Can anyone say no to Burns & McDonnell?

Burns & McDonnell CEO Greg Graves was the star of the Greater Kansas City Chamber of Commerce’s 123rd Annual Dinner. On that night in 2010, Graves was introduced as the chamber’s chairman for 2011.

The event, held inside the Hyatt Regency–Crown Center ballroom just before Thanksgiving, is the local business community’s Super Bowl. It’s a gathering of hundreds of businesspeople and politicians, all dressed to the nines, sipping cocktails and eating chicken dinners. Social hour gives way to drawn-out, congratulatory speeches by chamber elites.

But the 2010 affair was a little different. Then–Kansas City Mayor Mark Funkhouser skipped the event, citing his frequent criticisms of its host organization. (The next day, Funkhouser would blast the chamber for supporting business tax incentives that encourage companies to hopscotch the state line.) No one seemed to care about the mayor’s absence.

As is customary, Graves took the podium to give his speech as incoming chamber chairman. Some of his remarks strayed from the usual upbeat tone of past chamber dinners.

Graves directed his ire at conservative interests, led by St. Louis billionaire Rex Sinquefield, that had spent nearly $1 million to convince voters to repeal Kansas City’s one-cent earnings tax. The tax generates about $200 million each year for the city’s general fund. City leaders said losing that money would lead to severe cuts in public safety and basic services. So Graves fired a shot at Sinquefield.

“We would like you to take your high school civics experiment and go home,” Graves said, eliciting a roar from the crowd.

Burns & McDonnell backed up Graves’ remarks with a $50,000 contribution to the campaign to keep the earnings tax. Kansas Citians overwhelmingly agreed, voting to keep the earnings tax by a 78-22 margin in the April 2011 election.

Three years after defending the earnings tax, Graves wants to use it to help pay for his engineering powerhouse’s expansion in south Kansas City. Burns & McDonnell is seeking a tax-increment-financing package that would direct half of the earnings taxes generated from new Kansas City employees to the engineering firm for the next 23 years. All said, the incentive would redirect $41.9 million from the city’s coffers to Burns & McDonnell to help pay for the company’s $231 million proposed expansion project at 9400 Wornall.

For a company like Burns & McDonnell, which doesn’t charge sales tax, TIF is a tool that largely redirects earnings taxes generated by the employees at the Beth Shalom expansion site to cut down on private development costs.

“Obviously, the earnings tax is vitally important to the city, not just for basic services but also to be able to use as a tool to help attract, retain and help companies that are here expand,” says Mike Talboy, a former Missouri state representative who now works at Burns & McDonnell as director of government affairs. “And we will continue to pay the earnings tax that we currently pay and we will obviously pay on the new jobs that are created from the expansion.”

In 2013, Burns & McDonnell paid $2.9 million in earnings taxes, along with another $300,000 from contract employees.

The new site would replace the sprawling, gaudy building previously owned by Beth Shalom, a Jewish congregation that moved to Overland Park in 2011.

On April 22, the Tax Increment Financing Commission approved the request for the earnings-tax redirection. The proposal now goes to the City Council, where it is certain to receive approval from elected officials who cheer — and benefit from — the company’s presence.

Burns & McDonnell is a fast-growing company with 2,600 local employees, and it expects to almost double in size over the next five years. The firm is approaching $2 billion in annual revenue, owing to its engineering presence around the globe and in Kansas City, where it is doing extensive work on the city’s $4 billion overhaul of the sewer system, among other projects. But Burns & McDonnell’s influence isn’t limited solely to the engineering world.

The firm is one of the leading financiers of local political campaigns, including funneling money to Kansas City Mayor Sly James and other members of the City Council, who ultimately decide whether Burns & McDonnell will get its tax incentives.

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On November 26, 2013, 263 Burns & McDonnell employees made contributions to James’ 2015 re-election effort. Most of the donors lived outside Kansas City. Burns & McDonnell itself contributed $3,500 to James’ as-yet unopposed campaign.

No stranger to City Hall politics, the company hosted a “candidate preparation” event, on April 26, at its headquarters (across the street from Beth Shalom) for those seeking seats on the 2015 Kansas City, Missouri, City Council.

Council members, such as John Sharp, often laud Burns & McDonnell as a “good corporate citizen.” The firm’s track record of community involvement is undeniable: educational programs for local schools; a $1 million donation to preserve Union Station; and contributions to local arts organizations such as the Kansas City Ballet, the Kansas City Symphony and more.

But for what Burns & McDonnell gives, it also receives. Since moving its headquarters to 9400 Ward Parkway in 1996, the firm has received $58.9 million in tax credits and incentive programs from the state of Missouri

With an increasing number of its members living in Johnson County, Congregation Beth Shalom left 9400 Wornall in 2011 for 143rd Street and Lamar, in Overland Park. The move left the jagged-roofed building off Bannister and Wornall roads empty and on the market for $6 million.

