In this section
Tax & Incentive Profile
INFORMATION FOR BOTH KANSAS AND MISSOURI IS PRESENTED BELOW.
Kansas, Bond Financing
Industrial Revenue Bonds
Industrial revenue bonds (IRBs) are among the most popular and cost-efficient methods of financing up to 100% of a growing business' land, buildings, and equipment, with the only equity requirement being the cost of bond issuance. IRBs are securities issued by cities and counties to provide the funds for credit-worthy companies to purchase land, to pay for the cost of constructing and equipping new facilities, or for purchasing, remodeling, or expanding existing facilities. Other developmental and financing costs, such as engineering, architectural, legal, and bond underwriting costs, may also be financed from bond proceeds.
A business leases the project facility from the bond issuer, then rent payments are used to pay the principal and interest to the bond holders. When all bonds have been paid, the business may assume title to the project for a nominal price, such as $100. Lease/purchase financing permits the business to take advantage of applicable depreciation guidelines, receive available tax credits, and deduct interest payments as a business expense.
Most bonds are structured over 15 years. Principal repayment terms are flexible and can be structured to suit a business' specific cash flow needs. The bonds are usually not callable before the third or fourth year.
Certain projects are eligible for tax exempt financing. When tax exempt IRBs are issued, the interest received by IRB holders is exempt from federal and Kansas income tax, and as a result, the cost of financing the project is below conventional costs. Tax exempt financing is available for manufacturing facilities, as well as for a variety of utility, transportation, and other public infrastructure projects. Up to $10 million of tax-exempt IRBs can be issued to finance office, distribution, manufacturing and R&D facilities.
Whether a project is financed through tax exempt or taxable IRBs, Kansas law exempts the project from real and personal property taxation for up to 10 years. Issuers can require that all, or a portion of, the abated taxes be made available to local taxing jurisdictions in the form of "payments in lieu of taxes." Nearly every IRB issuer will also provide partial property tax abatements as an additional incentive to companies for locating in the community. The cost of building materials and labor, as well as fixed items of machinery and equipment, is exempt from state and local sales taxes.
Kansas Development Finance Authority
The Kansas Development Finance Authority (KDFA) is authorized to issue bonds, either for a specific activity or on a pooled basis. KDFA may issue bonds for financing capital improvements, industrial enterprises, agribusiness enterprises, educational facilities, health care facilities, and housing developments. It may also issue bonds to finance an interest, such as lease or mortgage, on such facilities. The Authority may also help establish and fund venture capital funds.
Any bonds issued by the Authority and the interest paid thereon, unless specifically declared to be taxable in the authorizing resolution, are exempt from all state, county, and municipal taxes. The exemptions include income, inheritance, and property taxes.
Bond Finance Program for Aviation Projects
The Kansas Development Finance Authority are authorized to issue bonds for large aviation projects. An eligible aviation business is defined as a company engaged in the aviation manufacturing or service industry, paying at least $150 million in annual gross wages, paying at least a $50,000 average annual wage and invested at least $500 million in real and personal property in Kansas.
An eligible aviation project is a research, development, engineering or manufacturing project for which the company proposes to invest at least $500 million and employ up to 4,000 full-time employees. The Kansas Development Finance Authority would issue bonds for a principal amount of up to $33 million for a single aviation project with a $150 million cap for all projects.
The maximum term of the bonds is typically 20 years. The normal income tax withheld from the employee's wages is used to pay back the principal and interest on the bonds. If the company receives project benefits from this program, they are not eligible to also participate in IMPACT.
Missouri, Bond Financing
Industrial Revenue Bonds
Missouri offers a variety of methods of issuing low-cost, long-term industrial revenue bonds (IRBs). The proceeds of an IRB issue may be used to finance up to 100% of the cost of fixed assets such as land, buildings, machinery, and equipment. The following public corporations and government agencies are authorized to issue IRBs to facilitate the financing of business projects in Missouri: Industrial Development Corporations, Municipalities (general obligation or revenue bonds), Planned Industrial Expansion Authorities, Land Clearance for Redevelopment Authorities, Special Business Districts, Port Authorities, the Environmental Improvement and Energy Resources Authority, and the Missouri Development Finance Board.
