• Nathan Duvall

You’re just wrong. This deal will pay new taxes.

Updated: Dec 18, 2021

Welcome to our world. Payments in lieu of taxes (PILOTS) are required. Yes, Fidelity Security Life even promises more than the minimum - that’s fine. But below the big print there is a long list of serious problems that cannot be argued away. It’s more than optics. Corporate welfare Kansas City style and drastically reduced taxes without public benefits are just the beginning.

The sleek Fidelity Security Life Insurance HQ at 2700 Grand is a case that embodies all the hallmarks of downtown tax subsidies. The list of issues is long, so we will state a few of them briefly. There are more that we don’t have time/space to go into. If TIF Watchers are interested in more details, we might go deeper in a future blog.

Why give so much money, for so long, to a successful business? FSL is very successful. Many Kansas Citians are asking why they can’t build something they can afford. The response is to change the subject or disparage the person asking. It’s still a valid question. We know nobody wants to pay retail. The claim of need for a tax subsidy goes though a lot of contortions to make the case.

Public Cost, What Public Benefits? With all the focus on FSL's payments in lieu of taxes (PILOTS) it’s easy to be sidetracked from what FSL gets in return: 70% property tax abatement for 10 years, 30% for five years, and a sales tax exemption on construction materials. Public services that would ordinarily be fully funded include: community colleges, mental health for the uninsured, public and charter schools, public libraries, disability services, County parks, the City, etc. Costs for public sevices increase over time, but the PILOTs are frozen for the term of the abatement. So while the public loses services, people won’t benefit from the company’s swank signature building.

Tax subsidies like this are a pattern of inequity. While TIFs continue to be lavished on downtown, truly distressed areas languish. The company says they love Kansas City, but clearly only enough to get paid to be in Crown Center and at the expenses of tax-dependent services that benefit everyone.

Crown Center Requires It. The developer claims that Crown Center won’t approve anything other than high-end design. That may be, but we’d like Crown Center to speak for themselves. Last week the developer admitted that there were no alternatives presented, only the one design we see. So truthful or not, the claim is unsupportable.

Job Retention is a red herring. Consider Blu Scope, whose lawyer played areas against each other to see who would give away the most tax subsidies. The company had no intention of moving, but is is happy to have free money like anyone. The job retention ruse is a veiled threat whose bluff should be called. If the company loves Kansas City let them manage like hard-working families: strive to pay for a home they can afford and pay their taxes.

But-For #1: Public cost of private luxury. According to an independent analysis the building could be built without tax subsidies if not for the high-end design and parking. We call particular attention to parking, because it's on the streetcar and adjacent to acres of vacant parking lots. The developer (again) says Crown Center won’t consider an efficient solution, but we would like for them to speak for themselves.

But-For #2: Actually a bad deal (not).

But-For #2a: Air there. the developer’s financial justification relies on either a math trick or bad business (or both, you choose). At 10 years, the hypothetical sale price of the building is claimed to be less than the cost of construction. Yet almost in the next sentence, they claim FSL will be there for 50 years. Nice if true, but it renders the hypothetical sale price meaningless. Again, undermining the claim of a need for the tax subsidy.

Hopefully it will increase office rents. The developer claims the highest office rents in town will create a new market for high-cost offices. This is not supported by the facts. With residential real estate subsidies the exact opposite has occurred. Developers expect subsidies because ‘market rate’ renters won’t pay the actual cost due to the glut of competing, subsidized units that keep rent artificially low.

Signature Project begets a TIF-prone Orphan. FSL wants a tax subsidy to move a few blocks and build a sleek new 'signature project' office. Remember they are leaving an office building behind. The developers says it is in good condition and we will take that at face value. The problem is that there are long-term changes in work patterns. Unfortunately, it is unlikely that any company will move into the building as-is when TIFs grow on trees in KC. Another realistic scenario is that the building will remain vacant long-term, lose value and eventually be converted to residential, again ripe for a tax subsidy.

Does Crown Center care enough to send the very best? Crown Center has a lot of vacant land. This project portends a pattern of Crown Center selling its property piecemeal. We expect to see repeat types of abatement claims with each project separately. Other than more ‘but-for’ claims for high-end construction, we expect no coordinated parking plan from Crown Center resulting in extremely high public cost for each new parking garage for each new plan.

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