Sunday, July 20, 2008
Clawbacks Needed in Downtown Tax Abatement Scheme
Clawbacks are the mechanism by which municipalities can guarantee that the recipient of tax abatements come through with their part of a redevelopment plan. For instance, a couple of years ago Utilicorp (which became Aquila, which is now owned by KCP&L – for those who like to keep up) went to the City of Kansas City with a plan. They would rehabilitate and refurbish one of K.C.’s iconic buildings, the 20 West Ninth Street Building, and re-locate the corporate headquarters to that location. In return, the City would grant some tax abatements and along with other considerations, cut in half the Earnings Tax on all those who work in the building. Years later, Utilicorp became embroiled in the mess most of us remember as Enron. The value of Utilicorp’s stock dropped from $37 to $3. The company was reorganized. Drastic cuts in personnel and a sell off of property to keep the utility solvent were carried out. Part of the reorganization was the abandonment of the new headquarters at 20 West Ninth Street. The City of Kansas City got wind of the plan to move. They demanded and received a return on most of the tax abatements (including the Earnings Tax cut) that had been given to Utilicorp. That is how a clawback works. At its last meeting, the Raytown Board of Aldermen approved a resolution of “policy guidelines and review criteria” to hand out tax abatements to business owners in Downtown Raytown for improvements to their property. The plan is to allow tax abatements of up to 15 years for improvements for businesses who invest in the Downtown by fixing up property. Clawbacks were not mentioned in the resolution. But they are definitely needed. Below is a short list of qualifiers the city should require before handing out any tax abatements in Downtown Raytown. 1. Provide that occupancy of the property be 100% for the entire term of the tax abatement. This will keep developers from capturing the tax abatement but leaving empty buildings in their wake. 2. Provide a minimum of full time employees per business. This protects the city from a business operation that does not boost employment. For instance, should a real estate agent be considered a “full time” employee? Most agents, particularly in this market, are part time at best. Some have moved on to other jobs but still post properties in the hopes that a sale may happen. The city should demand an annual audit of payroll data to verify a firm’s employee base. 3. Payments should be held in escrow for a period of time before remittance to a business owner. This insures the business owner will not close its doors before the tax abatement runs out. Anyone wondering why need only look as far as the Raytown Plaza to see how easy it is to walk away from a project. The developer of that project has pulled out. If readers have any other ideas about how to best defend the taxpayers’ dollar, please send them in. I will see that they are forwarded to the Mayor for consideration. When? Hy-Vee has put a fence around its future location on 350 Highway and moved in a construction trailer. Proof positive that they intend to stay in Raytown. And why not! The city has given them a 15 year property tax abatement and a one-half cent sales to pay for the improvements to their new property. But it does raise other questions. For well over a year I have been reading press releases, chock full of adjectives about how soon, soooon, sooooooon, the Old First Baptist Church will be coming down. And, of course, everyone knows that Walmart will be breaking ground for its new store. What I find frustrating is that no one will say when this going to happen. Hopefully the answers will come soon. At its last meeting the Board of Aldermen closed the deal with the school district on the property where Walmart is suppose to be built. Acting City Administrator Nancy Thompson told the Board that with approval of the deal with the school district the last hurdle last hurdle is cleared so that Walmart can begin construction. Unfettered Optimism . . . So much effort and attention has been placed on plans for the economic future of the city that the basic job of running a city has fallen by the wayside. It is well to speak of a shining new Downtown and an economic engine on 350 Highway. But when your residential streets are literally crumbling into dust and the economic engine on 350 Highway is making ominous noises like a large sucking sound that may siphon away sales tax dollars, things begin to look less than rosy. A while back one of our bloggers wrote that that good ship Raytown is listing hard to port. Economic development is important, but the city needs to right the good ship Raytown by setting a balanced course for its future. Unfettered optimism about the future can blind one to the present reality. In the past year Raytown has two accomplishments of note -- a vest pocket park Downtown and a new recycling center. The vest pocket park was developed with money from donors. The new recycling center has been restructured in such a way that it will actually make money for the city. The point is that much more should be happening. The city used to have a good reputation for maintaining its streets and focusing on neighborhoods with street lighting, etc. Getting back to basics would be a good start.