Kansas, Infrastructure Financing
Tax Increment Financing
Tax Increment Financing (TIF) is a real estate redevelopment technique, applicable to industrial, commercial and residential projects. TIF covers the costs of publicly provided project improvements by using the anticipated increases in real estate tax revenues to retire the bonds sold to finance qualifying redevelopment costs.
The advantages of TIF for business include 1) financing of land acquisitions and improvements with tax-free borrowing, thus reducing interest costs, and 2) offering the opportunity to purchase renovated sites and/or buildings at sub-market costs.
Moneys raised through TIF can be used for initiatives selected and administered by local governments, such as land acquisition, land and building cost subsidies, structure rehabilitation, and public improvements.
TIF works for both privately-owned land and publicly-owned land to be sold for redevelopment. It is available only if private redevelopment would not occur without public improvements. TIF cannot be used speculatively to prepare a site for development.
Applicable to redevelopment financing as well.
Community Development Block Grant Funds
Eligible small cities and counties may apply for Community Development Block Grant (CDBG) funds for water, sewer or other infrastructure improvements to assist new or existing companies create or retain jobs. Funds may also be used to provide direct financial assistance to firms for the acquisition of land or buildings, construction or renovation of facilities, purchase of machinery and equipment, infrastructure improvements, and/or working capital. The interest rate is currently set at 3 percent below prime or 4 percent, whichever is greater. The term of the loan is based on the asset being financed - working capital loan is 6.5 years, machinery and equipment is 10 years and real property is 15 years. For business loans, a match is required of $.50 to every $1 of CDBG funds.
Funds are awarded on a competitive basis, providing low-interest subordinated loans to business or communities for public infrastructure needs. Projects are expected to create or to retain jobs for low and moderate-income persons.
The maximum economic development block grant award is $35,000 per job created or retained. The maximum CDBG grant available is $750,000. At least 51% of the jobs created must meet HUD's low-and moderate-income standard for the county in which the project is located.
CDBG loans are individually structured during negotiations with the company and local and state officials. Local governments receive the grant funds and in turn loan them to the company, with flexible interest rates (from 0% to prime) tailored to the company's needs and cash flow. A low dollar/job creation ratio and complete recapture of grant funds by the community increases the project's funding potential. Loan guarantees and interim financing are also available for economic development projects on an open window basis.
Missouri, Infrastructure Financing
Tax Increment Financing
Tax increment financing (TIF) is designed to help finance improvements to property in designated redevelopment areas using the tax revenues that result from improvements to those areas. Any city or county in Missouri may designate redevelopment projects and adopt TIF by passage of local ordinances.
Up to 100% of the increased amount of real property taxes and 50% of local sales, utility, and (in Kansas City) earnings taxes resulting from improvements in a redevelopment area are paid in lieu of taxes into a "special allocation fund." Additionally, up to 50% of state withholding taxes or 50% of state general sales taxes (1.5%) generated by a TIF project may supplement local TIF funding. The amount redevelopment project costs funded and the length of time local taxes are redirected into the fund (it can be up to 23 years) is negotiated by the local TIF commission based on the least amount to cause the project to occur. TIF project funds may be derived from a bond issue (paid from the net new local taxes), or a reimbursement to the developer for approved costs.
Eligible redevelopment project costs are defined very broadly and include, in part: the costs of studies, surveys, plans and specifications, land acquisition, land preparation, professional service costs and fees, and construction costs of both public and private improvements. The State of Missouri offers four state programs using a variation of tax increment financing:
Eligible redevelopment project costs are defined very broadly and include, in part: the costs of studies, surveys, plans and specifications, land acquisition, land preparation, professional service costs and fees, and construction costs of both public and private improvements.
Applicable to redevelopment financing as well.
