TIF in KCMO

7/30/2019 TIF in KCMO

1/17

Municipal Tax Incremental Financing Supports Big Business, Inequality in Kansas City 1

Municipal Tax Incremental Financing Supports

Big Business, Inequality in Kansas City

Jamie Ferris

Anne Dunning, Ph.D.

Urban Planning 705

17 May 2013


2/17


Kansas City, Missouris [KCMO] economy, like those of cities across

the country, is struggling to recover from the national recession that began in

2008. According to Noble (2010), The Missouri state budget for 2013

estimates only $7.585 billion in general revenue funds, nearly $500 million

less than Governor Jay Nixons recommended amount. With unemployment in

the metropolitan area at approximately 8 percent in February (U.S. Bureau of

Labor Statistics), while slightly higher than the national average of 7.7

percent, much focus in the city has been on balancing the budget, creating

jobs, and fostering economic growth (National unemployment update , 2013).

Historically, the KCMO urban core has experienced negative effects of

urban sprawl, losing much of the metropolitan population, particularly those

affluent residents of the urban core, to surrounding suburban areas on both

the Missouri and Kansas sides of the city. Census data shows that the most

expensive homes in Kansas City form a ring around the city; this golden ring has

been moving farther from downtown at a rate of about two miles per decade. In its wake

are acres of declining property values that have left many residents stranded (Anderson

12-13).

Between 1990 and 1996, the Kansas City metropolitan area spread 70%, while its

population, now over two million, increased only 5% (Lacayo) . This disproportionate

growth is unsustainable in regard to both resources and economics. Dr. Robert Freilich

of the University of Missouri-Kansas City suggests in his 1997 report To Sprawl or Not

to Sprawl: a National Perspective for Kansas City , sprawl has engendered six major


3/17


crises for Americas major metropolitan regions. These crises are: central city and first -

and second-ring suburban distress; environmental degradation through loss of wetlands,

sensitive lands, air and water quality degradation; massive gasoline energy

overutilization; fiscal insolvency, transportation congestion, infrastructure deficiencies

and taxpayer revolts; massive agricultural land conversion; and housing inaffordability

(2).

In recent years, KCMO has supported downtown revitalization efforts

through market intervention and by promoting the development of not only

business but residential and entertainment areas an attempt to re -grow the tax

base and bring residents, art, culture and tourism to the area. KCMO adopted

the Greater Downtown Area Plan in March 2010 , outlining goals for the economic,

social and environmental development of the city. The five outlined goals include:

doubling the population downtown, increasing employment, Creating a walkable

downtown, retaining and promoting safe, authentic neighborhoods, and promoting

sustainability (Greater Downtown Area Plan).

Much of this development is stagnating however, due to the weak

economy and therefore a hesitant consumer base in the metro area. The

relatively static tax revenue causes further problems for the city that is

already facing a revenue shortage.

The 2012-2013 city budget proposed by the Office of Management and

Budget [OMB], which includes a 4.9 percent increase over the FY 2011-2013

budget, keeps the general fund flat and proposed increased fees and taxes as


4/17


well as reduction or stagnation in work force and employee benefits (OMB,

2012). Because it is the general fund that is experiencing the majority of the

budget cuts, this does mean a reduction in funding [or a lesser increase] to

the Department of Economic Development, in addition to many other

programs and departments. Though this department is encountering financial

restrictions, it is still receiving nearly 10 percent of the city budget. In 2010,

City Manager Troy Schulte wrote in the budget proposal to then Mayor Mark

Funkhouser that in this economic climate the city must work to identify

local partnerships to leverage additional resources to address needs in

entrepreneurship, small business assistance and workforce development

(OMB, 2010). Schulte suggested that while financial assistance from the state

may be necessary, fostering these aspects of the economic situation will help

make KCMO more competitive in acquiring new businesses and lessen the

risk of losing some of those opportunities to other cities, particularly across

the state line in Kansas (OMB, 2010). These priorities remain at the

forefront, as expressed in the FY 2012-2013 budget.

According to Blakely and Leigh (2010), community and business

development are merged as a vehicle to mobilize essential community

resources for the generation of shared wealth both in terms of individual and

collective wellbeing and in terms of a stronger set of economic institutions

that can compete both locally and globally (266). The Economic Development

Corporation of Kansas City [EDC] (2007) sites the purpose of economic


5/17


development is to encourage private investment, increase municipal

population and grow the tax base, helping to keep taxes low, increase the

quality of life and create job opportunities for community members, upgrade

infrastructure and the physical appearance of the city and create

entrepreneurial opportunities (New City, 2007). In order to do so, KCMO

utilizes both supply and demand side aspects of economic development to in

effort to maximize business expansion and foster as much job creation and

employment opportunities as possible. The city implements supply side

methods with much greater frequency, however.

