By Leslie Collins
Northeast News
Feb. 9, 2011

Every year, property owners tuck away substantial savings from tax abatements under Kansas City’s urban redevelopment plan.

Those owners are collecting the savings, but not following the rules.

Kansas City Auditor Gary White recently released an audit of six completed projects under the urban redevelopment plan and five of those projects weren’t meeting contractual obligations.

“The city does not have a monitoring process in place to systematically determine whether developers are meeting their contractual obligations to the city,” White wrote in a letter to the city council and Mayor Mark Funkhouser. “Until the city takes action to enforce its contracts, there are no consequences for owners’ failure to meet contractual obligations.”

If the city would have terminated the five unfulfilled contracts, taxing jurisdictions would have netted an additional $2.3 million for tax year 2009, including $372,000 for Kansas City.

Those taxing jurisdictions include the city, Kansas City Missouri School District, Jackson County, library, junior college, mental health, disabled services and state blind pensions.

It’s funding both the city and its taxing jurisdictions direly need.

In his letter to Funkhouser, Kansas City Interim City Manager Troy Schulte said the proposed budget for fiscal year 2011-2012 “reflects great uncertainty,” referencing both the sluggish economy and possible elimination of Kansas City’s earnings tax.

For two years, city employees have felt the weight of the economy with frozen wages, reduced benefits and the reduction in resources and available equipment to perform their jobs.

Residents of Kansas City watched their sewer and trash rates rise.

The city could recover millions of dollars if it simply enforced its urban redevelopment plan contracts.

How the urban redevelopment plan works

Kansas City created the urban redevelopment program as an economic tool to encourage the removal of blight and the redevelopment of property through the abatement of a portion of real estate taxes for up to 25 years.

Abatements are available for all types of property, but the terms and conditions vary with each redevelopment contract.

In return for receiving abated taxes, developers are supposed to follow certain obligations with the most basic one being removing blight through the construction, removal or renovation of buildings. Other obligations include submitting financial reports, submitting a change of owner notice, among others.

Only one of the six projects recently audited submitted all of the required reports. One developer didn’t submit any reports. Other submitted reports didn’t include all the required information.

Five of the projects had additional obligations and only two fulfilled those additional requirements.

One developer failed to pay nearly $67,000 for public improvements and another failed to fill out information to determine whether additional payments in lieu of taxes (PILOTs) were due.

Four of the projects failed to notify the city when ownership changed.

The list continues.

Failing to adhere to contractual obligations isn’t new.

In his audit, White cited a 1988 article from the Kansas City Business Journal that highlighted how Kansas City officials failed to require developers to adhere to the city’s financial reporting laws.

In 2001, the City Planning and Development staff found that only 58 percent of developer reports had been filed between 1995 and 1999. Of the reports filed, only 14 percent were in compliance.

White also said that reports are being “received and filed without review or evaluation.”

“As a result, the city has not received all revenues owed and not all projects progressed as promised,” read the audit.

Currently, developers are not required to request a certificate of full compliance. The only way city officials discover a contract is out of compliance is when a complaint is received or a developer makes a request, the audit said.

White urged the city to implement a plan to enforce the contractual obligations of redevelopment corporations and subsequent property owners.

White also said it should be the city manager’s role to ensure the city’s urban redevelopment contracts are monitored and to assign staff to monitor those contracts.

In an Oct. 29, 2010, letter to the auditor’s office, Schulte said he agreed with White’s recommendations and that his goal is to submit a series of recommendations to the city council in approximately 120 days.