KC Tax Incentives 101
A Tool. Tax incentives are supposed to be used areas where lenders are not willing to invest, or to fill a money “gap” between construction costs and what a project will actually earn. These are the conditions in continuously distressed parts of the city, and when building truly affordable housing.
How they work. Missouri law allows many different tax incentives. Cities have the authority to divert or reduce taxes that would otherwise support public services like schools, mental health funds and libraries. Often the rationale is to address blight or create jobs.
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Property taxes are kept the same for up to 25 years (frozen), even though the property is worth much more after construction. Property continues to increase in value due to normal inflation. That is a big tax discount!
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With Tax Increment Financing (TIF) money that would otherwise be paid for property tax is “diverted” to cover loans, construction, and other costs.
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Some incentives “abate” taxes so only the original (small) amount is paid.
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A Sale-Leaseback means that the city or its proxy agencies EDC or PortKC buy land or buildings, then the developer leases it. Since the City is the owner, it not taxable.
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When the project is over, it is generally supposed to start paying all its property taxes. That often take two decades of lost revenue.
A Numbers Game. Incentives in KC claim they fill a financing gap. "But-for"means if not for the incentive, the project could not occur. KC gives a lot of tax incentives in desirable areas where financing by private lenders should be sufficient, such as near the Streetcar. Instead of making these projects ‘possible’ it pays for unnecessary parking garages, increases their size, have luxury finishes, and have amenities like rooftop bars and swimming pools.
