(EDITOR’S NOTE: Rep. Charlotte O’Hara periodically furnishes a legislative update. Submissions by any elected official are welcomed. Those submissions are not edited for content, spelling or grammar.)
Well, the border war is alive and well between Kansas and Missouri. The latest prize: Kansas has captured is AMC and its 400 employees. What a boost to the Kansas economy, 400 new jobs. Except, wait, those 400 jobs were only 12 miles down the road. So, there probably won’t be a mass migration of families moving over to Kansas. And how many of them already lived on the Kansas side? And the price tag? $47 million in tax breaks and incentives. Not bad, not bad at all.
Much has been written about the job poaching economic development policy that has for years driven companies back and forth across State Line Road. Studies, including the recent Phil Kirk’s, former executive of DST, report show these incentives do not provide the economic development boost promised, but actually drives down real estate lease rates, which then further erodes the value of existing real estate. That drives down property tax collection, which in turn increases the burden on everyone. This is the direct opposite of what is supposed to happen with the use of tax abatements, tax incentives and tax credits.
Then there are the bankruptcies of developments based on TIF (Tax Increment Financing) District financing for infrastructure. That would include the retail development at Interstate 35 and 119th Street anchored by Bass Pro and at 135th and Metcalf anchored by Von Maur.
Or the “chase the tax incentive story” of Applebees, which is one of my favorites. Applebees had its headquarters in Overland Park for years. Then in 2005, it was lured to Lenexa with tax abatements (Overland Park stayed somewhat out of the incentive wars for years, except the really big deals like the Sprint campus and the O.P. Convention Center, which, by the way, are not working out as planned. But now the city is a complete participant in the madness).
Before the building was completed in Lenexa, Applebees sold its IHOP division and by 2009 space was available for sublease. Now, the Environmental Protection Agency decides to abandon its custom-built facility in Kansas City, Kan., to move to the Applebees headquarter building in Lenexa. But the story doesn’t end there. Now Missouri comes in with a tax incentive package to lure Applebees over to Ward Parkway.
Did this scheme of leapfrog economic development add anything to the overall business climate in Kansas or Missouri? No. What it has done has left the owner of the EPA “custom-built” office building in Kansas City, Kan., high and dry with no tenant and removed 600 people from downtown KCK.
Here area few of the current abatements and requests:
1. A developer at 39th Street and State Line has requested a standard Chapter 353 abatement on a residential project of 70 apartment units. That’s a 100 percent, 10- year property tax abatement and for the following 15 years, a 50 percent property tax abatement. This is on the Missouri side of the line, but a great example of runaway abatement strategy.
2. This one I love: A 10-year property tax abatement for the BNSF intermodal (switching yard) and adjoining warehouse facility. This project, folks, was totally geographically driven. Just like the TransCanada Pipeline (you tell me how to get from Canada to Oklahoma through North and South Dakota and Nebraska without going through Kansas) AND there was absolutely no reason to give a tax abatement to Warren Buffet (Berkshire Hathaway owns BNSF), who (according to President Obama) loves to pay taxes.
3. Westwood is currently considering a CID (community improvement district) and a TIF (tax increment financing) with a price tag of $60 million for Woodside Village retail and residential project. The Westwood City Council should take a look at the failed/bankrupt TIF districts at 135th and Metcalf and 119th and I-35 before proceeding.
4. The stalled Mission Gateway plan gets a fresh STAR bond extension, according to the KC Business Journal’s Aug. 26 edition. These things just never die.
5. Missouri side’s Trozzolo’s Communications Group downtown renovation project went $2 million over budget, but not to worry. Tozzolo’s direct costs of $6.5 million in renovation costs will be reduced by $2 million through a combination of Missouri historic tax credits, brownfield credits, Enhanced Enterpirse Zone credits and tax increment financing, according to the KC Business Journal’s Aug. 26 edition. Again, that’s the Missouri side, but we do the same thing in Kansas.
6. As of February 2011 the total amount of appraised valuation of tax abated property for the 2011 tax year in Johnson County was $798,593,419. That’s over three quarters of a billion dollars of commercial/industrial/retail real estate with typically a 50 percent property tax abatement, but in some cases higher.
This is not just a problem locally. Baltimore’s mayoral race has this issue front and center with the question being posed to the incumbent: If tax breaks for the connected are a good idea, why not give them to everyone? Excellent question.
Illinois increases the state corporate tax to 9.5 percent in January and then proceeds to give Motorola $100 million in tax incentive to add to the nearly $500 million Gov. Quinn has doled out as corporate welfare to at least 80 firms, according to a tally by The Chicago Tribune.
The tax incentives given Motorola in Illinois prompted this quote reported in the Wall Street Journal from Jack Robeser, the owner of Otto Engineering and employer of 600 workers in Carpentersville: “Why should we pay the taxes that Motorola and other corporations don’t?” Great question Mr. Robeser, and there is no good answer, except elected officials love to hand out tax breaks to the lucky few.
Whenever tax abatements/incentives/exemptions are given, they are not pennies from heaven that are subsidizing the win for the abated project. No! That subsidy comes directly from every taxpayer who is paying the going freight. The cost- and there is a cost- is spread out over the rest of the existing tax base.
Again, for transparency, my husband and I have a seven-year, 50 percent tax abatement on a warehouse addition for a metal fabricating business.
What is the answer? We, in the state of Kansas, need to pass legislation similar to the 2007 Arizona law that does not allow state or local government to give tax abatements or incentives for retail. I would expand that to disallow any tax abatements/incentives/exemptions on retail, residential or office. Any other use would require a public vote for local tax abatements/incentives/exemptions and at the state level require legislative approval.
Then, everyone will be in the same boat, and we’ll be forced to work on the underlying problem: High property taxes, high income taxes, too many regulations etc., etc. In other words, without tax giveaways- the crack cocaine of the business world- the State of Kansas will have to become an extremely business friendly state with low taxes and a “light regulatory touch” (I love that line, I got it from Steve Hahn, president of AT&T Kansas) for EVERYONE.
Equal protection under the law: I often wonder where that constitutional promise has gone. We must, in the state of Kansas, stop picking and choosing winners (those with tax abatements/incentives/exemptions) and losers (those without tax abatements/incentives/exemptions) and create a tax and regulatory climate that will attract people and businesses so that we can truly grow our economy based on sound economic principles.
Want proof that overall low tax policy works? Switerland’s “history of rock-bottom tax rates, for individual and corporations alike, has brought it an A-list of multinational businesses. Luxury shops abound, government coffers are flush and there are so many jobs that employers sometimes have a hard time finding people to fill them,” according to The WSJ’s Aug. 29 edition. Or just look here in the good ol’ U.S.A. States with zero income tax are the ones with economic growth.
So, do we continue to do the same thing over and over again with our eco/devo policy of tax abatements/incentives/exemptions and expect a different outcome? (Einstein’s definition of insanity slightly altered) and I feel slightly altered after combing through all of this research.
The bottom line: If a project cannot succeed with out government subsidies, the project is bankrupt from the beginning. Government cannot create a market, and it’s time for Kansas (the Brownback Administration) to get out of the business of crony capitalism.