Tax increment financing in Kansas City is a tool the city uses to steer private investment toward areas the market has overlooked. The city designates a redevelopment area, freezes the property tax revenue coming out of it at current levels, and then captures the growth in property and sales tax revenue that a new development generates. That captured increment flows into a Special Allocation Fund and reimburses the developer for approved public costs like demolition, infrastructure, and site preparation. Missouri law caps the arrangement at 23 years from the date the City Council approves the project, after which all tax revenue returns to the school districts, county, and other taxing bodies that normally collect it.1Missouri Revisor of Statutes. Missouri Code 99.810 – Redevelopment Plan, Contents, Adoption of Plan, Required Findings
How the Money Actually Moves
When the City Council designates a TIF district, every taxing jurisdiction collecting from those parcels keeps receiving the amount it received the year before the ordinance, for the full life of the TIF. The new revenue above that baseline is where TIF lives, and it comes from two sources.
Payments in Lieu of Taxes
PILOTs capture the increase in real property tax revenue that results from the new development. When a project raises the assessed value of the land and improvements, the tax revenue tied to that increase gets diverted to the Special Allocation Fund instead of flowing to the taxing districts. The portion of taxes tied to the original assessed value continues going to schools, the county, and other taxing bodies as before.2Missouri Revisor of Statutes. Missouri Revised Statutes 99.845 – Tax Increment Financing Adoption
Economic Activity Taxes
EATs capture 50 percent of the growth in other local taxes generated by activity inside the TIF district, including sales taxes and earnings taxes that exceed the amount collected in the calendar year before the project was approved. The remaining 50 percent goes directly to the jurisdictions that levy those taxes, so the city sees some immediate benefit even while the TIF is active.2Missouri Revisor of Statutes. Missouri Revised Statutes 99.845 – Tax Increment Financing Adoption Several tax categories are excluded from EAT capture, including personal property taxes, transient guest taxes on hotels and motels, and taxes earmarked for specific purposes like public transportation or emergency communication systems.
What Qualifies for TIF
A property has to sit inside one of the area categories defined in Section 99.805 of the Missouri Revised Statutes. The designation shapes the legal arguments a developer needs to make and, later, whether the city can use eminent domain.3Missouri Revisor of Statutes. Missouri Revised Statutes Section 99.805 – Definitions
- A blighted area suffers from physical deterioration, unsanitary conditions, or other factors that impair growth and pose a risk to public safety. This is the strongest designation.
- A conservation area is an improved area where at least half the structures are 35 years old or older, and conditions like excessive vacancies, deterioration, or inadequate utilities suggest the area could slide into blight without intervention.
- An economic development area does not meet the physical thresholds of blight or conservation but supports a project that would generate significant public benefits such as job creation and expanded tax revenue.
Missouri law also defines a greenfield category for vacant, unimproved, or agricultural land, but that rarely comes into play for projects within Kansas City’s urban core.
The “But For” Test
Meeting one of the area definitions is only the threshold. The real gatekeeping happens through the “but for” test: the developer must show the project would not reasonably happen without TIF assistance. This is not a vague assertion. Missouri requires a formal study prepared by a qualified professional, such as a land use planner, licensed architect, or commercial real estate appraiser, along with a signed affidavit from the developer attesting that the project meets the standard.1Missouri Revisor of Statutes. Missouri Code 99.810 – Redevelopment Plan, Contents, Adoption of Plan, Required Findings
In practice, the analysis takes the form of a financial gap study. Analysts project the development’s costs and expected returns, then compare the leveraged internal rate of return to market benchmarks. If the projected return falls below what would attract private capital on its own, the gap becomes the justification for public subsidy.
Other Required Findings
Beyond the “but for” showing, Section 99.810 requires the redevelopment plan to conform to the city’s comprehensive plan, include a cost-benefit analysis covering every affected taxing district and a fiscal impact study for each affected political subdivision, contain a relocation plan for displaced residents and businesses, exclude the initial development of a gambling establishment, and set estimated completion dates for both the project and retirement of all TIF obligations within the 23-year cap.1Missouri Revisor of Statutes. Missouri Code 99.810 – Redevelopment Plan, Contents, Adoption of Plan, Required Findings
The TIF Commission and the Approval Path
Every TIF proposal must clear the Kansas City TIF Commission before reaching the City Council. The commission operates under the Real Property Tax Increment Allocation Redevelopment Act, codified in Sections 99.800 through 99.865 of the Revised Statutes of Missouri.4Missouri Revisor of Statutes. Missouri Code 99.800 – Law, How Cited Its job is to evaluate whether a proposed project meets the legal requirements for TIF assistance and issue a recommendation.
The commission has eleven members: six appointed by the mayor with City Council approval, two representing school districts within the redevelopment area, two appointed by the county, and one representing all remaining taxing districts.5Missouri Revisor of Statutes. Missouri Code 99.820 – Municipalities Powers and Duties, Commission Appointment and Powers Because Kansas City spans Jackson, Clay, and Platte counties, the county representatives change depending on where a particular project sits. The Economic Development Corporation of Kansas City handles the administrative side of the process and maintains the roster of commissioners across all three county configurations.6Economic Development Corporation of Kansas City. Tax Increment Financing Commission
From Application to Ordinance
Developers submit their proposal to the EDCKC, which handles preliminary intake. The application must include a full redevelopment plan covering the scope of work, financial projections, the “but for” study, the cost-benefit analysis, a relocation plan, and a description of the site and proposed improvements.
