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Independence looks at struggling developments

By Mike Genet

While Independence officials can point to some tax-assisted development success stories over the past 20 years, two particular developments have received some extra scrutiny of late as the city tries to avoid them becoming future financial albatrosses.

For the Falls at Crackerneck Creek tax increment financing district – commonly known as the Bass Pro TIF – the city seeks to soon refinance the bonds that financed the development that includes and surrounds Bass Pro Shop near Interstate 70 and Missouri 291. It would be the third time the bonds have been refinanced.

Thanks in part to the second refinancing, better revenues from the development, and revenues from other economic development areas to help cover payments, the city has not had to make a bond payment from the general fund for four years. 

Balloon payments on the horizon would likely change that, barring more refinancing.

The second district is the “Santa Fe TIF” – generally the area on the west side of Noland Road, from just south of Fair Street down to Gudgell Road. That development has never panned out, save for an auto parts store, since a few buildings were demolished shortly after 2000. A recent scheduled review of that plan spurred further City Council discussion.

The city also hasn’t had to make a debt payment there yet. The developer, Ken McClain, made voluntary payments of nearly $4 million before the city refinanced those bonds in 2015. Since then, revenues from another, healthier development of McClain’s – the area around 23rd Street, Noland and Fair, have helped cover those debt payments, though right now the city projects needing to cover about $6 million after 2023. 

The city’s new economic development policy approved last year aims to minimize the city’s exposure in future development deals.

Bass Pro TIF

With interest rates at historic lows, city officials say this is an ideal time to again refinance the bonds first issued a few years before the 2008-09 recession. Those bonds quickly became a millstone around the city's neck as tax revenues from the project failed to cover bond payments. The city covered bond payments to maintain its credit rating, but that zapped millions of dollars from the general fund for a few years starting in 2011. 

Besides Bass Pro Shops, the development includes Mardel, Hobby Lobby and Duluth Trading Co. stores, and Slim Chickens, Old Chicago Pizza, Cheddar’s, Pizza Ranch and Los Cabos restaurants, Main Event Entertainment, and Stoney Creek Hotel & Conference Center that have been added over the years.

But tax revenues captured from the Crackerneck Creek area toward the million of dollars in bond payments will end after 2027, and bond payments continue about 20 years after that. Lease payments, if all renewal options get exercised, run through 2050, according to city documents. 

Given that, City Manager Zach Walker said, it’s still a financial albatross for the city.

“If we go back and review the minutes, then bond counsel said there was some risk here, but it was mitigated by the probability this would pay off,” Walker said after a report last month from the city’s bond counsel firm Ruben Brown. “We overextended what we thought would be the financial performance of this TIF.”

The entire city manager's office and City Council have changed over since the city put together the tax financing deal in 2004. Walker has said Independence's deal has led other metro area cities to shy away from similar development deals.

Initial discussions about the development happened during Council Member John Perkins’ first tenure in office. 

“It was very complicated, and there were a lot of discussions with state and property owners out there,” Perkins said, adding that in hindsight, “There’s a lot of lessons learned. Some TIFs have worked; some haven’t.”

While retail tax revenue has sagged for a few years with the rise of online sales, Council Member Mike Steinmeyer said this TIF’s underperformance can’t be attributed solely to that.

“We operated out of ignorance or arrogance” and “made a mess of this TIF,” he said.

“Like it or not, some of it is maybe lack of foresight,” Mayor Eileen Weir said, “I would argue it wasn’t made in haste, and some of it is just plain circumstances.

“Every development we get into in some way, there’s a certain amount of risk involved. In this case, the development didn’t happen when it was supposed to happen, in this case there was no penalty for not delivering in a timely fashion.”

Santa Fe TIF

City officials and McClain approved plans for this redevelopment in late 1997, and the project began three years later. The project area covered about 29 acres. The city issued $7.5 in bonds to cover land acquisition and demolish three existing properties after the developer used eminent domain, as the land included 32 parcels with 26 different property owners. Subsequent agreements lowered the city’s payback tab to nearly $6.69 million.

Development plans called for more than 220,000 square feet of retail and commercial space among several buildings, with a Richards IGA essentially serving as the anchor, eight small owner-occupied homes. Winstead’s, one of the properties demolished, was to open in a new building. But Richards went out of business shortly after the development started. Only NAPA is in the area, as AutoZone recently moved to another location on Noland Road, and nothing else has materialized.

Perkins said the IGA owner couldn’t make his store in Blue Springs work and ultimately sold other stores to Cosentino.

“My understanding was they couldn’t make it work for them,” Steinmeyer said, in terms of space needed to turn a profit. “There was obviously a plan, and that’s a good thing, but we haven’t accomplished anything. At the end of 23 years, we just get stuck with dirt.”

With refinancing deals, principal and interest payments on those initial $7.5 million in bonds will total $26 million by the time debt service ends in 2045. Tax revenue assistance runs through 2023 – most of them from other developments – and the city projects that revenue will amount to more than $20.3 million, leaving a little less than $6 million to cover for bond payments unless more development happens.

McClain made nearly $4 million in voluntary payments toward those bonds from 2008-14, until the city asked him to stop so it could refinance the deal with tax-exempt bonds. Such voluntary payments would have prevented refinancing. Thus far, nearby developments around Noland and 23rd have netted $5.1 million toward Santa Fe bonds, and the city projects through 2023 that figure will ultimately be more than $12.4 million. If revenue from there doesn’t meet a certain threshold, the city can bill McClain to make up the difference, Finance Director Bryan Kidney said.

“Once again, we overlapped so we can bail that one out,” Council Member Mike Huff said. “Everything looks hunky-dory for the developer.”

Weir emphasized that the ultimate goal is fund debt service, and the project clearly came from a city and community desire to spur development on that side of Noland Road; the efforts just never paid off.

“If we want to change that goal, that’s fine,” she said, “but we need to have a better understanding of what the ramifications are, if we’re just going to have each of these stand alone and they can sink or swim.”

Huff said he didn’t want to let something fall flat, but “What I’m getting tired of seeing is robbing Peter to pay Paul.”

Perkins said plenty of public input went into the original plan.

“Even our state senator at the time was pushing it through,” Perkins said. “This wasn’t something that was pulled out haphazardly. Believe it or not, it was well thought out.”

While the city has not had to make a Santa Fe bond payment from the general fund, Council Member Dan Hobart said, “Let’s be clear, there’s at least $5.1 million that’s been collected, tax money that’s been used.”

“We are spending money on this TIF,” he said, “it’s just not coming directly out of our pocket.”