I’ve argued for years that Kansas City’s lavish subsidies distort the market while failing to deliver on economic promises. New reporting from the Kansas City Business Journal suggests the process itself may be just as broken.

Reporter Thomas Friestad reconstructed negotiations among Kansas City Public Schools (KCPS), PortKC, and Gillon Property Group over incentives tied to Country Club Plaza. The emails, obtained through an open-records request, depict a rushed and opaque decision-making process worthy of public distrust.

The original proposal reportedly included roughly $309 million in incentives over 30 years. KCPS officials objected not only to the size of the package, but also to shifting valuation methods that obscured the true public cost. The district also sought protection for voter-approved bond revenues and more time to evaluate major revisions before approval by PortKC.

That timeline is the real story.

The emails show negotiations continuing until the night before a scheduled PortKC meeting. KCPS officials argued they were being asked to evaluate a substantially revised proposal in just two business days. One consultant for the district described the timeline as “concerning even with the highest level of independent analysis.”

This is a recurring problem in Kansas City’s incentive culture. Complex tax arrangements are negotiated behind closed doors and then presented to affected taxing jurisdictions with little time for meaningful scrutiny. The result is confusion over the true public cost and distrust among taxpayers expected to finance these deals.

Kansas City has seen this pattern before. Similar concerns surrounded the Power & Light District and continue to emerge in discussions over a proposed downtown ballpark. Political machinations routinely take precedence over transparency and accountability.

Notably, KCPS did not oppose subsidies outright. District officials simply asked for clear terms, accurate projections, and adequate time to evaluate a deal that could affect school finances for decades. The fact that negotiators appeared unwilling to provide sufficient time to evaluate the deal speaks volumes.

Kansas Citians have grown understandably skeptical of these taxpayer-funded deals. Too many projects promised economic transformation and delivered little beyond long-term public cost. The Country Club Plaza negotiations are, at best, an example of rushed incompetence. At worst, they suggest an effort to push a massive subsidy package through before taxpayers and public schools could fully evaluate it.

The post Country Club Plaza Subsidy Deal Reveals What’s Broken in Kansas City appeared first on Show-Me Institute.

I wrote recently that in the lead up to the public vote, even earnings tax defenders could not defend the earnings tax. Despite urging yes votes, they conceded many, if not all, of my claims that the tax makes for bad policy.

Now we might be seeing this story repeat itself with stadium subsidies. It’s being reported that Kansas City’s package of subsidies for a downtown baseball stadium includes bonds issued by the city—and backed by them. This means that if the stadium fails to generate enough revenue to pay the bonds, city taxpayers will make up the difference. This is exactly the type of deal that requires the city to direct over $10 million each year to cover Power & Light District debts.

The Kansas City Business Journal reports city leaders are aware of that same risk with a downtown ballpark for the Royals. They concede:

. . . estimates for Power & Light District sales and economic activity tax generation proved “spectacularly wrong.” The entertainment hub’s annual bond gaps have required about $10.5 million a year from the city’s general fund and $199 million total to date.

City leaders now say they’re being more careful — even as they plan to support as much as two times the district’s original debt for a stadium at Washington Square Park.

How times have changed. Twenty years ago then-Mayor Kay Barnes told a columnist for The Kansas City Star, regarding her deal on the Power & Light District:

“We’re going to look like geniuses” in five or 10 years, Barnes said. The city is paying low interest rates for projects that are capable of paying off the debt, she added.

Barnes could not have been more wrong. (Though she was named the 2018 Kansas Citian of the Year by the Chamber of Commerce, which says more about the chamber than it does Barnes.)

Public subsidies for private interests such as a baseball stadium is still bad policy. They don’t benefit taxpayers. But it’s some comfort that at least Kansas City leaders are capable of learning from their mistakes—right?

Right?

The post Another Policy Concession from Kansas City—Kind of appeared first on Show-Me Institute.

In 2014, Cerner received the largest economic development project subsidy in the state’s history. The company pledged to add 16,000 *new* jobs in Kansas City in exchange for substantial taxpayer subsidies to construct its new headquarters. However, by 2019, Cerner had only managed to expand its workforce to 14,000 total, and not all the jobs were in Kansas City proper. Cerner fell short of its promise. Now, under Oracle’s ownership, the local employee headcount has been nearly halved to a mere 6,400. This is far from the 26,000 jobs—the 16,000 new plus the 10,000 Cerner had at the time—that were supposed to be in place by this year.

