‘We’re sticking it to ourselves.’ Will KC set new incentive precedent at Crown Center?

For years, top executives at Hallmark Cards pushed local politicians to end the economic border war, which allowed companies to receive tax subsidies for relocating across the state line.

The Hall Family Foundation tracked the wasteful subsidies, estimating Kansas and Missouri spent some $300 million to help companies relocate with few new jobs to show for it.

“It has taken political courage to end this wasteful and divisive practice,” Don Hall, executive chairman for Hallmark, said as the states celebrated their historic truce in 2019.

But now Hallmark and its subsidiary Crown Center Redevelopment Corporation are both urging the Kansas City Council to award incentives to a company that wants to move less than a mile down the road. And it’s not even hopping the state line.

Fidelity Security Life Insurance seeks more than $10 million in state and local incentives to build a new $83.4 million office tower near Crown Center. The request has come under fire from neighbors, the school system and the public library.

If the current proposal is approved, the insurance firm would receive more incentives than companies coming from across the state line. That’s because the recent agreement that Kansas City made under the border war pact limits the length of incentive deals for border-hopping companies.

Fidelity Security has not proposed to add more jobs, but simply move them less than a mile from the current headquarters on Broadway Boulevard.

“It’s like a border war that we’re playing with ourselves,” said Janice Bolin, director of finance for the Kansas City Public Library. “We’ve drawn a truce with bordering jurisdictions, but now we’re sticking it to ourselves.”

The Kansas City Council is expected to weigh the request on Thursday. If it approves the plan, critics worry that it will send a startling message to local businesses.

“I think it sets a bad precedent for the city, “ Bolin said. “Because I feel like any company now that wants a new office building can threaten to leave the city and kind of hold us hostage for tax incentives.”

Both Hallmark and Crown Center sent letters to the City Council supporting the project’s incentive request.

“The ability to retain a strong corporate citizen like FSL in Kansas City is essential to the prosperity of Main Street and our urban core,” wrote Stacey Paine, Hallmark’s executive vice president of real estate.

The developer of the office tower plans to purchase the site at 2700 Grand Avenue from Hallmark for $6.9 million, according to a financial analysis.

“Hallmark Cards and Crown Center are supportive of the project, as it benefits both Kansas City and the master plan of Crown Center,” said Crown Center spokeswoman Anne Deuschle. “Questions about incentives should be directed to the developer and owner of the project.”

So far, the city is only considering the incentive request as no development or design plans have been submitted.

Nathan Jensen, who studied the border war between Kansas and Missouri for years, was astonished to see that Hallmark is backing tax breaks for this intra-city move.

“I’m kind of flabbergasted is the best way to describe it,” he said, noting that the involvement of major companies like Hallmark was crucial to ending the harmful practices of the border war two years ago. “There’s not even a claim of any public benefit.”

Jensen is a professor of government at the University of Texas at Austin. He started studying the border war here while working at Washington University in St. Louis. He has since authored the book, “Incentives to Pander,” exploring why politicians frequently over-incentivize business development.

Generally, academic research has found that at at least 75% of companies awarded incentives would have made a similar investment regardless of the public subsidy, he said. Jensen says academics have long cited the border war here as a prime example of wasteful use of government incentives.

The insurance company proposes an eight-story office building set atop a five-floor garage that will house 400 parking spots. At more than $41,000 per parking space, an independent financial analysis pointed to the cost of parking as a major driver of the need for incentives.

Another factor driving the incentive request is the building’s unique curved design. Jensen found that particularly galling, as the company is in essence seeking public subsidies for building a more costly building than is necessary.

“I think the gold toilet is a pretty good analogy here. We really want this, this would be super cool for us, will the public pay for it, please?” he said. “That is really, really rare.”

Fidelity Security is seeking a 15-year property tax abatement that would cut taxes in the first decade by 70%, and by 30% for the following five years. That’s estimated to be worth $7.5 million. The company is also seeking a sales tax exemption on construction materials and $3 million from the Missouri Works program, which is aimed at encouraging business expansion and retention.

Officials with the insurance company did not respond to a request for comment.

Last week, before a City Council committee endorsed the request, Fidelity Security’s attorney, Dave Frantze, said the building would not be built without the tax breaks.

“The challenge here,” he said, “is unless we have incentives we don’t have a financially viable project.”

Last week, Councilman Lee Barnes Jr. , 5th district at-large, said incentives were appropriate for the life insurance firm because the city could otherwise risk losing an employer that’s been here for over 50 years.

Fidelity Security Life Insurance has not publicly threatened to leave Kansas City.

That was the tactic employed by BlueScope, which leveraged an offer to relocate to Kansas last year as it sought $14 million in state and local incentives to stay at its West Bottoms facility. The Council ultimately denied incentives and BlueScope renewed its Kansas City lease until 2034.

Councilwoman Katheryn Shields, 4th district at-large, who supported incentives for BlueScope, said she plans to also support incentives for the new building, which is in her district.

Earlier this year, the Council approved incentive reform that limited most economic development incentives. Shields said Fidelity Security Life Insurance is abiding by those limits, which cap most incentive awards at 15 years.

Critics have pointed out that the financial analysis on the project shows the building could be built with a 10-year abatement, rather than the city’s cap of 15, with little financial impact.

“Generally, it seems to meet the criteria we have for providing incentives,” Shields said. “So I am generally in support unless I hear something that makes me not in support.”

In addition to the library, Kansas City Public Schools and residents of nearby Union Hill have objected to the incentives, which would reduce potential tax collections for 15 years into the future.

But since the development site has been vacant since Crown Center was built 50 years ago, Shields said the taxing jurisdictions are not losing out on revenue, but will actually gain more even with the incentives.

She dismissed concerns from the school system, saying it has shown an opposition to all use of tax incentives.

“I think trying to negotiate things with the school district has proven to be pretty much a useless activity,” Shields said.

School officials say they aren’t against all incentives.

But they said that schools shouldn’t have to subsidize more parking in an area home to thousands of existing parking spaces. KCPS has pushed for the city to implement some sort of shared parking plan or strategy for the Crown Center area to no avail.

And they worry this issue will come up repeatedly as more development occurs along the Main Street extension of the Kansas City Streetcar.

The school system also says the council should not approve a request for more incentives than are needed just because it can.

“We’re always concerned when a project is over-incentivized because it’s potential dollars coming out of our classrooms,” said Kathleen Pointer, senior policy strategist for the school system. “But especially at this location and especially considering it’s an over-ask for a company already located within Kansas City.”