Due to allowances of the structure of state laws and policies in

Missouri, KCMO frequently utilizes Tax Increment Financing [TIF], Chapter

353 tax abatement and Enhanced Enterprise Zones as well as provisions of

the Missouri Downtown Economic Stimulus Act [MODESA] of 2003 to create

and provide incentives for economic activity and development, among many

other supply side programs.

Currently, the Economic Development Committee expresses their

priorities to be business development, retention and expansion. The council is

approaching this through the use approximately 24 incentive programs and

tools for economic development and business projects (New City, 2007).

These 24 programs can be simplified into eight categories; tax abatement, tax

redirection, tax credits, self-assessment, property assembly and remediation,

infrastructure provision, business financing and business assistance (New


6/17


City, 2007). For the purpose of this study, only KCMOs use of TIFs, Super

TIFs, MODESA provisions, Ch. 353 Tax Abatements, and Enhanced

Enterprise Zones will be considered in analyzing the efficiency and

effectiveness of the citys economic development.

In Missouri, TIF projects must receive approval by the TIF Commission

[TIFC] and City Council at a public hearing (see Figure 1 for complete

approval process). The TIF proposal is required to meet two criteria in order

to be considered. It must be a project that, without out the TIF, would not

otherwise be developed [called the but for test] and it must have one of the

following: blight conditions, be located in a Conservation Area [likely future

blight without prevention], be located in an Economic Development Area [not

required to exhibit blight or Conservation Area characteristics] where the

council believes the proposed TIF project would be in the publics best

interest (New City, 2007).

Revenue for the approved TIF projects can come from the following

sources: Payment in Lieu of Taxes [PILOT] provisions, Economic Activity

Taxes [EATS] In certain situations projects may receive State Supplemental

TIFs (New City, 2007). With PILOT funding, real property tax rates are

frozen for a term up to 23 years per project. The taxes generated by the initial

assessed value of the property [and paid for by the property owner] are

distributed to the affected taxing districts for the duration of the TIF plan

(New City, 2007). The incremental taxes on the value of the property are


7/17


paid to the city where it is deposed into a special al location fund. The money

in this fund is then a llocated to cost of the TIF plan and the developers

expenses (Kelsay, 2007).

EAT financing, however, is money accrued from the tax revenue

generated by the increased economic activity in the development area such as

sales, utility and profit earnings. Of this revenue, up to 50 percent is

available to developers for reimbursement. Missour i is one of only nine states

to allow this type of tax abatement. Additionally, KCMO is one of few areas

to implement use of the Super TIF, an extension of the EAT abat ement

policy that allows developers to receive up to 100 percent reimbursement

(Kelsay, 2007). TIF projects may also be eligible for State Supplemental TIFs

that includes state tax revenue in the funding. The state funding is in addition

or supplementary to PILOT and EAT financing. These TIF projects mustbe in

a blighted or levee area, however (New City, 2007).

In addition to EAT tax abatement, KCMO provides Chapter 353 Tax

Abatement as an incentive to stimulate private investment and

redevelopment of blighted areas[consisting of] reconstruction or

rehabilitation of any blighted area and provision for such industrial,

commercial, residential, public or recreational developments (New City,

2007). In order to qualify for 353 Tax Abatement, the project must pass the

but for test, proving the development would not occur without the 353

incentive. The area of redevelopment must also be blighted or blighting


8/17


(New City, 2007). The incentive this provides for developers is 100

percent tax abatement of real value for 10 years and 50 percent for the

following 15 years (New City, 2007). In addition, the Power of Eminent

Domain enables the developer to condemn properties that could not be

acquired through normal negotiations (New City, 2007).

A program to attract new business as well as provide incentive for

existing businesses to expand is KCMOs creation of Enhanced Enterprise

Zones. Enhanced Enterprise Zones are specified geographic areas designated

by local governments and certified by the Missouri Department of Economic

Development (Kansas City Area). These areas are denoted for high

poverty and unemp loyment rates. The program provides state income tax

exemptions and credits as well as local property tax abatement to property

owners who make improvements to real property. Benefits are designed to

encourage investment and growth and to help address unemployment and

underemployment within the Citys Enhanced Enterprise Zone (New City,

2007). Specifically, if a business within the enterpris e zone employs at least

two new employees and meets a minimum $100,000 investment, property

owners may receive up to 100 percent tax abatement for 25 years on

improvements to the property (New City, 2007). From the state, owners

may receive up New Job Credits for up to 10 years, Resident Credits [for

employees who reside in the enterprise zone] for up to 10 years, Salary

Credits [for employees making more than the national average] for up to 10


9/17


years, as well as a 2 percent investment credit (New Cities, 2007).

