Tax Incentives

THE IMPACT OF TAX INCENTIVES ON KANSAS CITY PUBLIC SCHOOLS

AND THE NEED FOR INCENTIVE REFORM

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In summer 2022, City Hall put forward a proposal to change how it grants tax breaks to developers — one that could lead to less public input and no independent financial analysis. Kansas City Public Schools has long believed that KCPS should be treated equitably with other school districts and that it is appropriate for all districts to have a say over their potential revenues. As these changes primarily impact KCPS, and dilutes input on projects, it’s critical KCPS buy-in to the final policy. Otherwise, it raises ongoing equity concerns. (Here’s more on why incentives are an equity issue.) As of January 2023, the proposal remained under review.

Meanwhile, non-City agencies — the Port Authority and the Kansas City Area Transit Authority — continue to give away potential public funds without a third-party financial analysis. KCPS is concerned this practice leads to some projects getting more public subsidy than is necessary.

Each dollar that goes to an over-incentivized project is a dollar that isn’t going to support important public services, including educating Kansas City’s kids.

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By the Numbers - Incentives in Kansas City

Kansas City Public Schools has been ranked 17 among 5,600 school districts in the level of abated property tax revenue.

In 2022, $45M was abated from Kansas City Public Schools & charter schools.

From 2018 to 2022, the amount abated from Kansas City Public Schools and charter schools increased 60%.

$45M of abatements is equal to 26% of the current local property tax revenues that KCPS/charters collect. This is significantly higher than best practice recommends (no more than 10%).

Tax incentives can be a valuable tool for cities and states to attract and grow businesses and to promote redevelopment in distressed neighborhoods. However, without proper controls and oversights, these tax breaks can be harmful to communities due to the loss of potential public revenues.

In 2022 alone, more than $197 million of tax revenues were abated or redirected within Kansas City, MO.

While some of these tax revenues would not have been generated if the incentives were not granted, Kansas City, MO, offers longer terms of tax incentives (up to 25 years) and at higher levels (up to 75-100%) than most peer communities. This raises concerns that the City is over-incentivizing many projects, thereby diverting critical resources away from public services.

For example, if KCMO granted a business 25 years of property tax breaks to construct a new building, but it really only needed 15 years of abatement to make the project financially feasible, then schools, libraries and other public entities missed out on 10 years of tax revenues that could have helped fund school renovations, teacher salaries, mental health services, etc. Now think about this issue multiplied by hundreds of projects over the years.

KCPS, which has nearly $300 million of deferred building maintenance, cannot afford to over-incentivize private development.

KCPS does not oppose the use of incentives — in 2022 we supported, or did not oppose, 50% of the projects within our boundaries. We know that when incentives are used appropriately, everyone in the City benefits. But we want to make sure that school districts and other taxing entities are treated equitably and are partners in all decision-making impacting our tax revenues.

How are incentive decisions made in Kansas City?

Proposed changes to incentive policy are currently under review. See more below.
Tax incentives are granted through eight different programs, making it difficult to monitor all the incentive activities. This raising concerns about transparency and accountability.
The City Council has the final say over what incentives will be granted for some programs (TIF, EEZ, 353, Chapter 100).
For three of the others (PIEA, PortKC, LCRA), mayoral-appointed, non-elected boards grant the incentives.
- In many cases, these mayoral-appointed boards have granted up to 25 years of tax abatement even when the affected school district and other taxing entities (libraries, mental health fund, counties, etc.) voice concerns or oppose the requested incentive level.
- The Port Authority does not current use an independent third-party financial analysis and does all analysis in-house.
The newest incentive-granting agency, the Kansas City Area Transit Authority, includes only several mayoral-appointed representatives while the rest of the board is made up of people from across the region, including the state of Kansas.
- The KCATA does not have a process to engage with the taxing jurisdictions nor does it use a third-party financial analysis to determine project need.
KCPS and other school districts have ZERO authority over decisions to grant property tax abatements.

Proposed Incentive Policy Changes - Ordinance 220701

Ordinance 220701 would create a standardized and “streamlined” process for Kansas City to issue tax breaks to developers. In this process, developments that meet certain criteria would be eligible for approval for property tax abatement without significant public review or financial analysis. To see where the city would implement this process and at what levels, click here.

