Economic development and tax abatements

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pash
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Economic development and tax abatements

Post by pash » Sun Apr 24, 2016 9:53 pm

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Last edited by pash on Tue Feb 14, 2017 4:59 pm, edited 1 time in total.

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Re: Economic development and tax abatements

Post by DaveKCMO » Mon Apr 25, 2016 8:13 am

land use and low-density sprawl has contributed greatly to this problem. developers cannot lure financing (banks) or tenants (amenities, parking) without incentives. so while we all pine about the 'blight' designation (which is very real for some projects, not so much for others) it's really our own fault for creating this economic wasteland. so, in addition to the initial subsidy for infrastructure, greenfield development also gets incentives! when that started happening, all bets were off.

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Re: Economic development and tax abatements

Post by aknowledgeableperson » Mon Apr 25, 2016 12:15 pm

It would be interesting to find a timeline of how economic incentives came into being and they have been redefined and used over time.
At first "blight" was understood as being, should I say, ugly. As time went on under utilized came to be part of the definition, like a new 10 story building replacing a very good, functional 2 story building. Then, of course, vacant land, no matter where, was under utilized since it was not being used in the most productive way.
So, DaveKCMO, I think I might disagree on what came first. Greenfield development took place after "blight" was redefined to suit urban uses.

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Re: Economic development and tax abatements

Post by FangKC » Tue Apr 26, 2016 3:34 am

The initial purpose of incentives was practical and needed. But over time, lawyers, legislators, and developers appeared to change the meaning of what "blight" is to suit their purposes.

For example, it would make economic sense to use incentives to revamp the former Leeds GM plant so that a new manufacturing facility could have gone in there. Say the Harley-Davidson plant and Smith Electric--instead of those facilities being built in the Northland. If not that specific building, then a parcel near it with a new facility. It would have brought decent-paying manufacturing jobs back to an area that was already zoned for it, and in a building that was constructed to be a factory. It would have created new jobs near an area with very high unemployment, and stabilized demand for housing nearby. It would have placed that manufacturing near already-established rail corridors, and the interstate highways.

That would have been a very sensible use of incentives.

If the original definition of blight had remained, other examples would have been giving incentives to redevelop the former Montgomery Ward warehouse on Belmont and St. John, and the former Hardesty Federal Complex on Independence Avenue into some use that also provided new jobs at those locations.

The Montgomery Ward warehouse building has more square footage than One Kansas City Place, our tallest office building.

Blight certainly exists near these buildings and redeveloping such structures was the original intent of the incentives. The neighborhoods around these buildings have suffered a severe, documented economic downturn, and many former jobs have been lost. Subsequently, the housing around them have been devalued and there are few jobs within close reach of residents. The areas around all the aforementioned have been depopulated.

These are examples of what incentives were originally created to deal with.

Downtown is a different sort of animal though. It could be easily argued that most of downtown Kansas City did become blighted both physically and economically. The numbers of jobs located downtown has declined significantly over time. Many of the downtown buildings were in poor shape, and had lost any real chance of being marketed for a new use within a reasonable amount of time. That is an essential measure in this argument. How long did buildings sit empty?

Demand for real estate downtown had sunk to such a level that the rents that could be demanded were too low to even pay for building renovation or even proper maintenance--without some form of incentive.

In a healthy real estate market, demand is high enough, and rents are suitable, that the property owner can get financing to renovate on their own and not require incentives. Office and retail spaces turn over quickly in a relatively short period of time. That was not happening in downtown Kansas City.

It has gotten to the point that any financial institution will not even give a developer a loan until that party has secured some form of incentive.

Some of it was physical "psychic" blight. Not so much run-down buildings, but the lack of them. Parking took up a lot of physical downtown. People under-estimate the visual toll of surface parking lots to maintaining a dynamic and healthy real estate environment. The lack of cohesiveness created a problem. The dead blocks created a problem. Vacant lots that showed the unsightly back of other buildings also contributed. Human beings don't enjoy living and working in an environment that sometimes appears like the leftover effect of the bombing of Dresden. Humans tend to like intact city blocks. They don't like to walk past entire vacant blocks to get from one place to another. They don't like seeing the ugly backsides of buildings that are exposed when another building has been demolished.

So in this case, an entire block of surface parking could constitute a blighted neighborhood.

I think this is why we lost several businesses to the Country Club Plaza. They were moving to a move cohesive and dynamic work environment.

But over time, developers decided they didn't want to work in truly blighted neighborhoods, so they got legislators and lawyers to figure out how to use the incentives in the suburbs or greenfield development.
Last edited by FangKC on Tue Apr 26, 2016 5:29 pm, edited 1 time in total.

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Re: Economic development and tax abatements

Post by DaveKCMO » Tue Apr 26, 2016 6:39 am

FangKC wrote:It has gotten to the point that any financial institution will not even give a developer a loan until that party has secured some form of incentive.
this.

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Re: Economic development and tax abatements

Post by pash » Tue Apr 26, 2016 12:27 pm

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Last edited by pash on Tue Feb 14, 2017 4:57 pm, edited 1 time in total.

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Re: Economic development and tax abatements

Post by aknowledgeableperson » Tue Apr 26, 2016 12:44 pm

"But over time, developers decided they didn't want to work in truly blighted neighborhoods, so they got legislators and lawyers to figure out how to use the incentives in the suburbs or greenfield development."

