THE IMPACT OF TAX INCENTIVES ON KANSAS CITY PUBLIC SCHOOLS
AND THE NEED FOR INCENTIVE REFORM
Conversations around incentive reform were resurrected this summer in the wake of Dr. Bedell calling for more equity when it comes to development practices in Kansas City.
While recent Incentive Reform efforts represent an improvement to previous incentive policy, our team still believes school districts and other taxing jurisdictions (the public library, the mental health fund, and the County) should have a more meaningful say over how our dollars are diverted. More information on that, below.
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Kansas City Public Schools is ranked 17 among 5,600 school districts in the level of abated property tax revenue
Abated from Kansas City Public Schools & charter schools in 2021
From 2017 to 2020, the amount abated from Kansas City Public Schools and charter schools increased 60%
$37M of abatements is equal to 23% of the current local property tax revenues that KCPS/charters collect ($160 Million). 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, they can also be harmful to communities due to the loss of potential public revenues.
In 2020 alone, more than $188 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 schools, libraries, infrastructure and other public services.
For example, if KCMO granted a business 25 years of property tax abatement to construct a new building, but it really only needed 15 years of abatement in order to make the project financially feasible, this means that 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 more than $400 million of deferred maintenance for its school sites, cannot afford to over-incentive private development. Therefore, KCPS is partnering with other local school districts to advocate for meaningful incentive reform (see below for our reform recommendations).
- Tax incentives are granted through seven different programs, making it difficult to monitor all the incentive activities, 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, Ch100).
- For 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
- KCPS and other school districts have ZERO authority over decisions to grant property tax abatements
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.
KCPS does not oppose the use of incentives. When incentives are used appropriately, everyone in the City benefits. But we do want to make sure that school districts and other taxing entities are partners in all decision-making that impacts our tax revenues.
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.)
- 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.
Yes, some examples:
- Kansas: School Districts have to 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
Net Tax Abatement per Student for School Districts in KCMO in FY 18-19
- IMPACT: Urban school districts see their dollars abated at a higher level per student than suburban districts do.
- LOCATION: Within Kansas City Public School boundaries, the majority of projects receiving incentives have been in non-distressed areas. In addition, 92 percent of the abated property values within KCPS boundaries are West of Troost.
- 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 Northland Districts being able to secure lower incentive levels and/or higher payments for schools
- Park Hill School District’s payments from developers (e.g. PILOTs) were nearly 40 percent of the abatement level. North Kansas City School District’s payments from developers were more than 10 percent of the abatement level.
- For KCPS, it’s only 4.5 percent. For Hickman Mills, it’s only 2.2 percent.
To read more about KCPS’ concerns regarding equity and development, please see Superintendent Dr. Mark Bedell’s statement about a project seeking continued property tax abatement.
Net Tax Abatements By District Per Student and District Demographics (FY 18-19)
Incentives in the News
Kansas City firm wants millions in tax breaks to move a mile into new, $83M offices (KC Star, December 2021)
Just say no: Kansas City Council must reject incentives for downtown luxury hotel (KC Star, October 2021)
Would a luxury hotel increase Kansas City population? That’s the latest developer pitch (KC Star, September 2021)
Tax breaks for developers cost every KCPS student $1,925 in 2019 (The Beacon, April 2021)
‘Years overdue’: Kansas City school leader again urges council to curb tax incentives (KC Star, February 2021)
Kansas City Council votes unanimously to trim developer tax incentives (KC Star, February 2021)
Stop the handouts. It's time to reform how Kansas City gives incentives to builders (KC Star, February 2021)
After months of negotiations, Kansas City again delays vote on tax incentive reform (KC Star, February 2021)
KC developers have too many paths to incentive handouts. Let Mayor Lucas streamline (KC Star, February 2021)
KC company threatened to leave Missouri without more incentives. Now it’s staying put (KC Star, December 2020)
‘I say let them leave’: Kansas City rejects incentive deal labeled ‘systemically racist’ (Kansas City Star, June 2020)
Developers still pushing luxury hotel even as KC’s tourism market craters (Kansas City Star, June 2020)
Neighbors, schools say Cerner deal hasn’t met promise to revitalize south Kansas City (Kansas City Star, Nov. 2019)
KC invested $175 million in development subsidies in 2018. The return is a mixed bag. (Kansas City Star, Aug. 2019)
The new math in school finance (Good Jobs First, Dec. 2018)