Kansas City Needs a Patron Saint of Tax Subsidy Reform
By David Stokes, Show Me Institute, on Aug 27, 2021
Telling powerful people and groups they can’t have what they want is hard. St. Thomas More learned this by telling England’s King Henry VIII that he couldn’t take a new wife and start a new Church. The King got his new wife and his new Church, and Thomas More lost his head (literally). Kansas City government needs someone with just a fraction of St. Thomas More’s bravery to stand up to the development industry as they try to increase the subsidies they receive by changing the rules of the Enhanced Enterprise Zone (EEZ) program to fit their interests.
It’s been said many times that there is nothing as permanent as a temporary government program. While it may be a partisan campaign remark, it contains a simple truth. Each new program generates its own newly entrenched bureaucracy and special interest groups that have an interest in expanding and perpetuating the program. We can see this with big, bold programs, but often that plan to maintain or expand power happens behind the scenes in ways the public never knows about. That is exactly what is happening now with the EEZ program before the Kansas City Economic Development Council, a city advisory committee that makes recommendations regarding tax subsidies.
Kansas City gives away enormous sums in tax subsidies—an estimated $175 million in 2018 alone. The development community and its allies in finance, law, and politics (hereafter the developer-subsidy complex) do not view these subsidies as a program to be used in occasional, necessary instances. Developers view them as their hereditary birthright, to be exploited with all the subtlety of King Henry “asking” if he could have another divorce.
Just as current Kansas City leadership is taking steps to place modest limits on tax subsidies—better known as corporate welfare—the developer community is taking steps to keep the spigot flowing. What steps has the city has taken? The city lowered the maximum property tax abatement developers can receive from 75% to 70% for 10 years, and from 37.5% to 30% for five more years. While this change is commendable, it is hardly a major decrease in subsidies. But try telling that to the developer-subsidy complex.
It’s latest maneuver regards EEZs, an all-too-common business incentive package that is tied to job creation aims. EEZ tax credits have always been focused on jobs and business activity—the explanatory language on Missouri’s website is clear on that—but the development community is now trying to argue that large apartment complexes should also quality for new tax subsidies through the EEZ program. While there is no evidence that EEZs work at growing the economy—the EEZ program was a major part of the failed Waddell and Reed downtown development—they do work (all too well) at shoveling tax dollars to influential developers.
It is important to note that major residential developments like apartment buildings already qualify for plenty of incentive programs: low-income housing tax credits, historic tax credits, the above-mentioned property tax abatements, tax-increment financing, and other programs. What they have not been able to access are EEZ tax subsidies. That, apparently, has to change.
Lawyers for housing developers have been quietly arguing with EDC officials for months that the tax credits and abatements previously reserved, as intended, for businesses that create jobs should also go to housing developments. The EDC officials have resisted, but the developers are now appealing to the city’s lawyers. If the lawyers change the interpretation of the law to include housing—which it has not previously been used for—then all of the progress, modest as it may have been, in reducing the use of tax subsidies in Kansas City will be undone.
No matter how the developer-subsidy complex tries to spin it, this is a naked attempt to take more money away from taxpayers and government bodies, like the school district, and put it into the private hands of developers and their advisors.
Hopefully, someone in Kansas City government will have the courage to say “No” to these demands by the developers. If that happens, we hope it works out better for them than it did for Thomas More.