The Port Authority can clear the way for KCMO developers

Back in 2003, the sports architecture firm then known as HOK was in the market for office space. Kansas City, Missouri, was eager to help. The city, as it often does, issued tax breaks to a developer willing to erect a building at Third Street and Wyandotte. The Chelsea Theatre, a run-down porn hub, went away. In its place rose a gleaming new structure.

Besides lowering costs for the developer, the tax breaks, granted by the Planned Industrial Expansion Authority, made lease rates more attractive to HOK. The firm took up most of the building.

These days, HOK goes by Populous, and it’s done with 300 Wyandotte. The tax breaks on that building will last until 2029, but Populous is set to leave the River Market after a little more than a decade. It plans to move to the former Kansas City Board of Trade, just south of the Country Club Plaza, filling space left empty when the commodity exchange was acquired by the futures giant CME Group Inc.

Mariner Real Estate Management (a unit of Leawood’s Mariner Wealth Advisors) last year purchased the Board of Trade building. Like many owners of Kansas City office space looking for large tenants, Mariner wanted a tax break to help repopulate 4800 Main. This time, though, the real-estate tax break about to benefit Populous comes from an unlikely source.

The Port Authority of Kansas City in December quietly approved rarely used Chapter 68 bonds, creating a partial tax exemption for the south Plaza building. The property, of course, is not close to any port, unless you consider Brush Creek a navigable waterway.

The Port Authority, an entity created by state law, is more commonly associated with the slow development of the riverfront, which cuts through downtown, and the redevelopment of the old Richards-Gebaur Air Force Base in south Kansas City. But the Port Authority believes that it can involve itself anywhere it wants to in Kansas City — and it wants to get more involved in economic development.

In Kansas City, economic development means tax incentives.

“Yes, you should see us play a role as part of a group with Kansas City … to make sure we retain the right people in Kansas City and make sure we grow,” says Michael Collins, the Port Authority’s CEO.

Before Collins took the reins at the Port Authority, the agency was an obscure one that tended to cross the public’s field of vision only when scandal occasionally flared. There was, for instance, the 1990s episode in which its chairman was caught taking bribes from a casino. And the time, during the waning days of Mayor Mark Funkhouser’s administration, when one of its lawyers was embroiled in a double-dipping scheme involving Richards-Gebaur.

Collins, by all accounts, has cleaned up the Port Authority’s act. And though it continues to toil in obscurity, the agency wields extraordinary power under state law — with no direct public accountability.

Kansas City’s mayor appoints the Port Authority’s directors, and the Missouri Highways and Transportation Commission (appointed by the governor) has nominal oversight of the agency.

The Port Authority hasn’t issued debt since the mid-1990s, but it will do so to benefit the owner of the Board of Trade building and keep Populous in Kansas City.

Mariner initially sought approval for a tax break known as Chapter 100 bonds, through the Economic Development Corporation of Kansas City. For murky reasons, however, the project failed to qualify for the Chapter 100 program. So Mariner went instead to the Port Authority for its tax breaks.

When developers go after tax incentives, they typically go through agencies such as the aforementioned PIEA, or the Tax Increment Financing Commission. In those circumstances, the developer must meet the “but for” test, meaning that a developer has to show that a development would not happen “but for” the issuance of tax incentives.

Developers before the Port Authority don’t have to meet the “but for” test.

“We are not a ‘but for’ organization,” Collins tells The Pitch.

Nor is the Port Authority required to listen to the input of taxing jurisdictions such as the county and the school district. (When property taxes are abated or exempted, school districts are most affected.)

The Port Authority isn’t sitting still with the Board of Trade building. It has signaled that it may help downtown Kansas City’s Corrigan Station get tax breaks. The 10-story building at 18th Street and Walnut was once planned for apartments but is now slated to become office space.

A financial pro forma for the $40 million project shows that it would generate a $17 million positive cash flow for 20 years without any incentives. With incentives, that cash flow is projected to reach nearly $24 million.

Collins says the Port Authority supports the Corrigan Station project because it is along the downtown streetcar line. The Port Authority was Kansas City, Missouri’s partner in creating the transportation-development district that funded the starter line.

The Missouri General Assembly in 2010 expanded the power of the Port Authority to create what’s called a port-authority district. Like community-improvement districts and TDDs, port-authority districts can increase property or sales taxes within them, with only the approval of the Port Authority’s board of directors.

That could allow the Port Authority to undertake large projects — say, a streetcar expansion — without a public vote.

“Theoretically, it could be used for a streetcar,” Collins says. “Have we discussed that? Absolutely not.”

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