The issue runs deeper than just the numbers; it’s more about the impact on the local economy and the trust that was placed in these corporations. The Kansas City region was promised significant economic growth and job creation. Taxpayers delivered, but Cerner, and now Oracle, have failed to keep their promises.

Just like the Power & Light District, and the proposed downtown stadium, the Cerner project reveals the misplaced faith in economic development incentives. Time and again, we see that these incentives often fail to deliver. Instead, they serve as generous gifts to corporations, paid for by taxpayers, with little to no accountability.

The Cerner deal has been an abject failure. All city and state leaders who cheered this project should be held to account.

Current and future Kansas City leaders must learn from these missteps. They must scrutinize these large-scale economic development projects more rigorously and demand transparency and accountability. Tax incentives and subsidies, if issued at all, should include meaningful and measurable outcomes, strict legal standards for what constitutes a new job, and oversight from a clearly defined agency that will monitor the subsidy recipient over time. Holding corporations accountable for their promises will not only protect taxpayers; it may reduce the demand for subsidies in the first place.

The April 2 stadium outcome showed that voters demand more details and accountability from those who seek public funds. Leaders must provide them.

The post Kansas City Must Learn Lessons from Cerner Failure appeared first on Show-Me Institute.

I believe in my gut that the timing is right for the Royals to become residents of the Crossroads and neighbors to Power & Light, 18th & Vine and Hospital Hill, helping to further connect the cultural center for our great city.

What’s important to note is that Sherman plans to include an entertainment district in the construction. Mike Hendricks of The Kansas City Star adds: “The imagined $1 billion-plus ballpark would be bordered on the east by office, retail and residential development, which would be a potential source of revenue for the team.”

No one should doubt that this publicly funded stadium with all the additional accouterments would be good for John Sherman. But will it be good for his neighbors?

Remember that all sorts of research and many economists make it clear that sports stadiums “are really poor public investments.” Part of the reason that the economic impact studies released by proponents of such efforts are flawed is that they count only the new spending at the new location—not the reduction of spending elsewhere. In a 2017 report, the Federal Reserve Bank of St. Louis concluded: “economists generally oppose such subsidies. They often stress that estimations of the economic impact of sports stadiums are exaggerated because they fail to recognize opportunity costs.”

Consider the Power & Light District. According to the Regulated Industries Division of Kansas City, Missouri, the number of liquor licenses (a gauge of how many restaurants and bars are operating) and employee health cards (a proxy for the number of people employed at bars and in food service) remained flat citywide for a decade after subsidies were awarded.

The Power & Light District didn’t create new jobs or businesses. It merely moved them from elsewhere in the city to downtown. And it moved them from places where the city, county, and school districts were collecting property, sales, and income tax revenue to a place where those taxes are diverted back to the developer to offset the cost of construction.

Even if you consider the Power & Light District on its own merits, it has failed to be successful. Thomas Friestad reported last year in the Kansas City Business Journal that Kansas City has had to meet multimillion-dollar debt-service obligations because the district does not generate enough revenue to pay its own debts. Those payments have ranged from $6 million to $17 million, amounting to over $160 million since 2006.

Just as with the Power & Light District, John Sherman’s entertainment district will not create new economic activity. It will only move it from elsewhere in the city. On game day, fans who now stop at grocery and liquor stores on their way to tailgate may instead go to bars at the stadium. That is not new activity—just different activity. Fans who might have gone to Power & Light, or to other places in the Crossroads District, may now go to the bars that Sherman owns. That is not new spending—just different spending. This is exactly what happened when Ballpark Village opened in St. Louis; it cannibalized other existing businesses.

The economic impact studies that will inevitably be produced to tout this new entertainment district will likely only count the new spending in the new location—not the loss of spending elsewhere.

To the degree that the Royals’ new entertainment district leeches spending away from Power & Light—which seems like it may be the intent of Sherman’s gambit—Kansas City taxpayers will face even higher annual debt obligations than now.

A publicly funded downtown stadium and entertainment district will be good for John Sherman. It won’t be good for anyone else.

The post John Sherman’s Proposed Entertainment District Is Bad for Everyone Else appeared first on Show-Me Institute.

That said, I should make and reiterate a few points about the Royals’ stadium issue, now that it’s back in the news.

