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This summer, bulldozers, excavators and graders filled the sleepy residential North Riverside neighborhood.
A once-vacant field at 11th and Amidon is becoming a new development of 40 single-family homes. Developer Jerry Jones said without the $1.7 million tax incentive Wichita offered him in February, the Riverside Housing Redevelopment District wouldn’t be single-family homes.
“It definitely would’ve been a high-density, multifamily project,” Jones said.
“There’s no reason on earth to give these guys incentives,” said Michael Carmody, an 18-year Riverside resident. “If the developers want to develop things…they have money to do it.”
The city relies heavily on such incentives. Since last September, the City Council approved over $85 million in total: $1.7 million in tax increment financing for one new district, $72.4 million in industrial revenue bonds for nine companies, and $11.2 million in sales tax and revenue bonds for two projects. The Wichita Beacon is unpacking what these incentives are, why they are awarded and how to evaluate their impact.
A bond is debt that the government issues to support public spending. Over time, the government must pay back the debt.
Mechanics behind TIFs as economic development incentives
The city established the Riverside TIF district after a law firm labeled the land blighted.
That’s step one of creating any TIF district — confirming it’s considered blighted, at risk of it, or is in another economically distressed zone. The city grants the TIF if the development is predicted to generate significantly higher real estate values and would be infeasible without the incentive.
More expensive real estate means new property tax revenues, which can be used in a TIF district to pay for parking, sewers or property — “We can’t build a privately owned building for somebody,” said Mark Elder, the City of Wichita’s development analyst. This diverts tax revenues from local and state coffers for up to 20 years.
These new improvements can be paid for in two ways, Elder said. First, the city can issue bonds up-front for the estimated growth in tax revenue, which is paid back as new property tax revenue is generated. Second, the city can use the tax revenue as it grows over time to reimburse the developer or pay for improvements itself.
The second option “takes the burden off the city,” Elder said.
The first can leave Wichita taxpayers responsible if TIF property taxes don’t grow enough — which occurred in 2020 when TIF districts couldn’t pay back $5.8 million with TIF tax revenue. To remedy this, in 2009 the city began requiring TIF district developers to pay if tax revenues grew insufficiently.
City Treasurer Mark Manning added that the city expects TIF districts to reimburse taxpayers entirely prior to closing.
How STAR bonds operate as economic development incentives
These are among the developments the city supported with $113 million in sales tax and revenue bonds.
STAR bonds and TIFs operate similarly. In both, the city issues debt based on the predicted growth in tax revenue within a special district over 20 years, and that helps fund a development project. The debt is repaid with tax revenue growth. But while TIFs use property taxes, local and state sales taxes fund STAR bonds.
STAR bonds also have no pay-as-you-go option, and developers aren’t required to pony up if sales tax revenue falls short.
The city isn’t required to pay the difference either, Elder said. But the city can make STAR bond payments if they choose: Between 2016 and 2020, Wichita paid $1.13 million in STAR bonds to the K-96 Greenwich STAR bond project. These payments were a “contractual obligation” the city agreed to make at the offset of the project, wrote city spokesperson Megan Lovely in an email.
STAR bond districts are meant to encompass new tourist attractions, which are supposed to bring $50 million in annual sales revenues and at least 20% of annual visitors from out-of-state.
STAR bonds “can pay directly for the tourist attractions,” Elder said.
IRBs and tax abatements as economic development incentives
Without incentives, it wasn’t possible to afford “nice plazas and walkways, so that that would be a vibrant area,” Jones said.
The major draw is that companies receiving IRBs are eligible for a sales tax exemption and 10-year property tax abatements of up to 100% of new property value, depending on the number of jobs and investment in construction promised.
In 2020, the city lost $4.8 million in property taxes and $1 million in sales taxes from IRBs.
The benefits — including the number of jobs and their wages — must be equal or greater than foregone property taxes, according to Tim Goodpasture, Wichita’s economic development analyst.
Five years into the property tax abatement, the city checks how many jobs were created. Companies generally provide the city with this data — the honor system, Goodpasture said.
If companies don’t stay for at least five years post abatement, they lose the incentive.
“Clawbacks,” Goodpasture said. They “owe us…back taxes.”