Kansas City is known far and wide for its use of tax incentives.
Researchers have studied the use of incentives to move development projects back and forth across the state line as part of the “border war” between Kansas and Missouri. Many local landmarks, including the Power and Light District, Hotel Phillips and the midtown Costco, were constructed or refurbished with the help of tax incentives. Kansas City Public Schools reports that its students have lost out on millions of dollars as a result of tax incentives.
But, despite the prevalence of tax incentives in these parts, the dialogue around their use is often marked by inaccessible language. From “tax abatements” to “bond issuance,” LIHTC and TIF districts, the jargon around the tax incentive conversation can be overwhelming.
To help, The Beacon has assembled a list of commonly used terms to serve as a reference as readers dive into stories or prepare for community meetings with developers and local officials.
The basics of tax incentives and development
Bond: A debt taken on by a developer or the government.
Developer: A general term used to refer to the business overseeing a new construction project. The developer will often become the manager or landlord after construction is completed.
Gentrification: A process by which a neighborhood may become more desirable to wealthy inhabitants as a result of development, displacing current residents in the process. An example of ongoing gentrification in Kansas City is the Westside neighborhood.
Incentive shopping: A practice by which developers may apply (or “shop”) for tax incentives at more than one economic development agency to see who will give them the best incentive. This is frowned upon by critics of incentives, though it is not strictly illegal.
Incentivized development: A project that is supported by tax incentives, which come at the expense of property tax revenue. Incentives are supposed to be granted to enable development that would otherwise not be profitable under the free market, but agencies handing out incentives have given developers a wide latitude.
Mixed-use development: A real estate project that includes spaces for different uses. An example could include an apartment building with housing on upper floors and a coffee shop on the ground floor.
Tax incentives: A policy tool by which the government uses tax breaks to make development more profitable and incentivize developers to make investments that may not otherwise be financially rewarding or profitable. For example, the Origin Hotel in Berkley Riverfront will only pay 38% of its standard property taxes for the next 20 years due to a tax incentive from Port KC.
Tax abatement: A form of tax incentive where the government adjusts a property tax bill without necessarily changing the value of the property.
Tax credit: A form of tax incentive where the government issues a dollar amount to be credited to an individual’s or developer’s tax bill.
Tax exemption: A form of tax incentive where the government reduces the assessed value of a property in order to lower the property tax bill.
Taxing jurisdictions: The various government agencies that rely on property tax revenue to fund their activities. For example, a development’s property taxes may be used to fund the local school district, mental health services, the library district and municipal and county governments. Each of these is considered a separate taxing jurisdiction.
Three steps of approval: An economic development agency must approve all three steps before an incentivized development can break ground.
- Inducement resolution: The first vote of approval that signals the agency’s intent to issue bonds to a developer.
- Bond authorization: The second vote of approval that authorizes the development agency to issue bonds.
- Bond issuance: The final vote of approval that formally issues the bonds to the developer. After this point, construction can commence.
Transit-oriented development: A philosophy of development that shapes housing and commercial spaces around existing or planned public transit to create walkable neighborhoods. For example, RideKC is encouraging development around the new streetcar extension so that future residents can easily ride the streetcar instead of driving.
Regulation of tax incentives
Affordable housing set-aside: A policy that requires new developments to “set aside” a certain number of housing units to meet affordability standards. The aim is to make sure that the city is not only creating luxury housing but also housing for people with lower incomes.
Area Median Income (AMI) and Median Family Income (MFI): These are metrics used by the U.S. Department of Housing and Urban Development, based on the median household income of all counties in a metropolitan area. In Kansas City, this includes Bates, Caldwell, Cass, Clay, Clinton, Jackson, Lafayette, Platte and Ray counties on the Missouri side, and Johnson, Leavenworth, Linn, Miami and Wyandotte counties on the Kansas side.
AMI versus MFI: These terms are often used interchangeably, but the distinction is that AMI is sometimes adjusted for family size. Kansas City’s affordable housing set-aside is based on AMI, with affordable rent prices set at levels according to family size.
Community benefits agreement: For certain tax incentives, developers may be required to agree to a community benefits agreement. These can include agreements to contribute to the Housing Trust Fund, investment in historic preservation and workforce support services.
Third-party “but-for” financial analysis: When a developer applies for a tax incentive, they may be required to seek an opinion from an independent financial agency. This agency reviews the developer’s financial information and determines whether the developer actually needs the requested tax incentive to be profitable. In other words, “but for” the incentive, the project could not happen. The aim is to prevent excessive tax incentives from being issued to developers who may not need them.
Kansas City government bodies overseeing development
City Planning and Development Department: The department in Kansas City that oversees zoning and city planning codes. For larger housing projects, the staff of this department reviews applications by developers and refers them to a commission of citizens appointed by the mayor.
Economic development agencies: The agencies in Kansas City that have the authority to issue tax incentives to developers. Some are authorized by the city government, whereas others like Port KC and RideKCDC are given their authority by the state and federal government.
Economic Development Corp. (EDC): The primary economic development agency in Kansas City. It oversees boards including the Enhanced Enterprise Zone (EEZ), Industrial Development Authority (IDA), Land Clearance for Redevelopment Authority (LCRA) and Planned Industrial Expansion Authority (PIEA), and tax incentive programs including Chapter 353, and tax increment financing (TIF). Many of these incentives are focused on designated blighted areas.
Neighborhood Planning and Development Committee: A committee composed of City Council members that reviews proposed ordinances and resolutions that pertain to development and zoning. Once approved by the committee, city legislation is referred to the Kansas City Council for a vote.
Port Authority of Kansas City (Port KC): An agency established by Missouri to manage economic development in Kansas City. It oversees some industrial projects, such as the $500 million Missouri River Terminal, but its primary role for the past several years has been to oversee the development of the 45-acre Berkley Riverfront neighborhood.
RideKC Development Corp. (RideKCDC): A development agency overseen by the Kansas City Area Transportation Authority (KCATA). It envisions transit-oriented development around transit nodes and corridors, such as the streetcar along Main Street, to build long-term sustainability in public transportation.
Types of incentivized development
Berkley Riverfront: A neighborhood north of downtown Kansas City and south of the river, which is currently being developed by Port KC. Developers are submitting applications to construct housing and retail in this neighborhood, with the aim of turning it into a walkable neighborhood.
Housing trust fund: A fund established by Kansas City Council to be a financial resource for housing developers. Kansas City voters approved $50 million in bonds to support the fund, which prioritizes “deeply affordable” housing and transitional housing.
Low-Income Housing Tax Credits (LIHTC): A program established by Congress in 1986 to support the creation of housing for lower-income residents. The government issues tax credits to developers for the purpose of constructing affordable housing that is restricted to certain income levels. When said aloud, LIHTC is pronounced LY-tek.
Opportunity Zones: A tax incentive program established by Congress in 2017. The areas eligible for this kind of tax incentive are designated by local and state governments.
Transitional housing: Housing that is designed to support people experiencing houselessness in their transition to permanent housing.
Urban renewal area: A general term that refers to an area of Kansas City that has been designated as “blighted” or in need of redevelopment. There are several kinds of urban renewal areas, including TIF districts, Opportunity Zones and Enhanced Enterprise Zones.
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