• The stadium renderings are cool. It’s easy to poo-poo big-dollar construction proposals as being sales jobs of dubious eventual reality, but that doesn’t make the prospect of something new any less interesting. The eventual financing plan for the stadium will likely be bad policy, but it’s understandable why people might get excited at what a future ballpark might look like. That’s obviously why they had the press conference this week: to stoke support and excitement.
• But cool renderings don’t change the fact that taxpayers shouldn’t pay for professional sports stadia. The renderings for these stadia could have put a helicopter port on the roof, a rocket ship in the parking lot, and a theme park in center field, but a cool drawing doesn’t make giving tax dollars to rich baseball tycoons an appropriate “investment” by the public. Developments like this generally do not expand the pie of disposable income in a region; instead, they tend to redirect spending that was previously being spent by consumers at other restaurants and entertainment options in the region. Ask bar owners in Westport what they think the immediate impact of the Power & Light District was on their traffic and you’ll get a sense of the potential risks of subsidizing new competition to existing businesses this time around.
• The “$2.8 billion” construction impact figure presented by the Royals is not a game changer. As I told KMBC 9, I believe that the Royals believe their numbers and that stadium construction would create “$2.8 billion” in economic activity in and around the ballpark. But what’s that really mean, other than to repeat the obvious? When the team is promising $1 billion in private financing to go along with $1 billion in public support, yeah, those are two giant wheelbarrows of cash being dumped into one spot that get you pretty close to the headline number. But that doesn’t change the fact that half of the spending would be coming from the public to create a district that would compete with other entertainment districts, including Westport and the Power & Light District.
• And speaking of the taxpayer-subsidized Power & Light District, it hasn’t and won’t ever pay for itself. One of the biggest public spending projects in the last couple of decades was the Power & Light District in Kansas City’s downtown. From the beginning, the city was on the hook to pay off the bonds for the property if tax revenue from the district wasn’t high enough. The result? Over the last 16 years, Kansas City taxpayers paid the nearly $170 million gap between what the district costs and what the district generates in tax revenue to pay the bonds. It’s easy to make promises of success when the cost of failure is borne by someone else, and there’s no guarantee taxpayers—whether in Jackson County or Clay County—won’t get soaked this go-around, too.

There is a bit of deja vu here, of course; about this time in 2022, I was talking about a potential move for the Chiefs, whose lease at the Truman Sports Complex ends when the Royals does. But the takeaway now with the Royals is the same as it was with the Chiefs—sports teams should pay for their playthings themselves. The Royals may be the kings of Kauffman, but when it comes to sovereign action in the real world, public officials should reject spending tax dollars on anything but legitimate responsibilities of government. Subsidizing sports teams isn’t one of those responsibilities.

The post Hey! Hey! Hey! Hey! Pay for Your Own Stadium appeared first on Show-Me Institute.

City manager Troy Schulte said he wasn’t concerned about the increased price of the hotel since cost overruns are covered by the developer.

“We are actually getting a better project with lower public commitment,” Schulte said.

This seemed ominously familiar to me. A quick search confirmed my suspicions. Back in 2009, Vockrodt wrote in the Kansas City Business Journal about Cordish’s effort to reduce the property valuation for the Power & Light District. He included this:

Kansas City Councilman Ed Ford said he was told by city attorneys that the Power & Light District’s dispute would not put the city on the hook financially.

“It looks like the city is not going to have a dog in the hunt on that,” Ford said.

But of course it did affect the city because a low property tax assessment meant Cordish paid less in property taxes, which in turn meant there was less TIF money available to apply to bond payments. And because city leaders committed Kansas City taxpayers to paying any bond shortfall, we very much did have a dog in that hunt.

This doesn’t mean that hotel cost overruns will necessarily cost the city—unless the hotel so underperforms that taxpayers are told they need to add amenities to improve performance, exactly as has happened in the past. When it comes to publicly financed projects, being told by city leaders that there is no cause for concern seems itself to be a cause to be concerned.

The post When City Leaders Aren’t Concerned, Taxpayers Should Be appeared first on Show-Me Institute.

But urban decline isn’t unique to Missouri. People all over the United States are voting for suburbs and exurbs with their feet. Giving tax dollars to a few more bars and restaurants won’t change that.

In their paper, “Beyond Gentrification,” researchers Joel Kotkin and Wendell Cox lay out the case that:

The spurt of urban core growth that occurred immediately after the housing bust was short lived. The preponderance of metropolitan growth has returned to the suburbs and exurbs, as had been the case at least since the late 1940s.

Kotkin and Cox make their case with census data: Suburbs are growing much faster than urban areas. Claims by urbanists such as Richard Florida that “creative class” millennials would come to cities and stay were wrong, as Florida himself admits. Unfortunately, cities like Kansas City and St. Louis spent billions of dollars exacerbating the problems of gentrification through subsidies, and continue to do so, chasing a myth.