The Missouri Downtown Economic Stimulus Act [MODESA], passed in

2003, allows some central business district projects to request that specified

State tax revenues be used to supple ment local revenues (New City, 2007).

These projects, which must be located in either a blighted or Conservation

Area, have to demonstrate promotion of tourism cultural activity, arts,

entertainment, education, and mass transit, among other community-fostering

plans which cost at least an estimated $10,000,000 and w ill provide at least

100 new jobs within three years (Ne w City, 2007).

Cities that receive MODESA funding are able to have up to 50 percent

of estimated incremental tax revenues from the business redevelopment area

pay for eligible public projects (New City, 2007). These revenue

reallocations, in addition to the municipalitys PILOT and EAT funding that

it supplements, are intended to help grow the metropolitan area and promote

urban renewal.

KCMO has a strong entrepreneurial base; with organizatio ns such as the

Kaufman Foundation and the Small Business Technology and Development

Center [SBTDC] at the University of Missouri-Kansas City, there are many

resources for independent start-up companies and entrepreneurs from the

nonprofit and private sector. Incentives from the city, however, are still

fairly limited.

Small Business Financing, a revolving loan fund for small businesses


10/17


planning fixed asset purchases of $1 million or less is available through the

Kansas City Economic Development Corporation [EDC], a public/private

organization that promotes development and job growth in KCMO. This

financing is intended to help create and maintain non-retail jobs in the metro.

These loans, which are available up to a maximum of $150,000 and 40

percent of total costs, (New City, 2007) are intended to support small

businesses development and growth.

Robert Long, Development Services Specialist for the EDC, described

how KCMO plans to foster entrepreneurship in the metro.

The EDC has developed a partnership with the SBTDC to address the

needs of small businesses and entrepreneurs, he said, we also work with the

citys relatively new BizCare office to help clients navigate the citys

permitting, licensing and zoning processes (2010).

As Blakely and Leigh (2010) point out, it is difficult to compare the

budget of an entrepreneurial strategy with those of traditional business

recruitment incentive packages, (271) however, investment in local business

resources can cultivate a sustainable environment of local entrepreneurship.

Though the city suggests it is making strides to create an environment

that is supportive of local startup companies in an attempt to not only

facilitate economic development but become less reli ant upon the business

decisions of others locatedhundreds of miles away and with no personal

commitment to [KCMO] (R. Long , 2010), limited measures have been truly


11/17


taken so far.

This process presents a clear inequity in terms of endowments, process,

and outcomes, stemming from the prevalence of TIF-based incentives for

business and economic development has been great throughout the KCMO

metro area due to the availability of program implementation and the

allowance of discretion in approving TIF projects. The use of both TIF and

EAT practices increased over 200 percent between 2000 and 2004 (Kelsay,

2007). Based on maps (see Figure 3) of KCMO TIF district demographics,

[2007], 88 percent of TIF projects have occurred in KCMO Council Districts

one, two, four and six. These districts are the most highly populated, and

maintain the highest level of educated, affluent, non-minority residents. In

contrast, KCMO Council Districts, three and five which are the lowest

income, highest minority districts, hold only 12 percent of TIF projects. This

unequal TIF project distribution is counter-intuitive considering the existence

of [physical] blight as common criteria for project approval, though, as Long

noted, the Missouri TIF statue does not use socio -economic distress factors

to determine physical blight (Long, 2010).

As can be seen by the distribution of incentive-based projects in the

urban core, the more distressed areas are not truly given priority in

redevelopment and renewal efforts. In order to successfully grow the

population and economy of the urban KCMO area, part icularly when

attempting to reverse the damage done by the recent recession, the most


12/17


severely distressed areas must be stabilized and made to prosper; if incentive

use will increase once again in ord er to do this, it must be done e quitably.

