KC Auditor Flags Issues with Economic Development Sales Tax City Council Considers Additional Staffing, Improved Oversight

An audit of a Kansas City, Missouri, sales tax dedicated to spurring economic development in disadvantaged neighborhoods has uncovered some oversight lapses that, in one instance, may have allowed a contractor to improperly transfer funds to an unrelated business.

The findings were included in a newly released 27-page report issued by City Auditor Douglas Jones. The report analyzes the administration of the 10-year, ⅛-cent Central City Economic Development (CCED) sales tax that voters approved in April 2017.

The City Council has allocated more than $53 million collected via the sales tax to nearly 40 CCED projects. The Conrad Wright Media Building at 2301 E. 34th St. was one of 10 projects in a sample reviewed by the auditor’s office.

Conrad Wright contractors are renovating an existing building for mixed-use office space and affordable apartments. 

CCED funds are covering one-third of the $600,000 project cost. The auditor’s office found that 15% of the CCED money released thus far might have gone to the unrelated business because city staff and the contractor’s financial agent did not follow the four-step disbursement process outlined in the contract.

Some rehabilitation work appears to have been completed, the audit said. But absent “appropriate oversight,” the audit said, the office could not determine if the contractor spent the CCED money as specified in the contract.

The contractor did not provide supporting documents for expenditures for CCED money, as requested by the auditor, who recommended that the Housing and Community Development Department pursue legal remedies if necessary. In its June 29 response to the audit, the department said it would refer the matter to the city’s legal department within 30 days.

The name of the contractor is not included in the audit or in various documents produced by the five-member board that makes recommendations on the use of the CCED funds.

Jones referred Flatland to the Housing and Community Development Department for the name of the contractor, and a spokeswoman for the department had not replied to an email request by Wednesday afternoon.

The department also said it expected to resolve another issue raised by the audit — related to the rehabilitation of homes for disabled veterans — by this month. The auditor said the developer had not, as required, secured a deed restriction to have the properties remain as affordable veteran housing for 10 years.

CCED Boundaries

As approved by voters, the CCED district is bounded by Ninth Street to the north, Gregory Boulevard to the south, The Paseo to the west, and Indiana Avenue to the east.

Appointees from the mayor, Jackson County and Kansas City Public Schools make up the five-person project review board.

At the time of the vote, The Kansas City Star reported that the tax passed with 52% of the vote, with Northland residents in Platte and Clay counties resoundingly rejecting the tax. Economic revitalization along Prospect Avenue was a main goal of the tax.

Proponents of the initiative included the Urban Summit, Freedom Inc., the Urban League of Greater Kansas City, and the Southern Christian Leadership Conference of Kansas City.

Then-Kansas City Mayor Sly James opposed the measure because he did not think it included enough specifics about how the money would be spent.

In the audit, Jones said that “most projects we reviewed are making progress.” His comments came in a cover letter to the audit addressed to the mayor and City Council. 

Most of the awardees surveyed by the auditor’s office said they had encountered barriers to the timely completion of their project, with many citing increased construction costs as one cause. Respondents also cited city contracting requirements as a source of delay.

More Issues

The audit also stated that:

• Many of the contractors are not filing the required project updates, with more than one-third of them not doing so in time for the CCED board’s May meeting.
• The CCED board is overstepping its authority by getting into contract negotiations and monitoring and that city staff “feel pressure to make changes to contracts or release funds because of direction from the board.”

Regarding lack of reporting, the auditor said that the Housing and Community Development Department should establish policies and procedures allowing it to withhold or recall funds from non-compliant contractors.

In its response, the department said the COVID-19 pandemic delayed most projects for two years and that it has only become apparent which projects are unable to comply with their contracts in the past year.

“City staff contacted all projects not showing progress in April, May, and June of 2023 and gave those projects deadlines,” the department said in its response.

As for the CCED board’s authority, the audit said it is “reasonable and commendable” for board members to be interested in the progress of CCED projects. But the city is ultimately responsible for safeguarding tax dollars and that contract requirements should not be altered by board intervention.

The Housing and Community Development Department said it clarified these roles more than a year ago.

The audit said department staff had similar confusion about their monitoring role regarding a CCED agreement with the Santa Fe Area Council. The audit said the city manager negotiated the contract and that it does not require financial expense information to be regularly submitted to the city.

The department said it expects to have a financial reporting policy in place for projects like Santa Fe by this month.

City Council Reaction

Councilwoman Melissa Patterson Hazley said the oversight and administrative difficulties stem from a lack of staff dedicated to the CCED program. Hazley was a member of the CCED board but stepped down upon her June election to the City Council.

Hazley’s comments came as a member of the Neighborhood Planning and Development Committee. Jones and other city officials presented the audit findings to the committee at its Wednesday afternoon meeting.

Hazley contended that CCED is understaffed compared to similar city bodies, such as the Land Clearance for Redevelopment Authority.

“The level of staffing needs to be addressed if we are going to have success,” she said. She vowed to fix the staffing problem no matter how long it takes.

Committee Chairwoman Ryana Parks-Shaw requested that housing officials prepare a report comparing CCED staffing with similar boards and commissions within the city. The committee is scheduled to get a CCED update next month.

Mike Sherry is a former editor and writer for Flatland. He is now a communications consultant for nonprofits and freelance writer.