If city leaders only understood that they are swimming against a nationwide current, they might be a bit more circumspect in their distribution of taxpayer dollars. But whether it’s misplaced faith in the promises of urban developers or the allure of campaign contributions from those same companies, something is compelling policymakers to invest taxpayer dollars in projects that benefit the developers at the expense of the communities where they are undertaken. Meanwhile, organizations such as the Downtown Council in Kansas City vacuum up tax dollars and spit out absurd population growth claims.

Kotkin and Cox point out what any close observer of Missouri’s urban politics already knows:

It seems clear that gentrification has not benefited the poor and may well have harmed them by spiking housing prices and, perhaps less obviously, restructuring urban economies in ways that hurt blue collar workers. Reporters and politicians might swoon over the latest “hip” urban manifestation, but the poverty rate is still two-thirds higher in urban cores than in the suburbs.

Beyond Gentrification then focuses on three cities—Chicago, Dallas, and Los Angeles—to flesh out what is happening in cities across the country. These things are happening in Kansas City and St. Louis, too. And no convention hotel, trolley, or new stadium will turn this around. We know, because other cities are pinning their hopes to developments like these, and it isn’t working. It won’t work for us, either.

City leaders across Missouri need to understand their cities’ competitive advantages and promote them. (The Show-Me Institute has already catalogued some for both Kansas City and St. Louis.) They need to deliver on infrastructure, public safety, and basic services efficiently and effectively. And they need to resist diverting tax dollars in pursuit of urban development that often does more harm than good to the surrounding communities.

The post Kansas City and St. Louis Battling National Trends appeared first on Show-Me Institute.

The Tax Foundation reported last year that 32 states exempt food purchased for consumption at home from tax. It reports that six other states tax food at a lower rate,

Food sales tax rates in these states are as follows: Arkansas: 1.5 percent, Illinois: 1 percent, Missouri: 1.225 percent, Tennessee: 5 percent, Utah: 3 percent, and Virginia: 2.5 percent.

This is true but incomplete. The Missouri General Assembly did in fact reduce its sales tax on food, but local sales taxes are still collected on food and beverage purchases. In St. Louis’s Central West End, the tax rate on groceries adds up to 7.4 percent; in Kansas City’s Power & Light District it is 7.6 percent.

What makes this the most unkindest tax of all, as Shakespeare might say, is that it is regressive, meaning it weighs disproportionately on the poor as everyone must buy food. Because Kansas City and St. Louis charge additional sales taxes on top of the state rate, any intention by the General Assembly to spare low-income consumers this tax is undermined.

To make matters worse, both Kansas City and St. Louis charge a flat and regressive 1 percent earnings tax on every dollar earned. The earnings tax is levied on the first dollar earned, and there is no exemption for lower-income workers. Adding insult to injury, the earnings tax is not levied on types of income enjoyed by wealthier citizens such as investment income or retirement.

Kansas City and St. Louis have a large number of low-income residents. Unfortunately, the cities’ taxes only add to the problem. The first order of business for any city leader who wants to help low-income workers should be to take less of their money away from them.

The post The Most Unkindest Tax of All appeared first on Show-Me Institute.

For us at the Show-Me Institute, the additional reporting requirements and transparency are a good thing. They largely confirm our assertion that Kansas City gives away far too much of its own money and the money of other taxing jurisdictions such as schools and libraries.

While the city diverts just under $90 million of money it would receive from sales, utility and income taxes to developers, this does not include the money from property taxes that would otherwise go to other taxing jurisdictions such as school districts. That amount, according to the Journal, is just under $42.5 million.

So taken all together, the city itself is reporting that the costs of economic development subsidies is $132,311,000. This does not include other costs, such as the $14 million the city allocates from the general fund to cover the debt incurred by the Power & Light District. (See FY 2018-19 budget, p 63.)

That brings the total up to at least $146 million every year.

Long-time followers of the Show-Me Institute will not be surprised by any of this. We have consistently pegged the cost to taxpayers of subsidies at, “north of $100 million a year.” This has garnered howls of denial from The Kansas City Star editorial board (read here and here) and dismissals from city leaders. GASB is requiring the city to account for its handouts in a more transparent manner, and for that we should all be grateful.

The post The Great GASB appeared first on Show-Me Institute.

As I’ve written before, most of these taxpayer subsidies result only in economic diversion. They don’t create anything new; at best they just move development to different areas. The H&R Block headquarters for which taxpayers paid didn’t create the new jobs that were promised; it merely consolidated jobs from across the area to one place. Likewise, as the chart below shows, the Power & Light District didn’t create new jobs or businesses, but instead simply relocated them from elsewhere. 

