KANSAS CITY, Mo. — As Kansas City considers big changes to its rules for developers seeking tax breaks, local affordable housing advocates want officials to pump the brakes and think more about the consequences of such a shift.

City officials are hoping to better align the requirements of all the agencies that grant developers tax breaks in the city, namely between state-created Port KC and other agencies under the umbrella of the city’s Economic Development Corporation (EDC), to even the playing field among them.

The possible changes, proposed by Mayor Quinton Lucas, come in light of ongoing concerns that developers are “agency shopping” in search of the best tax break deal, and circumventing city affordable housing rules in the process.

They also come as the city faces underwhelming results from its current set of rules for developers.

A Kansas City Business Journal report last year showed that the city’s rules, designed to encourage more affordable housing development, had directly created zero affordable units in their first five years.

And Lucas’ office is admitting as much.

“The city has produced virtually zero units through the requirement,” the office said in a statement, adding that the, “policy has failed to yield meaningful affordable housing progress for Kansas City.”

That’s during a time when Kansas City desperately needs more housing options for residents with lower incomes. A 2024 housing report found that the region lacks 64,000 needed affordable housing units.

Local developers have said that the city’s rules are what have made it harder to build. But local housing advocates worry that relaxing the rules would be a handout for developers that wouldn’t necessarily lead to more affordable housing.

Mayor’s proposal

The City Council is due to soon consider changes that would make the EDC and Port KC requirements to get tax breaks more similar, aiming to ensure “that public incentives are used complementarily rather than competitively.”

That includes mirrored policies around how much workers should be paid on development projects receiving incentives, known as “prevailing wage,” with Port KC beefing up their standards after months of pressure from labor groups.

It also includes altering rules dating back to 2021 known as “set aside,” as in units set aside to be affordable in exchange for tax breaks. Currently, apartment projects that receive city incentives must make 20% of the units affordable for residents with lower incomes, or instead pay a fee of $100,000 for each forgone affordable unit.

(The rules don’t apply to all apartment projects, such as those involving historic buildings or those that use low-income housing tax credits, for example.)

The fees would go to the city’s Housing Trust Fund, which offers money to separate development projects that create or maintain affordable housing across the city.

But since 2021, the city’s rules have been little more than conceptual and led to virtually no affordable units, the city said. That’s because developers reportedly went to other agencies, most often Port KC, or weren’t subject to the requirements.

Now the City Council is considering relaxing the rules by slashing the alternative $100,000 per unit payment to the Housing Trust Fund down to $5,000 per forgone affordable unit.

According to city documents, that would “right size” the payments and ensure they are more consistent and effective to support affordable housing.

The Port KC Board of Commissioners passed a measure last week that also sets a $5,000 payment level for developers who forgo building affordable units. But the Port KC policy seems somewhat different from the city’s: It appears to base the fee developers would owe on the total number of units constructed, instead of just the 20% of affordable units.

KC’s current rules produce “no housing,” mayor says

Mayor Quinton Lucas said on X Monday afternoon that the city’s set aside “has failed over half a decade” and that the current policy produces “no housing” while keeping the City Council and agencies with direct city oversight “irrelevant” as developers opted for other agencies like Port KC.

In 2021, the City Council signed off on the set aside rules in an effort to tailor taxpayer-fueled incentives to meet the need for more affordable housing in Kansas City.

“If you want to utilize city incentives, you have to be willing to help us with a major crisis that we have,” Councilwoman Melissa Robinson said at the time.

But developers often weren’t willing, city officials and media reports have suggested, because they had other options.

Some have looked to the Kansas City Area Transportation Authority’s development arm for incentives.

And many others have looked to Port KC, a state-created agency that does not fall under the direct purview of the City Council and does not necessarily need to hold developers to the city’s rules.

Developers seeking incentives from Port KC have still either created affordable housing, or made payments to the Housing Trust Fund in lieu of the affordable housing, but not necessarily at the same high levels currently required by the city.

“The higher set-aside has failed to generate either housing, its primary goal, or payments from any city agencies but Port KC,” Lucas’ office said.

Lucas’ office also said the higher set aside appears to shift costs for affordable housing development to taxing jurisdictions like school districts, because higher costs lead to higher incentive requests.

“The Mayor will continue to support a robust Housing Trust Fund supported by our City with greater contribution from a more robust development pipeline at all of our development agencies,” Lucas’ office said.

