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Backers of Ordinance 220701 say it will bring consistency to the way Kansas City government and affiliated agencies can grant a tax break to developers. But it has been on a rocky road.
In the four months since the proposed legislation was filed in Kansas City Council’s Neighborhood Planning and Development Committee, it has been placed on the agenda for discussion, then removed, on four separate occasions. One of its three sponsors has taken her name off of the ordinance, and 28 local organizations have signed a letter voicing opposition.
By the time it comes before the committee again — supposedly in January 2023 — Ordinance 220701 will have been revised twice.
This ordinance was originally sponsored by Mayor Quinton Lucas and Councilmembers Ryana Parks-Shaw and Melissa Robinson, who represent the 3rd and 5th districts, and it aims to streamline the process for issuing tax incentives to developers. Parks-Shaw declined an interview with The Beacon, and Robinson is no longer a sponsor.
The tense discussion around the ordinance is a part of a broader conversation taking place in Kansas City about the role of tax abatement and other kinds of incentives for development and new housing.
Proponents believe that incentivized development will generate much-needed affordable housing in a city with rapidly increasing rent and property tax bills. But others, including KC Tenants, a tenants union and political advocacy group, and Kansas City Public Schools (KCPS), believe that many tax abatements come at the expense of school district revenue and displaced neighbors.
Tax abatements have long been a contentious issue among taxing jurisdictions
Tax abatements are a form of tax incentive. A local government or related agency reduces a developer’s property taxes in order to make developments more profitable in areas where they might not otherwise make financial sense. These tax abatements can range from small tax breaks over 10 years to longer-term tax breaks for up to 25 years.
Most recently, Kansas City agencies have considered a 75% tax break for 20 years for an apartment building in Waldo, a 20-year tax break for a hotel in the Berkley Riverfront and a 25-year tax break for the Lux Living apartment, also in the Berkley Riverfront.
KCPS has vocally opposed many of these projects, and it has a web page devoted to its stance on tax incentives. In 2021, KCPS lost out on $37 million in revenue as a result of tax incentives, which accounts for 23% of its property tax revenue.
KC Tenants has also pushed back against tax incentives, with several members expressing concerns at a Port KC meeting in May about the developer behind the Lux Living project. At the meeting, public testimony brought attention to the fact that the developer’s CEO had been fined by the Securities and Exchange Commission in 2017 and temporarily banned from serving as a director or manager of a public company.
Since that meeting, Port KC has amended its rules to limit public testimony at its meetings.
This ordinance would create a bureaucratic process to get a tax break
Ordinance 220701 creates a standardized administrative process for the city to issue tax breaks to developers. In this process, developments that meet certain criteria would be eligible for administrative approval for tax breaks without a public hearing or a financial analysis.
This process would be standardized for office spaces, industrial spaces and residential developments that are evaluated through most economic development agencies, including the Port Authority of Kansas City (Port KC), RideKC Development Corp. (RKCDC) and the Economic Development Corp. (EDC).
The city does not have the jurisdiction to formally regulate agencies such as Port KC and RKCDC. But some leaders hope that by setting standards for the way City Hall grants tax incentives, the other agencies will get on board with the same standards.
The criteria for housing developments seeking incentives include ground-level retail, certain environmental standards, a low parking ratio and requirements for affordable housing. In line with Kansas City’s recently adjusted set-aside ordinance, 20% of housing units in developments must be affordable for tenants who make at least 60% of the Kansas City area median income (AMI).
By this standard, an affordable one-bedroom apartment would cost just under $1,200 per month and a two-bedroom apartment would cost about $1,300.
The ordinance, as written, waives a public hearing requirement for developments that meet the standards outlined in the ordinance. Instead, it establishes an administrative process, overseen by the city manager. The current city manager is Brian Platt, who declined an interview with The Beacon.
Currently, the City Council discusses proposed tax abatements at its public meetings. Port KC, a state-authorized agency, and RKCDC, which exists through federal legislation, can grant tax incentives to developers without approval from the city or a public hearing process.
Developers who meet the standards of Ordinance 220701 would receive a standard incentive package, depending on where the development is located and what criteria it meets.
Residential developments in the Tier 1 zone, which includes downtown Kansas City, the Berkley Riverfront, the Main Street corridor and many neighborhoods east of U.S. Highway 71, would automatically receive a 25-year tax break, including an exemption of 100% of property taxes for the first 10 years, followed by a 50% exemption for the following 15 years.
Third-party financial analysis no longer required for eligible developers
A controversial provision of Ordinance 220701, as currently written, would remove the need for a third-party financial analysis if a proposed housing development meets the standards outlined in the ordinance.
The mayor’s office said that provision will likely be revised before it returns to a council agenda for discussion.
In these reviews, often referred to as a “but-for” analysis, an independent financial agency takes into account all of the developer’s financials to determine the level of tax exemption that is necessary for a developer to complete a project and emerge in good financial health. In other words, would the project be financially unfeasible but for the tax break?
For example, the Levy at Martini Corner, at 31st Street and Gillham Road, is a development under evaluation by RKCDC. The developer had originally applied for a different tax exemption from the EDC, which conducted a but-for analysis.
The original requested tax abatement was 75% for 10 years, followed by 37.5% for an additional 15 years. However, the but-for analysis determined that the developer did not need any tax break after the first 10 years.
Currently, an independent analysis is required for certain tax incentives through the EDC, but it is not conducted for Port KC or RKCDC developments.
KCPS senior policy strategist Kathleen Pointer said she is concerned that the ordinance waives third-party financial reviews.
“KCPS has long been a vocal proponent of third-party financial analysis and public review,” Pointer said. “We have concerns that the current proposal would lead to projects getting more public support than necessary.”
Discussion on this ordinance has been postponed for more than four months
The initial ordinance has now been replaced with a committee substitute, which expanded the requirements for developers. Under these revisions, developers are required to agree to a community benefits agreement, and the city manager must submit a detailed annual report to the City Council.
According to Lucas’ office, the ordinance’s sponsors are working on another revision in light of ongoing discussions with the community. These revisions could include an updated public hearing requirement. They expect the ordinance to come before City Council again, no sooner than Jan. 11, 2023.
As it stands, KC Tenants remains opposed to what it calls the “backroom deals ordinance.”
The citywide tenants union submitted a letter in opposition to the City Council on Sept. 27. It was signed by 27 other local organizations. Other signatories include the Community Mental Health Fund, the KCPS District Advisory Committee, BikeWalkKC, Heartland Center for Jobs and Freedom, three workers unions and the Marlborough Community Land Trust.
“Economic development provides opportunity for investment and prosperity in our city; it also has the potential to harm our communities through gentrification and the awarding of incentives greater than their need,” the letter says. “We must remember that tax incentives are public resources, belonging to the people of Kansas City, to be used to benefit the people of Kansas City.”
Critics say that the streamlined tax incentive process under Ordinance 220701 would prevent Kansas City residents from providing input on developments that could affect their children’s schools or their own cost of housing.
“KCPS has long advocated for more of a say over our potential revenues, not less, and the current proposal moves us further away from that goal,” Pointer said.
Wilson Vance, the organizing director for KC Tenants, said that the organization remains opposed to any ordinance that limits public comment.
“As is, with the current committee substitute and the original ordinance that was introduced, we still do not support a version of this policy that limits public engagement or really any opportunity for the community to weigh in on housing development that is happening in their own neighborhood,” Vance said.