The number of bars and restaurants (and their accompanying jobs) remained flat in Kansas City for years after the Power & Light District opened. If the Power & Light District had been the success that city leaders claimed, you’d have seen an uptick in employee liquor cards and licenses. But citywide, the numbers were flat at best. This means that any new jobs and businesses downtown merely came at the cost of jobs and businesses elsewhere in the city. Nothing new was created. Only now, as the economy improves, are those numbers going up.

 Focusing on reviving downtown Kansas City might be a worthy goal. As I wrote last year,

Policymakers are free to argue that diverting economic activity from elsewhere in Kansas City to the downtown area is good policy. That would be a welcome policy debate worthy of consideration. But supporting policies that merely move activity around and then pretending something new has been created is not only disingenuous, it is unsustainable.

The rest of Kansas City has needs, including basic infrastructure and greater police presence. Focusing on downtown hasn’t provided any net benefit, and it has cost us dearly.

The post The Power & Light District Still Hasn’t Delivered appeared first on Show-Me Institute.

The research, if you care about research, says the spending is wasteful. Previous studies in Saint Louis and Kansas City say the same thing. And studies of other cities like Chicago and Indiana, and of the country as a whole, likewise cast doubt on the value of these development subsidies.

As we have written previously, the H&R Block headquarters building downtown, one of the first in the downtown spending spree of the Mayor Barnes administration, has failed to create jobs. At best, the company merely moved jobs that existed from elsewhere in Kansas City to this new location; no new jobs were created.

Consider one of the poster children for streetcar-created economic development, Centric. The company moved two blocks, but it is somehow considered by the city to have created jobs and economic development. It did not create anything; it merely moved locations.

And here is perhaps the most damning evidence: despite all the spending, the economic growth of Kansas City due to downtown subsidies is a myth. We all know that the Power & Light District is the result of taxpayer subsidies—that is undeniable. Where before downtown was decrepit and abandoned, now it appears new and vibrant. But has any new economic development taken place? Has society or the average Kansas City family grown more prosperous because of these subsidies?

According to the Regulated Industries Division of Kansas City, Missouri, the number of liquor licenses (a gauge of how many restaurants and bars are operating) and employee health cards (a proxy for the number of people employed at bars and in food service) has remained flat since before subsidies were awarded. So while there may be more economic activity in the downtown area, citywide there has been no growth. Our subsidies haven’t created anything—they’ve just diverted activity from elsewhere in the city to downtown.

This shouldn’t come as a surprise. Imagine a new shopping center is built right near your home. There are a few stores and restaurants you’ve never been to, as well as a few outlets familiar to you. If you shop at this new location, you won’t continue to spend the same amount at the previous locations. The new stores haven’t caused you to spend more, they just cause you to spend differently. Yet the politicians in your neighborhood point to the new buildings as evidence of economic growth.

In the smaller incorporated cities in Johnson County, Kansas, this tactic might actually work at a very local level. A store that was generating sales tax income for Prairie Village could be lured to Shawnee with subsidies. That might be a win for Shawnee, but regionally it’s a wash, if not a total waste of public capital. (Writ large, this is the story with the Kansas-Missouri border war—lots of subsidies spent by both side with no real regional growth.) But in a large metropolitan area like Kansas City, there is no benefit. Citywide, there has been no growth in the number of bars, liquor stores or waiters and bartenders as a result of the Power & Light District. We’ve just diverted the economic activity downtown.

Policymakers are free to argue that diverting economic activity from elsewhere in Kansas City to the downtown area is good policy. That would be a welcome policy debate worthy of consideration. But supporting policies that merely move activity around and then pretending something new has been created is not only disingenuous, it is unsustainable.

The post Kansas City’s Economic Diversion appeared first on Show-Me Institute.

popularized the early-aughts idea that faded cities could revitalize themselves by attracting the talented, intellectual types who made up what he called the "creative class." Lure some hip coffeeshops, create an "arts district," play up your gay friendliness, and watch the laptopping masses pour in.

Unfortunately for Kansas City, our leaders bit hard on the bait and haven’t yet let go. Witness the millions of dollars poured into failed downtown economic development schemes such as the Power & Light District and the H&R Block building. Note the rhetoric around the streetcar or the Smart Cities proposals. Note the Mayor’s focus on Kansas City’s startup mirage. We’re chasing a creative class dream spun by Florida. Show-Me Institute writers pointed out flaws in his ideas for years, and now, at last, Florida himself admits he was wrong:

I got wrong that the creative class could magically restore our cities, become a new middle class like my father's, and we were going to live happily forever after," he said. "I could not have anticipated among all this urban growth and revival that there was a dark side to the urban creative revolution, a very deep dark side.

