend to not benefit off of a tool that really should benefit those communities more when you start looking at it from an equity standpoint,” he said.
In a statement to The Beacon, T’risa McCord, interim president and CEO of the Economic Development Corporation of Kansas City, said the organization recognizes the impact that tax incentives have on entities like Kansas City’s school districts.
“We work regularly to promote collaboration between taxing jurisdictions and the development community,” McCord said. “And attempt to provide only the incentives necessary to spur development and ensure we are protecting the revenues of the jurisdictions affected.”
For Kansas City Public Schools, tax breaks are a form of ‘systemic racism’
In a letter Bedell wrote to the City Council last summer ahead of its vote on a $14 million incentive project, he called tax abatements and the use of incentives a form of systemic racism.
As the Good Jobs First study shows, it’s the school districts with higher rates of poverty and more Black students and students of color that experience the highest losses.
Kansas City Public Schools — where 57% of students are Black, 28% are Hispanic and all students qualify for free or reduced-price lunch — lost $1,925 per student in fiscal year 2019 because of tax abatements.
“These are poor students of color who are having resources drained from them,” said Linwood Tauheed, professor of economics at the University of Missouri-Kansas City.
Kansas City’s use of tax abatements, Bedell said, contributes to that cycle of systemic racism, where the prosperous areas get more prosperous and the neighborhoods that have been shut out because of historically racist practices stay shut out.
It creates conditions that don’t let people in these neighborhoods build generational wealth or escape the cycle of poverty, Bedell said.
A continued lack of investment in neighborhoods east of Troost also perpetuates the mobility issues that KCPS sees in the families it serves.
“As a district, you never have stability,” he said. “You can never get out of this hole because kids are just being recycled in terms of where they live, from home to home to home.”
Tauheed echoed that education is a significant factor in the development of a neighborhood. In other words, a strong public school district is key, and even foundational, to spurring economic development, particularly in economically distressed communities.
“Investment in education is an investment in economic development,” Tauheed said. “If you’re disinvesting in education, you’re disinvesting in economic development, and this impacts distressed communities. There’s un-development east of Troost.”
Kansas City working toward reform, but it’s slow
The City Council has debated incentive reform in the past year, recently passing an ordinance scaling back the percentage and length of time that abatements are offered.
That was a start, Bedell said. But it didn’t include everything the district wanted, and progress is still slow.
“We are a little bit closer to where we want to be, even though we feel we’re still far away from where we need to be.”
The city is currently reviewing its AdvanceKC scorecard, a metric to determine if a development project meets a list of criteria before receiving incentives. A KCPS staff member is part of the steering committee to review that scorecard.
Overall, what KCPS wants is a seat at the table, to have a say in incentives and development projects before they are approved and the ability to opt in or opt out of incentive deals.
Other states have mechanisms in place that give school districts a say in the use of incentives. Across the border in Kansas, school districts have to sign on to development plans involving tax increment financing.
In Ohio, TIF projects receiving 75% of abatements over 10 years mandate approval from school districts. School districts in Utah can decide how long and how much they want to participate in a TIF project. In Minnesota, two out of three taxing jurisdictions, which includes school districts, must approve incentive plans longer than 15 years.
In August 2019, KCPS sent a letter to the City Council with recommendations for tax incentive reform. Among the reforms are improving public transparency about the use of incentives and developing performance standards and accountability.
Good Jobs First also recommends shielding local taxes allocated for school districts from some or all tax abatements.
For Bedell, the bigger goal involves greenlighting more projects located in the neighborhoods where KCPS students live.
“I don’t think our school district would have significant problems with projects getting approved and us being abated if we know there’s going to be a return within the community.”