Because the property was owned by a religious organization, Beth Shalom paid no property taxes — other than a $505 annual boulevard tax, owing to its location off Ward Parkway.

The building has been a magnet for vandalism since it was vacated, according to those who have toured the grounds.

“It’s the most vandalized building in my 29 years in Kansas City,” says Scott Belke, an appraiser who did a blight study on the property in order for it to qualify for incentives.

Copper thieves stripped away at the building’s pipes and other infrastructure. Mold and asbestos also linger inside.

VanTrust, a relatively new development team supported in large part by the estate of late Merriam auto dealer Cecil Van Tuyl, bought the building in 2013 for $2.5 million. The consortium expects to enter into a venture with Burns & McDonnell to co-own the property. VanTrust officials say the partnership would still be an arm’s-length transaction, adding that they bought the Beth Shalom campus with no specific purpose in mind.

It was a smart investment for VanTrust. The building sits near Interstate 435 to the south and at the end of the Ward Parkway corridor — a stretch of mostly commercial buildings that have been filled with new tenants, including Applebee’s International and Burns & McDonnell in two different locations.

The $2.5 million purchase price was well below the $8.27 million market value that Jackson County pegged to the Beth Shalom property for tax purposes.

The congregation and VanTrust received interest from several potential buyers, including an unnamed party that wanted to build a mixed-use development there. But no sale occurred, in part due to vandalism.

VanTrust officials say the building is difficult to secure because of its extensive perimeter. The building had little trouble while it was occupied; Kansas City Police Department records show that authorities were called twice in 2009, after a security alarm was tripped, and only once the next year before the congregation left the building.

In 2012 and 2013, police were called 12 times when security alarms went off at the vacant building.

Burns & McDonnell has at times had a prickly relationship with its south Kansas City neighbors.

Last year, neighborhood groups fought Burns & McDonnell at City Hall over a brightly lit sign on its world headquarters that neighbors said was bothersome and a violation of city code. The two sides eventually reached a compromise.

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But Burns & McDonnell’s expansion plans and bid for tax incentives have reignited tensions.

K.B. Winterowd, a former Port Authority commissioner under Funkhouser, has been an outspoken critic of tax incentives for Burns & McDonnell. (His wife, Carol Winterowd, is president of Center Planning & Development Council, a consortium of neighborhood groups in south Kansas City.)

Winterowd can see the Burns & McDonnell headquarters from the edge of his driveway at 94th Street and Madison. He also lives close to the newly erected building for Freightquote, a shipping company that moved to I-435 and State Line Road. Kansas City and Missouri offered Freightquote a big incentive package to move 1,000 employees from Lenexa to the new building that replaced an empty field behind St. Joseph Medical Center. The undeveloped ground was a piece of prime real estate along the I-435 corridor, yet city officials accepted the claim that it was blighted.

Beth Shalom is a clearer case of blight, and it sold for less than half its original asking price.

“My only regret is, I couldn’t get the synagogue to agree to the $2.5 million figure with me,” Winterowd said at a Tax Increment Financing Commission meeting on April 22. “I would love to get an 8.5 percent return on my investments.”

That 8.5 percent that Winterowd is referring to is the rate of return VanTrust would receive on the property if it gets its TIF request and property-tax abatement.

Analysts say developers won’t pursue projects like the Burns & McDonnell expansion unless they’re reasonably certain they will receive between 6 percent and 11 percent return on their investments. Under the VanTrust pro forma, the project would receive a 3 percent return without the incentives.

David Frantze, a well-known real-estate lawyer, whose clients frequently seek taxpayer assistance, says the incentives for Burns & McDonnell will have the firm paying $26 a square foot on the Beth Shalom property once its expansion is completed. Without the incentives, he says, Burns & McDonnell would be paying $37 a square foot, a rate that nobody would pay in Kansas City.

“It would be the highest rate in the city,” Frantze tells The Pitch. “I don’t want to be overly critical of the location, but it’s not the Plaza. It’s not Corporate Woods.”

Office space on the Plaza commands, at times, around $26 a square foot, which represents the high end of the local office market. But can’t a billion-dollar company like Burns & McDonnell and a well-heeled developer like VanTrust develop an office building off their balance sheet?

“I understand your point,” Frantze says. “I will say this to you: I think the real question is, whenever you do real estate, particularly when you’re a company that isn’t in the real-estate business, your analysis has to be what’s in the market. I will tell you their belief is it wouldn’t be a good stewardship of the assets of the company [to not seek incentives].”

Translation: Burns & McDonnell is employee-owned, which means the company has a fiduciary responsibility to its shareholders (employees) to get incentives to lower its costs.

Burns & McDonnell could certainly get a better deal if it moved to Kansas. The company’s status as a subchapter S corporation would entitle it to massive tax relief under Gov. Sam Brownback’s income-tax cuts, to say nothing of the additional incentives the Sunflower State would certainly throw the company’s way.