FangKC, I agree with most of your post but the above statement I have a hard time agreeing with. Developers will work where they can make money. And of course where they can get loans. And cities were also looking for ways to make it attractive for developers.
In comparing urban areas one can see the items that make them like one another but each area has items that make them unique. For downtown KCMO it went downhill much like any other downtown area in the country. But what hurt or delayed the comeback for downtown KC were many things. Of course there will be some disagreement about the impact and importance of items but here are some I can think of:
The Durwood plan that tied up a large area for many years.
The development of Crown Center. Yes, it is now considered part of downtown but back then it's draw was it was close to but was not downtown. Downtown office buildings were suppose to be confined to inside the loop.
Changing federal tax laws that changed depreciation rates, especially hurtful on spec buildings.
College Blvd and Executive Hills. One developer controlling many buildings in one location. A tenant could move from one building to another with ease or a developer could move tenants around to accommodate space needs of a new or expanding tenant. Just think, if one management company controlled 8 to 10 buildings downtown and had the flexibility of Executive Hills.
The collapse of the Savings and Loans which dried up financing for Executive Hills development downtown.
The development of The Plaza has an option for offices. Before and through the 70's and into the 80's the only high rises on The Plaza were residences.
The high inflation rates of the 70's.
Of course, urban renewal programs.
And many others, too many to mention.
With regards to economic incentives the initial office building development in JOCO did not use them. But what was used infrastructure development. Believe the Sprint complex was the first use of direct incentives. In Kansas City the city government itself, not just developers, was looking at ways to compete to what was happening in JOCO. It tried along I-29 to the airport, had some success but not like JOCO. Before tax abatement economic development tools were limited to government purchase of equipment and leasing to a company, a way to avoid sales taxes, and sell/leaseback, selling the property to the city for cash needs and then leasing back the property from the city. Crown Center if it wasn't the first was one of the first to use property tax abatement in Kansas City. What followed were TIF and Super TIF. The use of the "blight" definition didn't initially include "highest and best usage" (a justification for greenfield development), a term that had been around for a long time but what was considered blight was expanded and redefined. Of course we now have CID's and other similar ways to capture taxes collected.

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Re: Economic development and tax abatements

Post by aknowledgeableperson » Tue Apr 26, 2016 12:49 pm

pash wrote:
DaveKCMO wrote:
FangKC wrote:It has gotten to the point that any financial institution will not even give a developer a loan until that party has secured some form of incentive.
this.
You've said this, Fang had said this, and the article I posted said this. But I'm not sure I understand what everybody is really saying. ...

Is this phenomenon anything more than lenders demanding that developers maximize their return by taking advantage of all of the subsidies available to them? If so, far from being evidence that subsidies are necessary, it merely demonstrates how toxic local development policy has been.

Is there a reason local banks make financing contingent on receiving an incentives package, other than that they quite sensibly want to ensure their borrowers are raking in all the free money they can get?
FWIW, I see it as a way for a bank or other lending institution requiring these subsidies to minimize the risk involved in a project. Both to minimize the loan amount and improve the chances of loan payback.

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Re: Economic development and tax abatements

Post by loftguy » Tue Apr 26, 2016 5:00 pm

Just to insert a thought here, I'm of the opinion that abatement in our downtown is smart business.

It seems to me that a lot of good is coming to our city.
Projects that were completed ten, fifteen, twenty-five and more years ago are now contributing millions every year in taxes and renewed life in this city as they roll off of abatement.
More every year.

We're not nearly done, either. So damn much to do and it is flat out expensive and necessary.





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Re: Economic development and tax abatements

Post by flyingember » Thu Apr 28, 2016 9:31 am

Think about how the city is planning things. They're putting in water lines with a 100 year lifespan. Roads have a 40 year life plus some patching.

So a 15 year abatement is nothing. An abatement is a steal for the city because after it expires the city gains way more in total than it lost.

It's the entities with a need right now that have issues with abatements and make all the noise.

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Re: Economic development and tax abatements

Post by loftguy » Thu Apr 28, 2016 10:10 am

flyingember wrote: It's the entities with a need right now that have issues with abatements and make all the noise.
Need is an interesting concept.

The unspoken question seems to be.....'How much money do the taxing jurisdictions need?'

How much money is enough for libraries, for schools, the county, disabled services?

Just as example, the kcmo school districts budgeted income from property taxes has increased year following year, even though the student count is vastly reduced and many significant property holdings have been eliminated from the expense schedule.

Is there an informed and competent independent entity that reviews and determines appropriateness of tax appropriation and use of funds?

The clamor for more funds needs to be balanced with public insurance of need.

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Re: Economic development and tax abatements

Post by DaveKCMO » Thu Apr 28, 2016 2:51 pm

i hear 'deferred maintenance' mentioned a lot in regards to KCPS. does that include maintenance for buildings that will be shuttered for declining enrollment? would it included the big HQ that will be sold and redeveloped?

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Re: Economic development and tax abatements

Post by FangKC » Thu Aug 23, 2018 3:21 pm

New Study: Downtown Prime Beneficiary of City Incentive Programs
A long-awaited report on how economic development tax incentives are used in Kansas City found the greater downtown area was the primary beneficiary during the 10 years covered by the study.

The study presented last week to the Kansas City Council found the city was getting a good return on its investment with each incentive dollar yielding $3.83 in additional tax revenue.
...
https://cityscenekc.com/new-study-downt ... -programs/

The study:

http://kcmo.gov/citymanagersoffice/wp-c ... Report.pdf

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