Riverside Boutique Hotel Development Raises Questions About Kansas City Tax Incentives | KCUR 89.3

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With the help of controversial tax exemptions, a new boutique hotel is coming to Berkley Riverfront in Kansas City.

The Kansas City Port Authority (Port KC) voted in late July to issue bonds for the Origin Hotel. It will be built across from the Union Apartments and will offer 118 hotel rooms as well as a full-service restaurant, bicycle library and fitness center. Port KC estimates it will bring at least 70 jobs to the neighborhood to staff the hotel and restaurant.

The project’s developer, The Thrash Group, receives a total of $6.8 million in tax exemptions over 20 years. Port KC exempted the hotel from 75% of its property taxes for the first 10 years and 50% for the second 10.

Some public entities, including Kansas City Public Schools and the Community Mental Health Fund, have expressed frustration with the tax exemptions. They believe Kansas City is giving developers more tax incentives than necessary, at the expense of tax jurisdictions that rely on property tax revenue.

Origin Hotel will bring a mixed-use development to the riverside

Until now, development along the Berkley River has been primarily residential. The two main developments are the completed Union apartment complex and the Core apartment complex, which is still under construction.

Port KC CEO Jon Stephens said the agency had prioritized mixed-use development in the neighborhood.

“Whereas [housing is] wonderful, and you still want to have places where citizens live… you have to have more than that if you really want to build community,” he said. “We know that to really be successful, we need those jobs and we need people spending money there. So that’s the next step.

The Thrash Group is a Mississippi-based developer that has built hotels in Austin, Texas; Lexington, Kentucky; Raleigh, North Carolina, and two in the Denver area.

Although Port KC executives said they had difficulty recruiting developers for a riverside hotel project, Stephens said The Thrash Group meets important criteria.

“They said, and we will stand by them, that a large percentage of construction and operations will be going wage” and the union, he said. “All public upgrades for this project will be at 100% of going wage.”

Stephens also noted that the project does not contain a parking structure, which has been difficult to negotiate with some other developers. The project has surface parking for 50 vehicles.

“We know it’s usually one of the most expensive components of projects and people rightly criticize and say, ‘Why should the public pay for all that parking?'” Stephens said.

Local tax jurisdictions concerned about tax exemptions for boutique hotel

Tax exemptions in Kansas City have long been controversial, and some government agencies are unhappy with the use of this tool for a luxury project they say does not serve the public good.

“While the school district does not oppose all incentive requests, we have serious concerns about a quarter-century cut for a hotel project,” said Kathleen Pointer, senior policy strategist at Kansas Public Schools. City, at a Port KC Development Committee meeting. in May. “It’s an inappropriate use of potential public funds, especially in today’s market.”

Port KC’s main tool for encouraging development is the tax abatement, which reduces the amount of property tax developers are required to pay.

His reasoning is that the undeveloped land Port KC owns is empty and produces no property tax revenue, so any property tax revenue from new development is a net positive, with or without an abatement.

But the tax jurisdictions question the extent to which Port KC should encourage its projects, if at all.

Much of the property tax revenue funds the school district, and KC Public Schools hasn’t been shy about offering its opinion on tax incentives.

The school district has a web page devoted to the impact of the tax abatement on its income. In 2021, the district lost $37 million due to the tax abatement. In fiscal year 2018-19, tax abatement losses amounted to $1,069 per student. By comparison, that number was $379 per student in North Kansas City and $95 per student in Raytown.

The Community Mental Health Fund, which supports organizations that provide mental health services, is another tax authority whose revenues are affected by the property tax abatement. Its executive director, Bruce Eddy, is less enthusiastic about the Origin Hotel.

“We give it a ‘meh,'” Eddy said. He said Port KC has not demonstrated that there is a market for a riverside boutique hotel, nor has it hired a third-party analyst to critique the project.

Concerns over how Kansas City uses tax exemptions

Nathan Jensen, a professor of political science at the University of Texas at Austin, has studied the use of tax incentives in Kansas City, specifically how they have been used to shift economic development from state to state. .

“There’s a lot of criticism about the overuse of economic development incentives,” Jensen said. “Most researchers have identified that they’re overused in the sense that they’re often given to companies that don’t need them, or they’re overly generous.”

Support for tax abatement is often based on a “without” argument: the idea is that “without” the incentives, development might not occur. Jensen wonders if this argument holds water, especially when the incentivized development is a commercial project, such as a hotel.

“There has been a movement over the past 20 years to not encourage retail,” he said. “The idea is that it just displaces other retail businesses.”

Although a project like the Origin Hotel advertises about 70 new jobs, Jensen said those jobs will likely be moved from another hotel or restaurant to another part of Kansas City.

“If it doesn’t generate a lot of jobs — or if it generates jobs, but probably displaces jobs — the only real value is the tax benefit, which you get for taxing that hotel,” Jensen said. “But often that’s exactly what governments give up on.”

KC tax jurisdictions demand transparency and independent analysis

After a developer presents its financial analysis for a project, Port KC works with the developer to see what kind of tax incentive would make the project suitable for bank financing, Stephens said.

While some Kansas City development agencies obtain independent studies of a project’s financial viability, Port KC relies on its own financial analysis. Stephens said Port KC staff have financial expertise and use third-party data in their analyses. He wonders if a third-party analyst would have the expertise needed for the variety of projects Port KC handles.

“I’m absolutely not opposed to third-party analysis,” Stephens said. “We show our work. We show all the data, we show where it has changed, where it was heading, which is exactly what the other parties are doing. But we are exploring if we could use a listener.

Port KC’s reliance on in-house expertise has become a point of contention for tax incentive skeptics.

“Jon is adorable, but at the end of the day, it’s a secret sauce, and it’s very disturbing,” said Eddy, of the Community Mental Health Fund. “When you’re making public investments, I don’t understand how anyone can allow that to happen, other than the fact that the environment is ultimately developer-centric.”

This story originally appeared in the Kansas City Beacon.

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