Lawyer Mike White remembers the community reaction in 1984 to the first tax-increment financing project in Kansas City.
“It was pretty much a yawner,” he said. “No one knew what TIF was.”
More than 30 years later, TIF may be almost as well-known an acronym as the IRS in Kansas City, and in some quarters, equally unpopular.
While developers say it’s a critical tool to get projects done in many quarters of the city, critics say the incentive tool is granted almost routinely with little or no public policy guidance.
“I don’t think we’re on a sustainable path when it comes to public support for the use of incentives,” said Kansas City Councilman Quinton Lucas. “Right now, it seems arbitrary; we just want new things.”
All for a garage
Wanting new things was the main idea with that first Kansas City TIF project.
In 1984, Miller Nichols, then president of the J.C. Nichols Co., was trying to figure out how to develop an apartment project on the north edge of the Country Club Plaza at Broadway and 46th Terrace.
Nichols had learned of TIF through his association with the Urban Land Institute, a respected national development and planning organization. The incentive tool had started in California in 1952 and had spread to other states including Illinois.
TIF allowed developers willing to invest in blighted property to divert a portion of the new tax revenues — the increment — created by the improved value of the project to help pay for its extraordinary costs.
And as the federal government began backing off directly helping redevelop distressed areas through programs such as the Urban Development Action Grant, which ended in 1989, municipalities were looking for new tools.
The location where Nichols wanted to develop his project had challenges. An old apartment building on the site had to be razed and the new venture required an expensive garage to serve residents.
The costs of demolition and parking would mean rents for the apartments would be unaffordable without a public subsidy. Nichols lobbied successfully to have Missouri’s TIF legislation patterned after an Illinois law.
That first TIF helped pay for the garage for what became the 96-unit Neptune Apartments, now the Cambria. It also launched a love-hate affair with the TIF tool in Kansas City spanning three decades.
TIF far and wide
TIF has touched almost every corner of the city.
While it’s often associated with downtown redevelopment, TIF also has been a major tool in spurring the development of the suburban Northland and the Bannister corridor of south Kansas City as well.
White was the attorney for the Kansas City Tax Increment Financing Commission at the time it approved Nichols’ apartment deal. The TIF commission was established in 1982.
He is now a partner at White Goss, one of the city’s top law firms for development.
Even in the beginning, White said, TIF had critics among the taxing jurisdictions affected, notably the Kansas City Public Schools. The original TIF state legislation called for only the incremental property taxes to be diverted to projects.
With the schools receiving about 60 percent of each property tax dollar and the city only 20 percent, it was a far more important revenue source for education.
To make the city “share the pain” White said, the TIF program was amended within a few years to include diverting part of the additional sales taxes generated as well.
“TIF really took off when we got the legislation changed,” White said.
What constitutes blight?
While White and his firm have been among the more successful advocates for clients seeking development incentives, he understands why TIF and other programs have developed a toxic reputation with many people.
“Because it’s been abused,” he said. “Kansas City does a fairly good job, but if you look around the state, some cities never say no to TIF.”
He points to what he believes has become an overly broad definition of what constitutes a blighted property as a major culprit.
“Some of the blight studies are bogus,” White said “For example, one study said a property was blighted because it had no internal roads. You could say that about Yellowstone Park.”
White also believes what’s referred to as the “but-for test” in evaluating a project for TIF, meaning it would not be economically feasible but for the help of incentives, needs tightening.
“To get the focus back on the but-for test, we need to drill down on deals and see if the developer is bluffing,” he said.
“Did the developer already buy the property? That’s a good indication they’re going to build whether or not they get the incentive.”
Reform in the works
Councilman Lucas has introduced legislation to the Kansas City Council seeking to reform how TIF and other incentives are used in the city. It seeks to create more consistency in how the city uses incentives to build public confidence.
The proposal, which has the support of six other council members, would cap tax abatements and/or tax increments returned to developers at 75 percent as opposed to the current maximum of 100 percent.
The city’s share of the 25 percent not returned to subsidize new projects would go toward helping attract investment to severely distressed areas of the city identified through the Mayor’s Shared Success program.
Lucas said City Hall needs to show the public it’s responding to criticism of TIF and other incentive programs. He said TIF should focus on attracting more good jobs and affordable housing to the city.
Without reforms, he is concerned there will be more petition drives such as the one that recently derailed the plan for a new headquarters for the BNIM architecture firm in downtown Kansas City.
“If we don’t take the opportunity to address the future of incentives and get public buy-in, we’ll see more of an anti-business mood with more of these petitions,” Lucas said. “The public needs to have confidence in how our incentive policy works with broader public policy.”
While Lucas would like to see a future in which tax incentive programs are no longer necessary in Kansas City, he’s realistic.
“In theory yes, in practice no,” he said. “I think incentives will be necessary because of the competitive environment we’re in.”
Kevin Collison is a free-lance contributor to KCUR 89.3. You can reach him on Twitter @kckansascity.