It would set the baseline incentive levels at a higher rate while removing the requirement for third-party financial analysis. Notably, Kansas City Public Schools would be the primarily impacted school district. KCPS has drafted a response to the proposed changes. To see that response, click here.

Previous Incentive Ordinances

200497, 160383

200497, 160383

Ordinance 200497

Below summarizing the key differences between the current version and the existing Lucas ordinance (160383).

While elements of it are a move in the right direction, including a reduction in abatement years, KCPS has recommended additional changes that are needed before we could support it. Here is what KCPS and CSDGKC would need added to support the Ordinance at the proposed level (70% for 10 years + 30% for five years.)

This includes:

Recognition that not all projects merit incentives.
Establishing four factors to determine appropriate incentive levels.
- Updated AdvanceKC Scorecard (tie incentive level to public benefit)
- School District/Taxing Jurisdiction voice should be factored into final decisions on incentive levels.
- “But-For” financial review to ensure we aren’t over-incentivizing.
- Local incentives should not total more than 20 percent of project costs
Effective date of the Ordinance is not delayed or tied to AdvanceKC Scorecard update.
Establish accountability measures/annual monitoring.

School Districts have given up a lot in the seven months of negotiations with Business and Civic leaders, including what we believe would be true equity — giving School Districts control over how and when our dollars are contributed for incentivizing projects.

WHAT Have KCPS AND OTHER LOCAL SCHOOL DISTRICTS RECOMMENDED?

In the summer 2020, the Cooperating School Districts of Greater Kansas City (CSDGKC), including KCPS, identified several key incentive reforms that are needed to bring accountability, transparency and greater equity to economic development in Kansas City, Missouri.

These reform recommendations include:

School districts and non-city taxing entities should have a meaningful voice over their use of their revenues for projects seeking incentives. Opt-in/opt-out ability is preferred.
Ensure consistent and equitable process for all school districts (Process counts!)
Reforms should apply to all incentive programs
Implement targeted efforts to address barriers to eastside development

In August of 2019, Kansas City Public Schools submitted a letter with incentive reform recommendations to the current City Council. To see that letter, please click here.

Do other cities/states limit the impact of incentives on school districts and/or provide them the ability to opt-in or opt-out of incentive deals?

Yes, some examples

Yes, some examples

Kansas: School Districts must sign on to Tax Increment Financing (TIF) plans
Ohio: School District approval is required for TIFs over 10 years @ 75%
Louisiana: School Districts and other Taxing Jurisdictions must opt-in for incentives to be granted through their largest incentive program
California: School district revenues are not impacted by Enhanced Infrastructure Financing Districts (cities must gain approvals from other Taxing Jurisdictions if they want to abate their tax revenues)
Minnesota: two of three Taxing Jurisdictions (city, county, school district) must approve plans that last longer than 15 years
Multiple other cities grant shorter abatement terms: Indianapolis, Chicago, Tulsa, San Antonio, Philadelphia, Omaha, Des Moines

Why is incentive use an equity issue?

IMPACT: Many of the school districts serving mostly students of color, and a higher number of low-income students, see their dollars abated at a higher level per student than districts serving higher-income, mostly white students. As of 2022, nearly $1,700 per pupil is being redirected from KCPS/charter schools and into development projects. This is substantially higher than some neighboring districts — for Northland schools it’s between $500-$900 per pupil.
PROCESS: KCPS and other taxing jurisdictions south of the river are not consulted in a meaningful way in evaluating incentive requests. Conversely, Northland school districts are often brought to the table during negotiations. This often results in those districts being able to secure lower incentive levels and/or higher payments for schools.
LOCATION: Within Kansas City Public School boundaries, the majority of projects receiving incentives have been in non-distressed areas. In addition, 91% of the abated property values within KCPS boundaries are west of Troost.

To read more about KCPS’ concerns regarding equity and development, please see former Superintendent Dr. Mark Bedell’s statement about a project seeking continued property tax abatement.