Economic incentives produce 3.8-to-1 return citywide

A comprehensive study of economic incentives reveals that from 2006-2015 the City of Kansas City received a positive return on investments made by incentives programs, with each incentive dollar generating $3.83 in additional tax revenue. The City delivered the results of a comprehensive analysis of incentives on Thursday afternoon.

Kansas City commissioned the study with the goal of examining the historic impact of economic incentives on creating jobs, eliminating blight and generating new investment.

“This study has delivered a first-of-its kind look at the true value of incentives and their transformative effects on Kansas City,” said Mayor Sly James. “The information in this study helps ensure that future decisions regarding incentives are data-driven, not anecdotal, and shows how incentives have been essential in growing our city’s thriving economy and exciting momentum.”

In addition to the 3.8-1 return on investment, a presentation to the City Council on Thursday reported other significant successes in Kansas City during the 10-year study period:

  • Average number of jobs created across all industries was 23,430
  • Per capita income increased by an average of $3,906
  • Total personal income increased by an average of $2.29 billion
  • Average increase of $4.75 billion in total business sales
  • Average increase in economic activity of approximately $2.66 billion

“The study shows that using incentives accelerates the rate at which assessed value increases,” said City Manager Troy Schulte, “The data validates that incentives work, and we want developers to use this data to take their projects into economically-distressed areas that need them the most.”

The City hired the Council of Development Finance Agencies (CDFA) to independently design, conduct and deliver original research, results and data analysis of the city’s use of incentives.  The contract was managed by the city’s Office of Economic Development, a division of the City Manager’s Office.

“This analysis will also increase transparency and accountability by establishing a system to capture, maintain, and report economic development project data in a format that makes it easily accessible to policy-makers and the public,” said Kerrie Tyndall, Assistant City Manager for Economic Development.

No study like this has ever been conducted in Kansas City, and researchers faced a huge challenge from the very start. Data was spread across multiple counties and agencies, all of which tracked the information using different formats and storage systems. A key recommendation of the study is to standardize record-keeping across local jurisdictions.

Another benefit of this study is that the City now has a master set of data about incentives use, which becomes our new baseline for the future. We also have recommendations on the best metrics to use to evaluate success of incentives, as well as the best ways to monitor and report incentive programs to ensure transparency and accountability.

The study took longer than expected to complete, however, it delivered three studies for the price of one:

  • An economic impact analysis using only KCMO data
  • A geographic analysis using tax data from overlapping taxing jurisdictions
  • A process improvement analysis with recommendations to enhance data collection, data management and reporting of incentives data for the future.

The consulting team created the geographic analysis to determine where property values increased over time and where incentive usage occurred the most. The team’s unique approach layered data from various public sources to create a map of incentives, blight, and property value. The results of the geographic analysis were combined with other tax information to determine the impact of incentives.

“The CDFA consulting team was pleased to work with the City of Kansas City in evaluating the use of incentives,” said Katie Kramer, Vice President at the Council of Development Finance Agencies and project lead for the incentives study. “Not only did the city see a positive return on their investment, they did so during the period of the Great Recession, which is a testament to the commitment of the leadership and the economic vitality of the city.”

Other recommendations for managing incentives include:

  • Annual updates to the new master data set, using city and county sources
  • Incorporate data on incentive outcomes into KC Stat
  • Track and report actual and projected project performance separately
  • Work with the community to select additional economic indicators to track

This study is not an audit of the individual performance of incentivized projects, but it’s important to note that many projects incentivized in the 1990’s have recently matured, meaning the incentive period has ended and the companies are now paying full taxes.

“We are now seeing the benefits of those early investments,” said City Manager Schulte. “Residents should notice that increased tax revenues are now flowing into school districts, the library, city and other taxing jurisdictions to provide important services as the city grows.”

The full report is posted on the city’s website at  http://kcmo.gov/incentivesstudy.

For more information about the report, contact Kerrie Tyndall, Assistant City Manager for Economic Development at 816-513-6539 or kerrie.tyndall@kcmo.org

/by