If someone told you that land along U.S. 50 Highway in Sedalia’s west-side retail corridor was “undevelopable” or blighted, you likely would raise an eyebrow. But that is part of the city’s argument in pursuit of a Tax Increment Financing zone for a pair of undeveloped parcels: the strip of land west of Winchester Drive in front of the Econo Lodge motel and the land that stretches from the back of Galaxy Theater to the intersection leading to the new Menard’s complex that includes Kohl’s and Steak ‘n Shake.
According to the Economic Development Corporation of Kansas City, “Tax Increment Financing (TIF) is a financing and development tool that allows future real property taxes and other taxes generated by new development to pay for costs of construction of public infrastructure and other improvements. TIF encourages development of blighted, substandard and economically underutilized areas that would not be developed without public assistance.”
In essence, the city wants to redirect 50 percent of the sales tax revenue generated by new retail on those two plots back to the developer to help cover the developer’s costs to turn vacant property into viable businesses. In addition, the developer would not have to pay increased property taxes on the parcels for up to 23 years; despite higher valuation due to the improvements, the developer would pay the current property tax rate on the land.
“It’s a complex issue and the Legislature wrestles with the TIF issue every year,” said Sedalia City Administrator Gary Edwards, “so I can understand why someone would say it’s not adding up.”
Star Development, of Liberty, now owns the parcel behind the theater and has an agreement in place for the two parcels in front of the Econo Lodge. Star hired Polsinelli PC to create its TIF proposal to the city and to conduct a blight study for the properties in question; a blight study is required for any TIF proposal.
Missouri Revised Statutes Section 99.805.1 defines a “blighted area” as “an area which, by reason of the predominance of defective or inadequate street layout, unsanitary or unsafe conditions, deterioration of site improvements, improper subdivision or obsolete platting, or the existence of conditions which endanger life or property by fire and other causes, or any combination of such factors, retards the provision of housing accommodations or constitutes an economic or social liability or menace to public health, safety, morals or welfare in its present condition and use.”
Edwards said another determiner for blight is whether the property is developable.
“Historically, no one has developed that for whatever reason,” he said of the land in question. “And if there is a way for someone to come in and develop it, we’re anxious to talk with them.”
Differing viewpoints
In addition to the blight study, state statutes also require a “but for” determination – basically an examination of the developer’s projected costs and revenues to determine if the project would be completed “but for” the tax incentives. The city hired Springsted, an independent financial and management services company that only works with local governments, to provide that report.
Tom Kaleko of Springsted said the firm determined that the difference between the development costs and projected revenue was too great for the project to be completed without assistance.
“For this project, we would have to see a 39 percent reduction in cost to see a market rate of return,” Kaleko said. “It’s a combination of the cost of developing the sites and what they could derive in income from the sale to a third party to build a business or from the lease of the property or building by the developer, and it’s just not there. It costs too much to produce.”
Edwards said he knows other developers have attempted to buy the parcels in front of Econo Lodge and they have been unsuccessful. The city’s motivation to provide the tax redirection is to realize “additional revenue that is not coming into the city and additional services not provided to residents via retail (Star Development) plan to put in,” Edwards added.
The city does not know what specifically is planned for the sites, but, “It’s got to be something somebody is going to buy or that they are going to use or it’s going to fail,” Edwards said. “This is a no-risk TIF – there is no risk to the city in this. … If it fails, it is something the developer carries, not the city.”
The city had to appoint a TIF Commission, which includes representatives of the taxing bodies that would be affected. Commission member Allen Rohrbach, a member of the Pettis County Ambulance District board, represents some of the county’s smaller taxing bodies including the ambulance district, State Fair Community College and the Center for Human Services, among others. The TIF Commission will make a recommendation to the Sedalia City Council on whether to enact a TIF, but that recommendation is not binding – by a super majority, the council can vote to put a TIF into place.
The groups Rohrbach represents are against creation of the TIF; one reason is freezing the property tax proceeds on the parcels for such a long time.
“I hate to see public schools of any kind be limited … on any piece of property within the city limits,” Rohrbach said. “It’s not a whole lot of money, but if you have been in the education business very long, you know a little bit can go a long way. … I’m sure everything they have done is legal, but how ethical is that treatment of those particular groups?”
Edwards said one of the misunderstandings on TIFs is that the taxing entities lose money.
“They are not going to lose what they are getting right now – they lose nothing, and they stand to gain a lot of money,” he said, referring to potential sales tax income and later, higher property tax proceeds. “They also stand to gain what (services and amenities) those businesses bring into the community, which is not happening right now.”
Unanswered questions
From the perspective of the proposal’s critics, Kaleko “can see where a person intuitively might say, ‘Gee, why is assistance needed?’ We all know we can’t rely entirely on intuition – it will lead us astray. The numbers here indicate is that when you look at the cost of developing those sites compared with the income that can be derived from them, it doesn’t work, and maybe that is why they are still sitting vacant.”
Rohrbach sees it another way.
“Supply and demand will take care of those issues if given time,” he said. “If you price them too high and you want to get rid of them, the price will have to come down.”
City officials contend TIFs were created by the Legislature “specifically for things like this – if something has not developed, let’s get something in there that will be of benefit to the community,” Edwards said. “If this doesn’t happen, it’s going to sit there. Nothing is going to happen with that piece property. … We are trying to change that.”
Still, Edwards acknowledges that “these questions are out there, and they are understandable questions, and they are questions that we are going to need to answer.”