The promise was there, twenty years ago, as cities began to dabble in a new way of raising money for hard-to-develop land. Cities, the county and school districts would forgo revenue from higher property values on newly improved land. Instead that money would go to developers for their costs. After a couple of decades, those costs would be paid and that revenue would be a boon to be reclaimed by the schools and cities.
It was called tax increment financing, and back in the 1990s, only a few Johnson County cities were brave enough to dip in a toe to an arrangement that is now a regular feature of city council meetings.
But 20 years is now about up on some of the oldest of those first Johnson County TIF districts. And as the clock winds down, it has become apparent that things don’t always pan out as expected.
In Merriam, the end of a TIF district two years ago may be a contributing factor to concerns about loss of tenants in Merriam Town Center. In Lenexa, a district set up in 1998 to reclaim old limestone mines has grown and morphed over the years, so that there may not be a return to the tax rolls for another 20 or 30 years.
In other cities, the districts can be close to or even just past the 20-year mark, yet they haven’t been closed yet because development is still going on.
As developers’ requests for tax increment financing have moved from special cases to de rigueur, the state of some of those first TIF projects in the Shawnee Mission area show that things don’t always go as initially planned.
Roots in Shawnee Mission in the early 1990s
Tax increment financing started in 1952 in California but didn’t begin to catch on in Kansas until the early 1990s. It’s basically a way to use the increases in property values to leverage some costs of development. When new offices, stores and entertainment are built, the values — and hence the tax revenue — go up. But with tax increment financing, that increase is put aside and sent back to the cities, earmarked for some of the eligible costs of development, like roads, earth work and demolition. The cities then reimburse private developers for expenses that are approved as eligible for use TIF funds under the agreement between the developer and the city.
The usual time span for this is around 20 years. TIFs can be ended earlier. Lenexa did that for a project converting the Thompson barn off Interstate 35 into an office for the chamber of commerce and event space. But for a variety of reasons, many run longer. In some cases much longer.
Most cities in Johnson County have not had TIF districts long enough to have any that are ready to close. The first trickle of districts started in the mid 1990s, but began in earnest around 2000 and 2001, according to state records of the county tax increment financing districts.
Roeland Park and Merriam were the early adapters, followed by Olathe and Lenexa with the Thompson barn.
Merriam Town Center was recognized as the biggest redevelopment project in Kansas when it was begun. With its development a Hen House Market, Cinemark movie theater and several other large retailers moved into the northwest corner of Antioch Road and Johnson Drive – a corner that had been blighted and underdeveloped for years.
When the TIF ended in 2016 the city was pleased to announce that assessed property values had increased thirteen fold in the area from $951,000 in 1995 to $12.6 million. As a result, the schools would see $666,000 more per year in revenue, and city $329,000 more than it would have gotten pre-TIF.
But two years later things look less rosy. Hen House announced plans to close its Merriam Town Center store and officials are concerned about what will happen with other businesses. City leaders are now discussing whether there’s anything they can do to help keep the center from deteriorating.
Options are somewhat limited, said City Administrator Chris Engel. Community improvement districts that use additional sales tax within the area are less restrictive than TIFs about what they will pay for, he said, so that could be a possibility. Starting a new tax increment financing district would be less palatable, he said.
The challenges of the Merriam Town Center are due to a convergence of circumstances, he said. Commercial property values went up, right at the time that many leases are expiring. But the end of property tax break didn’t help either, Engel said. In the end, that additional expense could be passed along to tenants in the next lease, he said.
That cluster of events keeps the Merriam Town Center district from being a perfect test case for what may happen as other TIFs expire, Engel said. “I don’t think it was necessarily because the TIF expired. I think that was one factor that played into it, though.”
Changes to the way TIFs are structured
Over the years, cities have changed the way the taxing districts are set up. That is part of the reason they are lasting longer than 20 years. The Merriam Town Center and Lenexa Thompson Barn TIF were relatively limited in scope, with a single project area. That made them more likely to be dissolved sooner.
But nowadays cities and developers are subdividing the districts into more than one project area. Under that kind of set-up, work can start years later on a second or third project area, or the boundaries can be changed. That keeps the district open as long as there’s still development going on in part of it.