Housing Trust Fund has worked, but not because of set aside rule

Lucas’ office says that while the set aside rules have fallen short, the Housing Trust Fund has delivered results on affordable housing over the past five years via public support.

Nearly 3,000 units have come from projects supported by that fund. But that success did not come from payments through the city’s requirements for developers — or, apparently, Port KC payments.

The Housing Trust Fund received a temporary influx of cash in 2021 with federal COVID dollars and in 2022 when voters approved a $50 million bond for the program. The bond money will be exhausted this year.

Developers that opted to work with Port KC for incentives instead of going through the EDC have pledged at least $7 million to the Housing Trust Fund, but not at the $100,000-per-unit level that city-tied agencies require.

But that money hasn’t actually been paid out yet because the Port KC projects haven’t been completed, according to the city.

Why $5,000 per unit?

Further reducing the city’s alternative payment from $100,000 per forgone affordable unit to anything close to the proposed $5,000 per forgone unit could have a “devastating effect” on housing production, says Geoff Jolley, executive director of LISC, which advocates for and helps develop affordable housing.

He worries such a decrease could keep developers from pursuing mixed-income buildings that include the affordable units the city wants and needs while impacting the amount going into the Housing Trust Fund.

With a $5,000 per forgone unit option, Jolley says he expects developers will just write a check and move on. For a 200-unit project receiving city incentives, for example, that would mean paying $200,000 rather than include 40 affordable units in a development.

And even though projects now getting Port KC incentives aren’t paying the full $100,000 per forgone unit fee that city-tied agencies would have charged, they appear to generally be paying more than the proposed reduced city fee.

A city memo from March, obtained by The Star, documented nine projects that went through Port KC, creating 1,969 units and pledging $6.9 million to the Housing Trust Fund.

That equals about $3,500 for every unit, or about $17,600 per forgone affordable unit.

Port KC recently considered incentives for a new 392-unit high-rise in the Crossroads that would pledge $2 million to the Housing Trust Fund, which would equal about $5,100 per unit, or $25,600 per forgone affordable unit.

According to a city memo, staff previously recommended a $21,000 per forgone affordable unit fee, but the current version of the proposed changes landed on $5,000 per forgone affordable unit.

Jolley calls going down to $5,000 “absurd” and said the number should find middle ground between $5,000 and the current $100,000.

He said the $5,000 could mean the city will actually spend more providing incentives to other projects that do create affordable units to make up for those where developers opt to write the check.

The recent changes that Port KC approved — which appear to differ from the city’s proposed new rules because they calculate the fee based on every unit in a development, not just the forgone affordable units — seem to be more in line with what developers have already been paying to that agency. It was not immediately clear why the language on the two proposals appears to be different.

More time?

Jolley said the affordable housing element of the city’s new rules — separate from the wage requirement element — should be pulled to allow for more analysis and consideration of an appropriate amount.

Hannah Rejali, an advocate for Kansas City Public Schools, agrees.

A handful of residents with ties to KCPS have filed testimony with the city over the proposed changes saying that the change to $5,000 per forgone unit was introduced without transparency and could weaken a tool to ensure tax breaks come with community benefit at a time when families struggle to afford housing.

“It’s just this pattern of public incentives should be tied to a public good,” Rejali told The Star. “It feels like the district is not brought in for comment, there isn’t communication there, there isn’t transparency there.”

She said it’s disingenuous to say going down to $5,000 would be better for the city and for the community and that it feels like a handout to developers.

Rejali calls for more engagement with housing advocacy groups, the school district, families and more.

And she said it feels like the affordable housing changes are being slipped in under the good press surrounding the wage requirement changes.

Next steps

The City Council’s finance committee is expected to consider the proposed changes at its meeting on Tuesday, ahead of a final vote by the full council.

It’s possible for the committee to edit the proposed changes before they go before the full council.

Lucas’ office says the mayor is “interested” in a second bond election in November to replenish the Housing Trust Fund.

His office also says that changes will be evaluated in an effort to make sure that various city development agencies, and the City Council, are able to engage in the public conversation about housing policy, rather than leaving the discussion to Port KC and Ride KC, the development arm of the region’s transit agency, which has also been behind providing tax breaks to housing projects, including in midtown.

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