For Kansas Citians, the dark side we are being saddled with now is an ever-more hollowed out tax base, a city that struggles to deliver basic services, and an east side made even more unattractive to developers due to the flow of subsidies to other neighborhoods that were already economically sound. Regular readers of this blog know we’ve argued against Florida for years.

Florida has admitted his error. Will those in Kansas City who followed his advice do the same?

The post Kansas City’s Development Guru Admits He Was Wrong appeared first on Show-Me Institute.

Kansas City Councilman Scott Wagner worries that people need to be convinced of a particular project before moving ahead.

“Increasingly, the burden is falling on the developer to show residents that there will be a benefit for the area, that the ‘but for’ clause is real,” Wagner said. “If people don’t believe a financial need exists, it’s easy to fight it.”

Is this too much to ask? Should taxpayers just trust the Economic Development Corporation (EDC)—a nonprofit organization funded mostly from the fees assessed on the projects it recommends—to have the final say? Apparently, yes. According to one developer, the people just don’t know enough to have a worthwhile point of view,

Whitney Kerr Sr., a longstanding area real estate developer, fears an anti-development tide could thwart the city’s momentum. He worries that “people who have no knowledge of real estate economics” have become too empowered.

Clearly, Kerr and developers like him would prefer the people to just be quiet and keep forking over their tax dollars to the supposed real estate experts at City Hall. Remember, it was former Mayor Kay Barnes who actually said in 2006 of the Power and Light District,

"We're going to look like geniuses" in five or 10 years, Barnes said. The city is paying low interest rates for projects that are capable of paying off the debt, she added.
 

Quite the opposite, the District is a swirling financial black hole that will swallow up about $15 million from the general fund each year from now through 2040. And there is no evidence that the District has netted the city any additional businesses, jobs, or tax revenue. In fact, according to the Missouri Department of Revenue, projects in tax increment financing (TIF) districts regularly fail to meet their developers’ own job creation projections. The great cost and low return of these subsidies is the reason that states and localities have been reforming TIF across the country. California, which was the first state to adopt TIF in 1952, ended it altogether in 2012.

Popular opposition to these development subsidies isn’t a product of the people’s ignorance of real estate economics, but rather of their understanding. They don’t want to hand their money to Kerr and others for dubious development projects when the city cannot keep Westport from flooding in the rain.

As for Mr. Kerr and other apologists for the status quo, it is unlikely that they have read a lot of the economic research literature on but-for analysis, or else they would understand the public’s discomfort. As a public service, here is a link to a study conducted by the University of North Carolina-Chapel Hill on TIF in Chicago. Before complaining about the lack of “knowledge of real estate economics” in others, perhaps they should educate themselves.

The post Taxpayers’ Subsidy Skepticism Is Warranted appeared first on Show-Me Institute.

Developers often win over politicians and the public by promising that TIF will help "create" a certain number of new jobs. But those projects often miss the mark, and at times by a wide margin.

Last month, the Missouri Department of Revenue released its annual report for all TIF projects in Missouri. The numbers were stark.

Among the 504 TIF districts across the state, developers estimated that 266,261 new jobs would be created. In fact, 89,485 were realized. That's 33 percent of the projection.

The annual report that Steve cites is here. Pages 258 and 259 show that now that the Power & Light District’s KC Live project is completed, only 1,003 of the projected 2,034 jobs have been realized. The reality, however, could be much worse than that.

Using data provided by Kansas City's Regulated Industries Division, we sought to see if there was any citywide increase in either liquor licenses issued to businesses or the liquor cards issued to individuals who work in bars and restaurants. The chart below shows that since the Power & Light District opened in 2008, these numbers have been flat.

If KC Live created jobs as the TIF report suggests, yet citywide employee liquor cards remained flat, it means that the TIF didn’t so much create jobs as just move them from elsewhere in the city such as Westport or just outside the TIF area.

Yet the financial costs to the city and other taxing jurisdictions for this storefront shuffling are very real. In addition to the cost of foregone tax revenue, the city must pay about $15 million each year to cover the underperforming investment through 2040. 