That’s what’s happening in Lenexa, where work to reclaim a former limestone mine is proving so extensive and complicated that it may be two or more decades before the cities and schools get the full benefit of increased property values.
Lenexa created its Meritex district back in 1998. Located west of Renner Boulevard between Prairie Star Parkway and Kansas Highway 10, the district was originally intended to get the former mining site shaped up to make it viable for commercial development, said Lenexa City Administrator Eric Wade.
The problems were extensive. “Have you ever traveled to the moon? Or seen pictures of the moon? Because that’s what it looks like out there,” Wade said. “It looks like a moonscape.”
But that rocky area is a big part of the city’s future development plans because it is where the new Ridgeview Road connection will be built linking Prairie Star Parkway to K-10. Once the road is in, commercial development will follow, city leaders believe.
The original Meritex district has been redrawn and renamed since 1998, with more projects on the horizon. When it expires will depend on the market, he said.
“If all the work gets done in the next couple of years you can add 20 years or maybe a little less, depending on how it performs,” he said. But if there’s a recession and things stall out, “it could go out 30 years from now.”
Meanwhile in Roeland Park, the state’s first TIF district at the area south of 50th Terrace that now contains a Walmart is on track to close soon.
That district began in 1993 and is believed to be the first one in Kansas. City officials recently took steps to get ready to dissolve it in 2023. As with other districts, the TIF went longer than 20 years because some development started later within the district, said Keith Moody, city administrator.
Once it’s dissolved, an estimated $829,905 will go back into the taxing districts. Moody said there were no negative repercussions from dissolving another district boundary for an area known as TIF 2, and the city has no plans to extend the district’s life.
But it could if it wanted to. In fact, there’s nothing that compels a Kansas city to end a TIF once the work is done. Cities can keep them open and keep collecting the tax increment money, theoretically. The way that money is spent is determined by the redevelopment agreement between developer and city, but such things as sidewalks and streetscaping might qualify.
“Let’s say that there’s been a visioning taking place along the corridor and the city and developer would like to see enhanced sidewalk or bikeway improvements,” Moody said. If there’s no other demand on the increment money and it meets the development agreement requirements, the city could use it.
That’s the type of thing that raises the eyebrows of some government watchers.
In Kansas City, Missouri, a group called the Coalition for Kansas City Economic Development Reform was formed two years ago to fight misuse of the taxing districts. Although laws differ between Kansas and Missouri, the basic issues are the same. The coalition wants to keep make sure the money is being used effectively and efficiently, said spokesperson Jan Parks.
The group has fought the extension of TIF districts in Kansas City because they keep money from going to schools, she said. “We hear them say that well, once we get through it, it goes back on the tax rolls and you’re going to have so much more money. To which we say: That’s almost two generations of school kids that go through without getting the benefit of any amount,” Parks said.
But proponents say the long-term projects can be justified. “Some of these areas we’re talking about do take more than a generation to get done. And if you didn’t do anything, you’d be sitting there with something that either there’s nothing there or it is very detrimental to the community,” Wade said.
Parks’ TIF watch group doesn’t have a Johnson County chapter. But other governmental entities have started to keep a closer eye on TIF requests. Shawnee Mission School District leaders raised the possibility of exercising their veto power over a proposed TIF district associated with the Meadowbrook Park development and other projects back in 2015, and then developed a formal policy for which TIFs they would accept.
Tax increment financing proponents argue that the incentive is necessary to get developers interested in redevelopment of blighted areas or difficult terrains, where there’s extra expense. If development doesn’t happen, there’s only raw land on the tax rolls that doesn’t bring in nearly as much as developed land, they said.
The mining land in Lenexa is a good example, Wade said. That project will take “what is really forlorn property and turn it into great property that eventually creates a better tax base so we can continue to provide city services and so the school district has a good tax base in the future,” he said.
“To me the best analogy is you go out and plant an apple orchard, you don’t get to pick the apples the first year. But if you do it right, you’ve got apples for decades,” he continued.
The goal is always to get the full amount back to the taxing districts, he said. But sometimes, “the undertaking is just huge. Some of these areas we’re talking about do take more than a generation to get done. And if you didn’t do anything, you’d be sitting there with something that either there’s nothing there or it is very detrimental to the community.”