Two Overland Park council members made their case Wednesday for a moratorium on sales tax incentives for developers, but the council committee overseeing those incentives declined to move the idea forward.
Councilmembers Faris Farassati and Scott Hamblin proposed a policy change that would ban sales tax exemptions offered to developers for the next five-year budget cycle. Such a ban could not legally change sales tax incentives already in progress, but would be affect future projects.
“It’s just as simple as it looks,” said Farassati as he introduced the topic to the Finance, Administration and Economic Development committee Wednesday. Neither Farassati nor Hamblin are members of the committee, but they had asked to make a presentation and have discussion.
Farassati said allowing continued exemptions threatens the city budget when money will be needed to cover pay for first responders and other costs of the pandemic. Sales tax revenues were sinking due to online shopping even before the shutdowns triggered a recession, added Hamblin.
“The logical approach would be to protect this asset and simply not give it away or write it off,” Farassati said, pointing out that the sales tax revenue could bolster a shrinking budget reserve fund.
But committee members said that the idea was not actually that simple. Giving incentives to developers brings about improvements and higher property values, which in turn bring in more property taxes, said committee chairman John Thompson. That growth can offset some of the temporary lost of sales tax.
“You’re going to get development in places where you might want it, and you’ll get the type of development you want. That’s going to be in the best interests of Overland Park,” Thompson said.
Councilmember Paul Lyons said that the resolution the two proposed would tie the hands of future councils, who in any case already have the option of turning down incentives on a case-by-case basis.
Lyons and Thompson also argued that a ban would send a message to developers that the city would not work with them. “If we were to unilaterally disarm in this way it would be sending a signal to the development community – don’t come spend your money developing projects in our city,” Thompson said.
But Farassati said the policy is needed to make it clear to developers where the city stands. “When you leave it open to case-by-case you are also leaving it open to lobbyists efforts, to who can hire the biggest hotshot lawyer,” he said.
Sales tax exemptions over the past five years amounted to about $4.6 million for the city. Farassati and Hamblin said that money could help the city face the uncertainty of the COVID-19 outbreak. The money is 11% of the reserve fund that the city has been paying down in recent years, Farassati said.
“I am amazed we are still arguing about if this is necessary when an avalanche of financial disaster is in front of our eyes,” he said. Overland Park is an attractive enough area that developers may not pass it up because of the loss of a sales tax exemption, he said.
There was no appetite among committee members to move the idea forward, however. Councilmember Logan Heley said the discussion was too lacking in data. “I’m not sure how productive this conversation has really been,” he said.
He said the city should look at its overall public investment strategy in light of the pandemic, but there needs to be more data and analysis. “I feel like tonight has led nowhere.”