The question that responsible policymakers must consider is not merely how to move jobs and residents downtown, but at what cost? The city has shown that it can drive property development downtown by paying for it. That's hardly impressive. But it cannot show that there is any real net economic benefit citywide. Without that, we're just throwing good money after bad.

The post TIFs Fail to Meet Expectations appeared first on Show-Me Institute.

Kansas City borrows a lot, too. We spend more per capita on servicing our debt than every peer city we examined except St. Louis (the other peer cities we looked at were Tulsa, Oklahoma City, Omaha, Indianapolis, Denver, and Louisville). Because cities with higher incomes are better able to handle debt, we also looked at the city income-to-debt ratio. The results weren’t flattering. Kansas Citians earn $5.28 in income for every $1 of debt the city carries. Louisville and Tulsa had much better ratios, ($35.92 and $17.66 for every $1 of city debt, respectively).

The City borrows money for lots of things. For example, a few years ago the city borrowed $10 million from the airport just to cover the costs of TIF commitments. Kansas City issued bonds to help pay down its debts for the Power & Light District; this reduced annual payments in the short term, but increased the total amount of the debt. As a result of existing debt, the city cannot pay for basic services such as tearing down dangerous homes—and so it must borrow again to generate the $10 million needed.

Despite lofty city rhetoric against payday loans, we seem to be managing city funds using a similar model. Even the Mayor’s own Citizen’s Commission on Municipal Revenue reported in 2012 that the city’s debt ratios, among other things, “raise red flags.” Their report found that Kansas City has debt levels higher than all the peer cities it considered.

Right before Detroit declared bankruptcy it was borrowing money to cover employee bonuses. Kansas City hasn’t gotten to that point yet, but things are not looking up. Is this any way to run a city?

The post Kansas City Deep in Debt appeared first on Show-Me Institute.

A spokesman for the Show-Me Institute—funded in large part by St. Louis multimillionaire Rex Sinquefield, an ardent earnings tax foe—said this week that the city should stop offering tax incentives and tighten its fiscal belt. The spokesman’s claim: These subsidies are “north of $100 million a year.”

Add all of the city’s investments in economic development — through the earnings, sales and property taxes as well as direct public subsidies for projects—and it’s $77.6 million of diverted revenue this fiscal year.

That’s a big number. But it’s not close to being “north” of $100 million.

We at the Show-Me Institute have been telling this to people since we first got the numbers from the city's own finance department in February 2015. Those documents, available via the link at the bottom of this post, show that the subsidies for fiscal year 2014 are $93 million, and do not include the subsidies for Burns & McDonnell and Cerner. The latter subsidy, which the Star unequivocally endorsed, might be the biggest tax diversion in the history of the state of Missouri.

The problem is that the Star's editorial board likely only considered the city’s portion of TIF subsidies. The problem with TIF, however, is that it allows the city to divert money from other taxing jurisdictions such as schools, counties, and libraries. In short, the city is offering subsidies with other people's money.

I would welcome the opportunity to look over the documents the Star used to reach their conclusions. Do they include Cerner and Burns & Mac? Do they include bond payments on the Power & Light District and the Citadel? Do they include earnings tax subsidies given to the Star itself? How about TDDs, CIDs, Chapter 353 property tax abatements, etc? If not, then their calculation of the cost of subsidies is embarrassingly incomplete.

The post Kansas City Star Editorial Board Gets Subsidies Wrong Again appeared first on Show-Me Institute.

It's been said time and again that the Kansas City Royals have succeeded by playing small ball; focusing on base hits, keeping the runs coming. There is no dependence on big personalities, and hopes aren't pinned to a dramatic swing for the fences to win the game. The Royals charted their own course, built on their own strengths, and delivered a product no one else could.

Kansas City government—and Missouri government in general—could learn a lot from that. Instead, city leaders engage in the municipal me-tooism of convention hotels, streetcars and airports. We pin our hopes on big plays (Boeing tax credits, Power & Light District) and neglect the basics (deferred maintenance on neglected infrastructure, diverting funds from schools, libraries, sewers, public safety). As a result, the City of Fountains cannot afford to maintain its fountains. 

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City Manager Troy Schulte says the city learned lessons from that deal; the new project makes none of those same errors. Perhaps. But the City might be making a whole new round of mistakes. 