Community Development Block Grant Program
Qualified job-creating businesses located in "non-entitlement" areas of Missouri may qualify for programs funded by the federal Community Development Block Grant (CDBG) program administered through the Missouri Dept. of Economic Development. Those eligible for grants are cities under 50,000 and counties under 200,000. Within the greater Kansas City area, Kansas City, Independence, Lee's Summit, and St. Joseph do not qualify as "non-entitlement" areas. As CDBG-funded, the following programs require that at least 51% of the new jobs due to the project must be taken by persons considered of low or moderate income.
Missouri BUILD Program
The MDFB may issue IRBs to finance public or private infrastructure used to support larger business projects or to finance new capital improvements of the business at the project location. The Business Use Incentives for Large Development (BUILD) Program provides Missouri state income tax credits to the business in the amount of debt service payments for the IRBs related to a portion of project costs. If tax credits exceed tax liability, the business may receive a refund for the unused portion. New or expanding manufacturers, and specified other employers, must invest a minimum of $15 million in capital improvements and create at least 100 new jobs within three years. Eligible office projects must invest at least $10 million in capital improvements and create at least 500 new jobs within three years.
Industrial Infrastructure Grants
This Community Development Block Grant (CDBG) program provides grants to eligible communities to assist in providing public infrastructure such as water, sewer, and roads to support new or expanding businesses or to prevent the relocation or closing of a facility. Once the city or county has exhausted their available resources, the maximum grant per projects is the lesser of: $1,500,000, 35% of the company's capital investment, or $10,000 per job.
Missouri, Loan Financing
Interim Financing Loans
This Community Development Block Grant (CDBG) program provides cash flow relief to induce a manufacturing company to initiate a project, the Department of Economic Development provides funding through a city or county sponsor to facilitate a partner business. Funds can be used for the purchase of new fixed assets or permanent working capital. The loan term is typically 18 months and payment of principal and interest is deferred until the end of the term.
Loan guarantees are a method of providing gap financing for new or expanding businesses. Eligible job-creating businesses may receive up to a 90% loan guarantee on funds obtained from a private lender, up to a maximum of $400,000 or $25,000 per job, whichever is less. Application is made through a city or county. Funds may be used for the purchase of new fixed assets or permanent working capital. Depending on the use of the funds, the term of the loan may be as great as 15 years. The company must demonstrate that other programs (i.e., SBA 7A and similar programs) have been exhausted before this program is used.
The Microenterprise Loan Program is a Community Development Block Grant (CDBG) program than promotes small business development (five or fewer employees) by supporting a local loan fund. This program gives funds to local governments to establish a loan program for "microenterprise" assistance.
Speculative Building Loans
The purpose of this program is to provide an inducement for a speculative industrial building. The Department of Economic Development provides funding through a city or county government on behalf of an eligible borrower. An eligible borrower is a nonprofit development corporation. The maximum funding available is the lesser of $1 million per project or $25,000 per new job. Funds can be used for the purchase of land, the development of on-site infrastructure, the purchase of an existing building and improvements, or the construction of a new building. The term of the loan is a maximum of 30 months. The interest is 1% of the amount borrowed.
Market Development Program
This program aims to encourage businesses to convert materials recovered from solid waste into marketable products. Eligible projects include the final processing or conversion of recovered materials in usable industrial feedstock or the manufacturing of products from feedstocks. Eligible expenses include new equipment or conversion of existing equipment as well as installation, operation, and maintenance. Funds are provided as a loan secured by the machinery and equipment financed by the loan proceeds. The loan is canceled after two years if the conditions (maintenance of operations and reporting) are met. The program may fund 75% of specific equipment costs up to a maximum of $50,000.
Urban Enterprise Loan Program
These funds may be used to start a new business; purchase business equipment, inventory, or working capital; acquire business assets; or expand an existing business in designated Kansas City urban areas. The funds are limited to 50% of the total financial need. Loans range from $10,000-$100,000.