As Blakely and Leigh (2010) write, increased business investment can

transform many inner cities from places left behind by the new economy into

places leading the way to economic success (266). Investment in the urban

core is vital, otherwise the continued inequalities will only cause further

detriment to the sustainability of the city as a whole. Additionally, a strong

sense of social community, it is clear that development that is to be sustainable and its

effects lasting must encourage social community development as well. Though civic

engagement has been in severe decline over the last two decades, rates of participation

increase with urban revitalization movements, improving citizen involvement in the

community (Putnam, 2000). Likewise, as Thad Williamson of the Jepson School of

Leadership Studies, University of Richmond suggested, a place that looks and feels

like a coherent community should help produce citizens who are better able to identify

with where they live and are more engaged in civic and political life (235).


13/17


Figure 1


14/17


Figure 2

Figure 3


15/17


Figure 4


16/17


References

Anderson, Geoff. (1998). "Why Smart Growth: A Primer." Smart Growth Network,International City/County Management Association. Print.

Blakely, Edward J., and Nancey Green Leigh. (2010). Planning LocalEconomic Development. 4th. Los Angeles: Sage. Print.

City Area Development Council. Tax and incentive profile. Retrievedfromhttp://www.smartkc.com/SiteLocation/TaxesIncentives/EnterpriseZones.php.

City of Kansas City, Missouri, Economic Development Corporation, &Planned Industrial Expansion Authority. Economic Development

and Incentive Policy Implementation Progress Update. (2008, Apr23).

Freilich , R.H. (1997). To sprawl or not to sprawl: a national perspective for KansasCity. Informally published manuscript, School of Law, University of Missouri-Kansas City, Kansas City, Missouri. Retrieved fromwww.umkc.edu/whmckc/publications/KIMBALL/.../Freilich-04-21-1997.pdf

Hyra, Derek S. (2012, July). Conceptualizing the new urban renewal: Comparing thepast to the present. Urban Affairs vol. 48 no. 4 498-527

Jung-Ho Yu, Hae-Rim Kwon. (2011, October). Critical success factors for urbanregeneration projects in Korea, International Journal of Project Management,Volume 29, Issue 7, Pages 889-899. Retrieved fromhttp://www.sciencedirect.com/science/article/pii/S0263786310001304

Kansas City, Missouri. Greater Downtown Area Plan. (2010).

Kelsay, Michael P. (2007, 17 Jan). Uneven patchwork: tax increment financing in KansasCity.Reclaim Democracy, Kansas City Chapter.

Lai, Clement. (2012). The racial triangulation of space: The case of urban renewal in SanFrancisco's Fillmore District. Annals of the Association of AmericanGeographers. Volume 102, Issue 1, Pages 151-170. Retrieved fromhttp://www.tandfonline.com/doi/abs/10.1080/00045608.2011.583572#tabModule

Long, Robert. Kansas City Economic Development Corporation. (2010,May 2).
http://www.smartkc.com/SiteLocation/TaxesIncentives/EnterpriseZones.phphttp://www.smartkc.com/SiteLocation/TaxesIncentives/EnterpriseZones.phphttp://www.umkc.edu/whmckc/publications/KIMBALL/.../Freilich-04-21-1997.pdfhttp://uar.sagepub.com/search?author1=Derek+S.+Hyra&sortspec=date&submit=Submithttp://uar.sagepub.com/search?author1=Derek+S.+Hyra&sortspec=date&submit=Submithttp://www.sciencedirect.com/science/article/pii/S0263786310001304http://www.tandfonline.com/action/doSearch?action=runSearch&type=advanced&searchType=journal&result=true&prevSearch=%2Bauthorsfield%3A(Lai%2C+Clement)http://www.tandfonline.com/loi/raag20?open=102#vol_102http://www.tandfonline.com/toc/raag20/102/1http://www.tandfonline.com/doi/abs/10.1080/00045608.2011.583572#tabModulehttp://www.tandfonline.com/doi/abs/10.1080/00045608.2011.583572#tabModulehttp://www.tandfonline.com/toc/raag20/102/1http://www.tandfonline.com/loi/raag20?open=102#vol_102http://www.tandfonline.com/action/doSearch?action=runSearch&type=advanced&searchType=journal&result=true&prevSearch=%2Bauthorsfield%3A(Lai%2C+Clement)http://www.sciencedirect.com/science/article/pii/S0263786310001304http://uar.sagepub.com/search?author1=Derek+S.+Hyra&sortspec=date&submit=Submithttp://www.umkc.edu/whmckc/publications/KIMBALL/.../Freilich-04-21-1997.pdfhttp://www.smartkc.com/SiteLocation/TaxesIncentives/EnterpriseZones.phphttp://www.smartkc.com/SiteLocation/TaxesIncentives/EnterpriseZones.php


17/17


National Unemployment Update. National Conference of StateLegislatures. (2013, May 3). Retrieved from http://www.ncsl.org/issues-research/labor/national-employment-monthly-update.aspx.

