Kansas cities force tax breaks on others

When Kansas cities grant economic development incentives, they may also unilaterally take action that affects overlapping jurisdictions such as counties, school districts, and the state itself. The legislature should end this.

When Kansas cities create tax increment financing (TIF) districts, the overlapping county and school district(s) have an opportunity to veto its creation.

But for some other forms of incentives, such as tax increment financing district redevelopment plans, property tax abatements, and sales tax abatements, overlapping jurisdictions have no ability to object. There seems to be no rational basis for not giving these jurisdictions a chance to object to the erosion of their tax base.

This is especially important for school districts, as they are often the largest tax consumer. As an example, when the City of Wichita offered tax abatements to a company in June 2014, 47 percent of the abated taxes would have gone to the Wichita school district. But the school district did not participate in this decision. State law gave it no voice.

Supporters of economic development incentives say that the school district benefits from the incentives. The argument is that even though the district gives up some tax revenue now, it will get more in the future. This is the basis for the benefit-cost ratios Wichita uses to justify incentives. For itself, the City of Wichita requires a benefit-cost ratio of 1.3 to one or better, although there are many loopholes the city can use to grant incentives when this threshold is not met. For the June project, city documents reported these benefit-cost ratios for two overlapping jurisdictions:

Sedgwick County 1.18 to one
USD 259 1.00 to one

In this case, the city forced a benefit-cost ratio on the county that the city would not accept for itself, unless it uses a loophole. For the school district, the net benefit is zero.

The Kansas Legislature should look at ways to make sure that overlapping jurisdictions are not harmed when economic development incentives are granted by cities. The best way would be to require formal approval of the incentives by counties, school districts, and any other affected jurisdictions.

Two examples

In June 2014 the City of Wichita granted tax abatements for a new warehouse. City documents gave the benefit-cost ratios for the city and overlapping jurisdictions:

City of Wichita General Fund 1.30 to one
Sedgwick County 1.18 to one
USD 259 1.00 to one
State of Kansas 12.11 to one

It is not known whether these ratios include the sales tax forgiveness.

While the City of Wichita insists that projects show a benefit-cost ratio of 1.3 to one or better (although there are many exceptions), it doesn’t apply that standard for overlapping jurisdictions. Here, Sedgwick County experiences a benefit-cost ratio of 1.18 to one, and the Wichita school district (USD 259) 1.00 to one. These two governmental bodies have no input on the decision the city is making on their behalf. The school district’s share of the forgiven taxes is 47.4 percent.

In November 2014 a project had these dollar amounts of property tax abatement shared among the taxing jurisdictions in these estimated amounts, according to city documents:

City $81,272
State $3,750
County $73,442
USD 259 $143,038

The listing of USD 259, the Wichita public school district, is likely an oversight by the city, as the subject properties lie in the Derby school district. This is evident when the benefit-cost ratios are listed:

City of Wichita 1.98 to one
General Fund 1.78 to one
Debt Service 2.34 to one
Sedgwick County 1.54 to one
U.S.D. 260 1.00 to one (Derby school district)
State of Kansas 28.23 to one

Note that the ratio for the Derby school district is 1.00 to one, far below what the city requires for projects it considers for participation. That is, unless it uses a loophole.


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One thought on “Kansas cities force tax breaks on others”

  1. I’d like to see the details of how these numbers are generated. The media does not report this calculation. They probably don’t understand it since most reporters struggle with higher level math. It is a sad fact that econometric modeling is about as successful as the government’s climate models are in predicting hurricanes.

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