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Opinion

Opinion

CIDs should be limited to ‘exceptional’ projects

July 4, 2010

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The Community Improvement District (CID) Act passed by the 2009 Kansas Legislature is a powerful tool for economic revitalization. Like any tool, the more powerful it is, the greater potential it has for abuse. The Lawrence City Commission should adopt a policy that will ensure that CIDs are used only where the public benefit clearly outweighs the public cost.

The CID Act is similar to the 2003 Transportation Development District (TDD) Act but is much broader in scope. One of the key differences is that a CID may be used for almost any construction project and for ongoing operational costs, including “cleaning, maintenance, and other services” to private property in the district. A CID may be financed by a sales tax as high as 2 percent, may be imposed with the consent of only 55 percent of property owners in the district, and may use general obligation bonds backed by the full faith and credit of the city.

The city policy on the use of CIDs can and should be more restrictive than the full range of options allowed by state law. One important reason for this is that wide use of CIDs would make our local tax structure even more regressive.

There are three significant sources of revenue available to city governments in Kansas — property taxes, sales taxes, and fees. One of my biggest frustrations as a city commissioner was that each of those sources is regressive, meaning that citizens with lower incomes pay a higher share of their income than higher-income taxpayers do. As more responsibilities have been shifted from the federal and state government to local governments, our overall tax structure has become more regressive. Federal stimulus money has temporarily slowed that trend, but it is certain to continue as the stimulus programs wind down. If not used carefully, CIDs have the potential to make this situation even worse.

The city’s Public Incentives Review Committee (PIRC), of which I am a member, recommended that a CID be considered for a retail project only when the project is “exceptional and unique, and is likely to add to the retail base by attracting new retail sales or capturing sales that are leaking to other markets.” This should prevent CID tax dollars from being used to help a new retailer compete against an existing local retailer.

Such a policy should also ensure that a substantial amount of sales in each CID district consists of luxury goods and dollars drawn from outside the city, which would mitigate the regressive nature of the sales tax. It should go without saying that a CID sales tax should not be imposed on any project that includes a grocery store (as long as Kansas remains one of the few states that imposes sales tax on groceries).

If the CID sales tax is not limited to 1 percent, we face the possibility of sales tax rates exceeding 10 percent in some districts in the city. The city should consider prohibiting the use of CID revenues for private expenditures, as Overland Park has, and CID financing should only be through the use of special obligation bonds that don’t place any risk on local taxpayers. Finally, in order to avoid taxation without information, each business that collects a CID sales tax should be required to post a notice as recommended by Mayor Amyx.

Used judiciously and sparingly, the CID Act has the potential to facilitate economic revitalization. Used improperly it has the potential to further urban sprawl at the expense of existing local retailers and to shift more of our local tax burden to lower and middle income residents. Our CID policy should be crafted to help us build a city our grandchildren will love.

— Boog Highberger is a former Lawrence city commissioner and a member of the city’s Public Incentives Review Committee.

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