New City Economic Development Policy, Econo mic Development

Corporation Response. (2007, June 28). Economic DevelopmentCorporation.

Office of Administration, Division of Budget and Planning. Summary Information.Retrieved from http://archive.oa.mo.gov/bp/pdffiles/2013presspacket.pdf

Putnam, Robert D. (2000). Bowling Alone. New York: Simon & Schuster. Print.

Squires, Graham & Lord, Alexander Duncan. (2012, October). The transfer of TaxIncrement Financing (TIF) as an urban policy for spatially targeted economicdevelopment, Land Use Policy, Volume 29, Issue 4, Pages 817-826. Retrieved

from http://www.sciencedirect.com/science/article/pii/S0264837711001530

The Office of Management and Budget. (2012, Jan 17) . Submitted activitybudget, fiscal ye ar 2012-2013. Kansas City, Missouri.

The Office of Management and Budget. (2010, Feb 11) . Submitted activitybudget, fiscal ye ar 2010-2011. Kansas City, Missouri . 85-90.

The Office of Management and Budget. (2009, May 1). Adopted activitybudget, fiscal ye ar 2009-2010. Kansas City, Missouri . 104 -109.

U.S. Bureau of Labor Statistics. (2013, Apr 21). Retrieved fromhttps://www.google.com/publicdata/explore?ds=z1ebjpgk2654c1_&met_y=unemployment_rate&idim=city:PA290050&fdim_y=seasonality:U&dl=en&hl=en&q=kansas%20city%20mo%20unemployment

Wei Ji, Jia Ma, Rima Wahab Twibell, Karen Underhill. (2006, November).Characterizing urban sprawl using multi-stage remote sensing images andlandscape metrics, Computers, Environment and Urban Systems, Volume 30,Issue 6, Pages 861-879. Retrieved fromhttp://www.sciencedirect.com/science/article/pii/S0198971505000633

Williamson, T. (2002). Sprawl, Politics, and Participation: A PreliminaryAnalysis. National Civic Review, 91(3), 235. Retrieved from Academic

Search Premier database. Watson Library.
http://www.ncsl.org/issues-research/labor/national-employment-monthly-update.aspxhttp://www.ncsl.org/issues-research/labor/national-employment-monthly-update.aspxhttp://archive.oa.mo.gov/bp/pdffiles/2013presspacket.pdfhttps://www.google.com/publicdata/explore?ds=z1ebjpgk2654c1_&met_y=unemployment_rate&idim=city:PA290050&fdim_y=seasonality:U&dl=en&hl=en&q=kansas%20city%20mo%20unemploymenthttps://www.google.com/publicdata/explore?ds=z1ebjpgk2654c1_&met_y=unemployment_rate&idim=city:PA290050&fdim_y=seasonality:U&dl=en&hl=en&q=kansas%20city%20mo%20unemploymenthttps://www.google.com/publicdata/explore?ds=z1ebjpgk2654c1_&met_y=unemployment_rate&idim=city:PA290050&fdim_y=seasonality:U&dl=en&hl=en&q=kansas%20city%20mo%20unemploymenthttp://www.sciencedirect.com/science/article/pii/S0198971505000633http://www.sciencedirect.com/science/article/pii/S0198971505000633https://www.google.com/publicdata/explore?ds=z1ebjpgk2654c1_&met_y=unemployment_rate&idim=city:PA290050&fdim_y=seasonality:U&dl=en&hl=en&q=kansas%20city%20mo%20unemploymenthttps://www.google.com/publicdata/explore?ds=z1ebjpgk2654c1_&met_y=unemployment_rate&idim=city:PA290050&fdim_y=seasonality:U&dl=en&hl=en&q=kansas%20city%20mo%20unemploymenthttps://www.google.com/publicdata/explore?ds=z1ebjpgk2654c1_&met_y=unemployment_rate&idim=city:PA290050&fdim_y=seasonality:U&dl=en&hl=en&q=kansas%20city%20mo%20unemploymenthttp://archive.oa.mo.gov/bp/pdffiles/2013presspacket.pdfhttp://www.ncsl.org/issues-research/labor/national-employment-monthly-update.aspxhttp://www.ncsl.org/issues-research/labor/national-employment-monthly-update.aspx

TIF in KCMO

Documents

Transcript of TIF in KCMO