The St. Louis convention hotel project of the early 2000s was so bad that is changed the way Wall Street investors look at convention hotel investments. In a piece to The Kansas City Star, convention hotel expert Heywood Sanders put it thusly:

With an expanded convention center and domed stadium, consultants told St. Louis city officials they needed a big, new hotel. The 1,081-room Renaissance Grand Hotel and Suites was supposed to be filled by a wave of new convention attendees as the number of major conventions grew from 33 to 56, almost doubling the city’s convention business. But by 2008, the city garnered only 24 major conventions and fewer hotel room nights than in 1999 and 2000—before the Renaissance hotel opened. Without new convention attendees, the hotel couldn’t pay its annual debt service and the bondholders foreclosed in 2009. They finally were able to sell the hotel, at a serious loss, in May 2014.

Regarding that sale, The St. Louis Post-Dispatch reports that the new owners will invest millions in renovation and re-open them. The piece offered this observation:

“We had a shuttered building next to our convention center, and it will be alive with activity,” said David Richardson, a lawyer with law firm Husch Blackwell who advises the city on development issues.

This underscores the risk to Kansas City; will we build a huge hotel just to have it shuttered? It isn't just an idle thought experiment; we've been here before. After all, the last time Kansas City built a convention hotel—The Vista in 1985—the owners were considering bankruptcy within 18 months. A decade later, the city subsidized the Muehlebach hotel and took a loss because business was so soft. Why are these things unthinkable now? Hotel occupancy rates in downtown Kansas City have been averaging at an abysmal 50% to 55%, yet hotel proponents predict the new hotel will have a much better 68% occupancy. Are those reasonable expectations? We don't know—the reports don't explain how they reach those conclusions. But betting on them to be correct is certainly risky.

These same consultants have predicted that Kansas City convention business would almost double if we just built a hotel. Just build it and people will come, apparently. But the consultants again fail to explain how they reach these conclusions. As a result, we don't know if the predictions are reasonable.

The city may have learned its lesson from the awful plan to build the Power and Light District, but we cannot know what lessons we may have yet to learn. What is clear, however, is that projections of wild business growth seem unreasonable, and that should be enough of an alarm to those elected to protect city resources.

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The Power & Light District plan was put together by City Manager Wayne Cauthen, and it was done largely out of the sight of the public. It was too late to make changes when the subsequent city manager, Troy Schulte, told us that in order for the Power & Light District to be self-sustaining, as voters were promised, “You needed Plaza-level holiday-level sales every day of the year.”

Seeking to avoid that same mistake, the 2010 convention hotel effort received lots of scrutiny, including reports from consultants and financiers. Bill Lucas, then president of the city’s hotel steering committee, said, “We’d about have to double our convention bookings” to make the hotel feasible. The project did not go forward because people were skeptical we’d make the goal.

This time the city is rushing a vote on the project to meet an arbitrary political deadline. There are no reports from consultants; no reports from financiers. One councilmember even complained about the short time available to make a decision.

While no one is saying how much convention business will have to increase to repay the investment, consider the impact of TIF giveaways to developers:

• Visitor money spent in the convention hotel itself won’t help us, as we’re giving all the taxes generated from those sales to the developers through Tax Increment Financing (TIF).
• If convention visitors wander to the Power & Light District for dinner and drinks, they’ll pay a high tax rate, but the city is already giving that tax money to Cordish through their TIF. The city won’t see much from it.
• If visitors head north to the River Market, the same will apply—we’re giving at least half of the tax revenue there to the developers.
• Maybe they’ll ride the streetcar. The streetcar will be free, so we won’t see any tourism dollars there (although it appears visitors who stay at the convention hotel will be paying 1 percent to the streetcar Transportation Development District).
• Maybe visitors will go to Country Club Plaza. That will be great, but half of the tax revenue generated from their purchases will go to the developers named in the Plaza TIF.

Therein lies the problem with Kansas City’s frequent use of TIF; we’re hollowing out our tax base. We claim that these developments will help the city, but in order to get the developments, we give away the tax revenue. Kansas City will likely need to more than double our convention bookings to make this financially sound, but no one is saying. This is no way to run a city.

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Steve Vockrodt at The Pitch considers other costs that the city doesn’t seem to be including in their estimates:

The property upon which the hotel will be built (bound by Truman Road and 16th Street and by Baltimore and Wyandotte) is mostly city-owned, which means that it currently generates no property taxes. Troy Schulte, the city manager, has said the land is worth $13 million.

Assuming that valuation is correct, it means that the land—if the city sold it to a developer and it returned to the tax rolls—would generate $333,998 a year in property taxes. Under TIF, the development captures all that money.

Given these arrangements, then, the public subsidy for the hotel is going to be a lot more than $35 million. About half the cost of the $300 million project will wind up being paid for by public taxes.

But wait, there’s more. The Kansas City Business Journal adds:

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