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But Graves has publicly criticized the economic-development border war that has companies like Freightquote and AMC hopping from one side of the state line to the other to fetch government handouts.

Last year, Graves applauded Missouri state Senators Jason Holsman and Ryan Silvey, both of Kansas City, for introducing legislation that would neuter tax incentives for border-jumping companies.

“This is a great initial step in a long overdue resolution,” Graves said in a statement issued by the chamber.

The legislation is contingent upon Kansas approving a similar law, which appears unlikely.

Even without the threat of Burns & McDonnell leaving for Kansas, Kansas City leaders are willing to award incentives to the company.

“If we have a good company that wants to be here and has a good track record, we should do what we can to keep them,” says Scott Taylor, a Kansas City, Missouri, City Council member, whose 6th District includes the Burns & McDonnell headquarters.

However, the incentives keeping Burns & McDonnell in Kansas City still come with a cost. In addition to keeping half the earnings taxes from new employees, Burns & McDonnell is seeking a tax abatement through the Chapter 100 program. The Chapter 100 incentive abates 100 percent of real-estate taxes on the property for 15 years and then half those real-estate taxes for the next 10 years. Unlike tax-increment financing, the City Council can approve Chapter 100 incentives without official input from taxing jurisdictions, such as the county, school district and library.

The full tax abatement doesn’t mean that Burns & McDonnell won’t pay any property taxes for 15 years. But it won’t pay increases on property tax, even though the land will be worth far more during the next 15 years with a corporate office building replacing the decrepit structure sitting there today.

Real-estate taxes are determined by Jackson County officials, who first predict what a piece of property would sell for, then calculate the taxable value of that land.

For the last few years, Jackson County believed that the 16-acre Beth Shalom campus would sell for $8.27 million. But the building sold for $2.5 million, a figure that Frantze says should represent the new market value instead of $8.27 million. VanTrust and Burns & McDonnell will attempt to persuade county officials to reset the value at $2.5 million, which means that the company will pay lower real-estate taxes while schools and libraries stand to receive less from the property than if it remained at the original market rate.

For example, if the county maintains that the property is still worth $8.27 million, it would mean that Burns & McDonnell would pay $291,011 a year in property taxes. The Center School District would receive the lion’s share — $203,708 — a year. 

If Frantze can convince the county that its worth is $2.5 million, the property would generate $88,000 in annual taxes for the next 15 years. Under that arrangement, Center gets $141,968 less a year than it would if the value of the property remained at the current $8.27 million.

The Center School District Board, which includes Taylor’s wife, Cathy Jolly, hasn’t taken a position on the Burns & McDonnell project.

Center Superintendent Bob Bartman was circumspect when asked about it by The Pitch.

“We think an expansion to Burns & McDonnell’s international headquarters is a good thing, and in the best of all possible worlds, I speak for myself, it would have been nice for them to build it without an abatement,” Bartman says. “However, the school district still stands to gain some revenue as a result of the expansion.”

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That’s because personal property like computers and equipment for Burns & McDonnell will get taxed. And because a religious organization no longer owns the property, it will at least pay some property taxes.

Freightquote, on the other hand, did have its personal-property taxes abated along with all of its other incentives. Center received hardly anything from the Freightquote deal.

To its credit, Burns & McDonnell isn’t seeking every tax break under the sun. “Greg’s first instruction to us was to find out what we needed to get the rents to be equal [to the company’s current headquarters] and stop there,” Talboy says.

And when the property goes on the tax rolls in full after the tax abatement expires in 25 years, it will generate more than $2 million in real-estate taxes, nearly $1.5 million of which will go to the Center School District (assuming that the company doesn’t seek another deal to remain at the property, as Lockton Companies did in order to renew its lease on the Country Club Plaza two years ago).

Still, not everyone is happy with the deal. Steve Potter, director of the Mid-Continent Library, opposed the request for incentives, citing a third-party cost-benefit analysis that showed the library would lose $2 million. The Jackson County Community Mental Health Fund and Developmental Disability Services of Jackson County, both of which are funded by property taxes, also stand to lose revenue from the tax abatement.

TIF Commissioner Phil Glynn, who was appointed by Mayor James, tells The Pitch that TIF is the wrong tool for the type of project Burns & McDonnell is after and should be used instead in the urban core or in places that don’t receive much public investment.

“I know that site is a problem, but it’s not as much of a problem as the other sites,” Glynn told The Pitch after voting against the project. “I feel this corridor has received significant public subsidy.”

But Glynn was only one of three no votes on the 11-member TIF Commission.

The City Council will likely cast a final vote next month. Given that two council members have already testified in favor and Mayor James joined Graves in announcing the expansion, it’s a safe bet that Burns & McDonnell will get a firm yes.