Special taxing districts an important retail tool

July 4, 2010


Recently there has been considerable discussion concerning Community Improvement Districts (CIDs) and whether they are effective business development tools for Lawrence. It is important for this discussion that we understand what CIDs are, what they are not, and how they are intended to be used.

CIDs are effective economic development tools for Kansas communities and are authorized by Kansas statutes. Simply stated, they encourage business development by allowing the creation of retail districts where up to an additional 2 percent sales tax can be charged on sales to cover public, semi-public and private development costs. They are not a “hidden” tax or benefit for developers. In fact, CIDs place the financial incentives for business development squarely upon business users, rather than the general taxpayer.

CIDs provide many benefits to the public. First they encourage business development that results in improvements without diverting existing tax revenues. Second, they diversify the tax base and ease budgetary concerns by generating additional state and local sales taxes. Third, these projects likely include “infill” development that may revitalize aging (if not blighted) areas of the city.

Communities typically require businesses and developers to make substantial public and semi-public improvements within a development including circulation roads, curbs, driveways, sidewalks, street lights and utility lines. This practice transfers the cost of those improvements to the private businesses and developments that need them. Unlike city governments that can finance these improvements with bonds, developers must rely on conventional business loans. CIDs provide businesses with a tool they can use to fund the costs of these public, semi-public and private improvements. The state returns the additional tax revenue to the project allowing the development to recoup a portion of its initial investment.

Developers, not the City of Lawrence or its taxpayers, bear the costs of a CID. To justify the initial investment and to comply with city policy, CID projects are major renovations, expansions or new construction that improves the value of the properties on which they are located. In addition, there are no property tax abatements within the tax district meaning the property, and all improvements to it, will generate full-valuation tax revenues that benefit the city’s tax base.

Special taxing districts are not new in Kansas. More than 30 special taxing districts exist in Kansas and have demonstrated success both regionally and across the state. Many Lawrence residents regularly shop at businesses located in special tax districts in nearby communities. In this economic climate, we are competing with our surrounding communities to attract sales tax revenue and new business. CIDs are an effective tool for Lawrence to remain a competitive and attractive option for new business.

Transparency is a key component of the process for creation of a new CID. Public participation and comment is invited and the new district must be approved by a majority of the City Commission. Further, all special taxing districts within Lawrence are clearly listed on the city’s website and freely available to the public.

It is important to remember that the financial risk of a CID is borne by the developer and businesses. If the project fails, neither the city nor taxpayers have any financial responsibility. Consumers hold the final authority on the success of these districts, making the decision on the total price-value relationship of the businesses operating within these special taxing districts.

The current economic environment in our community — recent declines in job growth, sales tax receipts and property taxes as examples — demands that we do everything in our power to encourage business growth and development to benefit our citizens. Our economic development policies should encourage a business to develop, expand or locate in Lawrence.

— Tom Kern is president/CEO of the Lawrence Chamber of Commerce.


chocolateplease 7 years, 9 months ago

The author here claims:

"They are not a “hidden” tax or benefit for developers" and "Transparency is a key component of the process for creation of a new CID." .

Then why do businesses oppose having signs posted showing that they're charging more taxes than others? So it can stay off the radar! Sure we can go to the city's website, but who does that before leaving the house to go shopping? Business knows that people don't. In fact, the website doesn't make it clear exactly what the tax rate increase is in those places. It's vague.

These kinds of special taxing districts might make sense for unique projects that involve unusual risk or offer great potential benefit to the city. But giving it to a strip mall developer where we get another drug store, Taco Bell, etc. makes no sense.

cowboy 7 years, 9 months ago

I supose that these were for projects that otherwise would not be able to get off the ground or had redeeming value to the community.

Jimmy Johns while making a decent sub has neither of these criteria.

If I'm a retail owner who has done all the right things and paid my own way into the market this would really irritate me.

Nothing other than a loophole to subsidize a biz that would be there regardless of subsidy.

texburgh 7 years, 9 months ago

If you're using this additional sales tax to pay for the property improvements, then you, Mr. businessman, are not paying for those improvements. The folks who shop there are.

So Tom needs to simply admit the truth - the business needed upgrades to exist and it is passing the cost on to consumers so the shops can keep their goods artificially low. And those businesses like the idea of no transparency (not posting a sign) because once the consumers get wind of this scam there just might be a problem for those businesses.

You want to build a business? Pay for it yourself. It's not like we need more car washes, more Taco Bells, more drug stores, more cell phone dealers or more hamburgers. You think you can sell your stuff? Then be honest about it.

This extra tax is a scam pure and simple.

no_thanks 7 years, 9 months ago

That of course assumes that the consumer shops there. I am confident that if the venture were a "sure thing" in that all consumers would shop there, then the businessman would clearly pass on the CID. The challenge is that in order for the businessman to make the investment this additional incentive is needed. Shop there or don't, either way the businessman still bears the risk. We need these incentives to continue to grow our tax base (of which the investment will increase the value of the property and thus generate higher property taxes) to support our ever increasing social agenda in Lawrence.

Charles L. Bloss, Jr. 7 years, 7 months ago

What a total rip off. They had better post notices on the doors of such businesses, so I know where NOT to spend my money. Thank you, Lynn

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