Missouri Development Finance Board Tax Credit Programs
Any taxpayer may receive a state tax credit equal to 50% of any amount contributed to the Industrial Development and Reserve Fund, or the Export Finance Fund. Contributions to these funds are used to make direct loans and loan guarantees to new and expanding businesses and nonprofit organizations, and to make grants to public entities. Credits may be transferred or sold and there is a five-year carry-over provision.
Development Tax Credit Program
The state provides income tax credits based on a contribution by a company to a local non-profit corporation (NPC) for projects approved by the Department of Economic Development. The amount of credits approved will be based on the economic impact of the project and the minimum amount of credits required to cause the project to occur. The purpose of the program is to create full-time, year-round job. The project must be located in a "blighted" or "distressed" area.
Eligible donations include cash, machinery and equipment, and real estate. The NPC will lease the real or personal property to a business entity. The lease is structured to facilitate the business' project an lease payments will be based on the costs of the non-profit to operate and maintain the subject assets (if any).
In most cases the NPC will provide DED the lease payments received in an amount to repay the tax credits plus interest. The tax credits may be used in the year received, or for up to five years if desired. Credits also my be sold or transferred.
Action Fund Loans
For-profit manufacturing, processing and assembly companies located in a non-entitlement area that has wages above the county average and provide medical benefits may be eligible for a loan which may be used for the purchase of new machinery and equipment or working capital. The loan must be made in cooperation with a city or county sponsor.
The Action Fund Loans are a CDBG program that are designed to provide "last resort gap financing" where the economic impact or the project outweighs the default risk. Payments may be deferred for up to three years until cash flow is positive, if the growth rate supports the cash flow projections. The term of the loan is not to exceed 10 years.
Missouri, Redevelopment Financing
The Brownfield Redevelopment Program
This program encourages Missouri businesses to remediate contaminated sites on which abandoned buildings are located, and to refurbish and occupy such buildings, thereby create employment opportunities. In addition to the programs' tax credits, program benefits include loan guarantees and direct loans to business to finance capital improvements at the project location. Grants can also be issued for the improvement of public infrastructure for the project. In addition, public entities can obtain grant funding (up to $100,000 or 50% of the cost) for feasibility studies or other due diligence costs. The maximum amount of funding available to a project through loans and grants is $1 million in aggregate.
The eligible project must be in a blighted area and must comply with the Dept. of Natural Resources' environmental conditions. A new company must create and maintain 10 new jobs, and an existing company must retain 25 jobs to receive benefits.
The Brownfield "Jobs & Investment Tax Credit Program
Any person or business operating an eligible project of redevelopment on certain abandoned and contaminated property may be eligible to earn state income tax credits for new investment and new income tax benefits for up to 100% of remediation costs. The company may obtain (for up to 10 years) tax credits between $500 and $1,300 per year for each new job created, tax credits based on 2% (annually) of new capital investment, a 50% income exemption, and abatement of local real property taxes (10-25 years).
The eligible project must be in a blighted area and must comply with the Department of Natural Resources' environmental conditions. A new company must create and maintain 10 new jobs, and an existing company must retain 25 jobs to receive benefits.
Urban Redevelopment Corporation Program
Missouri promotes urban redevelopment through a potential 25-year ad valorem tax incentive program known as Chapter 353. Any city (there is no size restriction) may establish an Urban Redevelopment Corporation to redevelop areas designated as blighted due to age, obsolescence, or physical deterioration. Under the program, up to 100% of improvements to real property may be exempt from state and local property taxes for up to 25 years.
DEFINING THE GREATER KC METRO AREA
Kansas City is a Missouri/Kansas bi-state metropolitan area. All statistical references made to Kansas City Metropolitan Statistical Area (MSA) include the counties of Cass, Clay, Clinton, Jackson, Lafayette, Platte and Ray in Missouri, and Johnson, Leavenworth, Miami and Wyandotte counties in Kansas. The greater Kansas City area also includes the adjoining Lawrence, KS, St. Joseph, MO, and Topeka, KS MSAs, as well as the Atchison, KS, Chillicothe, MO, Ottawa, KS, and Warrensburg, MO areas.