Before voting, the commission must hold a public hearing. Missouri sets the notice requirements precisely. Published notice must appear at least twice, with the first publication no more than 30 days before the hearing and the second no more than 10 days before. Mailed notice to affected property owners must go out at least 10 days in advance, and all affected taxing districts must receive notice at least 45 days before the hearing.7Missouri Revisor of Statutes. Missouri Code 99.830 – Public Hearing Notice Requirements Residents and taxing jurisdictions can testify at that hearing for or against the project.
If the commission recommends approval, the proposal moves to the City Council. The council must pass an ordinance within 14 to 90 days of the hearing’s completion to designate the redevelopment area and approve the plan.5Missouri Revisor of Statutes. Missouri Code 99.820 – Municipalities Powers and Duties, Commission Appointment and Powers That ordinance activates the funding mechanism, and the developer can begin drawing from the Special Allocation Fund as increments are generated.
What TIF Money Can Pay For
TIF cannot reimburse whatever the developer wants. Missouri limits reimbursement to costs that serve the redevelopment area’s public infrastructure and preparation needs. Section 99.820 authorizes activities including demolition and removal of existing structures, renovation or construction of buildings, and installation or relocation of streets, utilities, and essential site improvements within the redevelopment area.5Missouri Revisor of Statutes. Missouri Code 99.820 – Municipalities Powers and Duties, Commission Appointment and Powers
Land acquisition is eligible, including acquisition through eminent domain when necessary. The municipality can purchase, lease, or receive donations of property, then convey it to developers under the redevelopment plan, provided the terms are publicly disclosed and reasonable bidding procedures are followed. Administrative costs incurred by city officials in managing the project are also reimbursable. Private building construction typically falls outside TIF eligibility unless specific improvements qualify as public infrastructure under the redevelopment agreement.
Eminent Domain Limits
Missouri grants municipalities eminent domain power as part of a TIF project, but any property acquisition through eminent domain must occur within five years of the ordinance approving the project.1Missouri Revisor of Statutes. Missouri Code 99.810 – Redevelopment Plan, Contents, Adoption of Plan, Required Findings After the U.S. Supreme Court’s decision in Kelo v. City of New London (2005), Missouri enacted Section 523.271, which prohibits any condemning authority from acquiring private property through eminent domain for “solely economic development purposes.” The statute defines economic development as a use that increases the tax base, revenue, and employment but does not involve eliminating blighted or conservation-area conditions.8Missouri Revisor of Statutes. Missouri Code 523.271 – Eminent Domain Restrictions for Economic Development The practical result: eminent domain remains available for TIF projects in blighted or conservation areas but is off the table when the area qualifies only as an economic development area.
Any plan that displaces businesses or residents must include a relocation assistance plan as a condition of approval.
Oversight After Approval
Once a TIF project is running, the city must produce an annual report on each active redevelopment plan by November 15. Section 99.865 spells out the required contents: the amount and source of revenue in the Special Allocation Fund, the amount and purpose of expenditures, outstanding bonded indebtedness, the original assessed value of the project area, the assessed value added by the development, and PILOTs received and spent.9Missouri Revisor of Statutes. Missouri Code 99.865 – Report by Municipalities, Contents, Publication Reports go to the director of the Missouri Department of Revenue, which compiles a summary and submits it to the State Auditor, the Speaker of the House, and the President Pro Tem of the Senate by February 1.
Beyond the annual reports, the city must hold a public hearing five years after establishing a redevelopment plan and every five years after that, to determine whether the project is making satisfactory progress under its approved timeline. If a developer defaults on obligations under the redevelopment agreement, the commission can recommend that the City Council dissolve the Special Allocation Fund, declare any remaining money as surplus, and distribute it to the affected taxing districts.
The Trade-Off for Schools and Other Taxing Bodies
The most persistent criticism of TIF in Kansas City centers on school funding. Because PILOTs divert the full property tax increment away from every taxing jurisdiction, school districts lose access to revenue they would have received if the development had occurred without TIF assistance. The commission’s composition guarantees school districts two seats, but critics argue that two votes out of eleven do not give school boards enough leverage.
The 50 percent split on economic activity taxes provides some immediate benefit to taxing jurisdictions, and the cost-benefit analysis required under Section 99.810 must show the fiscal impact on every affected political subdivision. The “but for” question is where the real tension sits. If a project would have happened anyway, the diversion of tax revenue is a pure loss for schools and other public services for as long as the TIF runs. That is why the professional-study requirement exists and why the quality of the analysis carries so much weight: a weak analysis that overstates the need for subsidy can lock taxing districts out of legitimate revenue for up to 23 years.
A Federal Tax Note for Developers
Developers receiving TIF reimbursements should not assume the money arrives tax-free. Before the Tax Cuts and Jobs Act of 2017, corporate developers could often exclude TIF payments from gross income by treating them as nontaxable contributions to capital under Section 118 of the Internal Revenue Code. The TCJA amended Section 118 to exclude contributions by any governmental entity or civic group from qualifying as a “contribution to the capital of the taxpayer.”10Office of the Law Revision Counsel. 26 USC 118 – Contributions to the Capital of a Corporation
TIF reimbursements to corporate developers are now generally treated as ordinary taxable income in the year received. A narrow safe harbor exists for contributions made under a master development plan approved before December 22, 2017, but that exception covers fewer projects each year. Reimbursements tied to construction of genuinely public infrastructure may still avoid immediate taxation, though the line between public infrastructure and private improvement is not always clear. Get tax counsel involved before signing the redevelopment agreement, because the federal treatment can move the numbers in the financial model significantly.