Straight Talk on Kansas City’s Incentive Reform

In 2014, Mayor Sly James said that “Now is the time to start a conversation about the appropriate level of incentives we need to grant, especially considering the impact of declining property values felt by all taxing jurisdictions during the recent economic downturn.” At the time, he suggested that a 50% reduction in subsidies would be a “new normal”.

But very recently, when the City Council of Kansas City passed an incentive reform measure that lowers the level of subsidies that developers receive by 25%, the Mayor’s reaction was less than enthusiastic. He said that the reform could “once again put up a sign that says Kansas City is closed for business.” It’s disheartening that our leadership would reverse course on such an important issue, and it’s unfortunate that the Mayor would respond to sound policy changes with such overblown and misguided worries.

Councilman Quinton Lucas and others deserve credit for their efforts in passing reasonable and fair development incentive reform. Even the modest 25% reduction in subsidies can be waived if a project is determined to be “high-impact” or falls within an economically depressed area. The measure passed by the City Council is a first step in the right direction. The Mayor’s complaints—which defend the status-quo, crony-capitalist development scheme Kansas City has pushed for decades—seem to be a step backward.

The reform places a modest cap on development subsidies. Do developers truly need bigger tax breaks than the new cap allows for their projects to move forward? If so, then the real problem isn’t that the city is closed for business, but rather that its tax and regulatory climate make huge subsidies necessary. In any case, the bill contains provisions allowing high-impact projects to receive the pre-reform level of assistance, so any game-changing projects would be unaffected. In fact, some projects have already avoided the 75% cap.

In addition, proponents of development incentives like tax-increment financing (TIF) and tax abatements have been unable to provide solid evidence that such subsidies work; that is, they don’t create jobs or enliven our economy. Shiny new office towers and a handful of construction jobs are nice, but they won’t spark a new era of growth in one of Missouri’s slowest-growing cities. A comprehensive report on incentives in St. Louis, much like the one Kansas City officials intend to conduct, concluded that “[w]hile there may be disagreement about the value of some packages, it is clear that the City gains no net benefit from an extremely costly program with no real economic development impact.”

In short, we’re fooling ourselves if we think Kansas City’s economic engine is fueled solely or even substantially by incentives.

Over the past fifteen years, Kansas City’s tax base has been hollowed out by incentives like TIF and abatements. The schools, libraries, mental health funds, and local governments affected by Kansas City’s incentive policies have been shorted for the benefit of developers.

Incentive reforms like those championed by Councilman Lucas are welcome steps toward curbing incentive abuse, and toward restoring funding for essential government services—and with them, our faith in city government. Perhaps we wouldn’t need such reforms if local leaders would just say “No” to excessive taxpayer giveaways in the first place.