How Columbia's rise in construction will affect tax revenue
By Jennifer Prohov
Dec. 15, 2015
This story was originally created for the Missouri School of Journalism.
For the past five years, development in downtown Columbia had been all boom, no bust. But then the Opus Development Co. project, District Flats, fell flat.
The project, located in the heart of downtown, drew community ire when it became known it would be a severe strain on the city’s sewage and electrical infrastructure. The controversy became a lightning rod for frustrations residents have had with the buildup of downtown. It even led to a lawsuit against the city currently pending in the 8th U.S. Circuit Court of Appeals. Residents fear local business and infrastructure will suffer if downtown development continues to grow unchecked.
Opus didn’t need zoning approval to build directly in downtown because it was zoned C-2, which allows residential development at a high density, said Patrick Zenner, the development services manager of the Community Development Department.
Two major concerns, the displacement of existing businesses and the overtaxation of the infrastructure system, emerged, Zenner said. Columbia also needed to make changes to accommodate increased developmental demands on the system.
“It was a combination of several items that created the perfect storm,” he said.
Jeremy Root, a local activist and leader of Repeal 6214, said in an email he felt the permitting process and out-of-date zoning scheme created an “anything goes” environment.
“We have had a city government willing to ignore the obvious deficiencies in our infrastructure and grant permits to new developments regardless of the sewer overflows they will cause in our streets, trails, and streams,” he said.
The city’s poor reaction led Root and several others to sue it and City Manager Mike Matthes, claiming they violated the civil rights of citizens when the city moved forward on two development agreements with Opus and issued construction permits while a petition to repeal the agreement was still collecting signatures, according to the Missourian.
A district judge ruled in favor of the city and Matthes in September, but the plaintiffs are currently appealing the decision.
Zenner acknowledged the public concern and opposition to the increase in student-housing developments downtown, particularly after the Opus project.
The bottom common denominator for many opposed to development is the concern that if Columbia absorbs all of its infrastructure for students, there won’t be anything left for everybody else, he said.
As a result, the city changed C-2 zoning standards for downtown, including a parking standard that requires residential developments to provide a quarter of a space per bedroom built .
Root explained, though, that concerns went beyond city infrastructure.
“Developments can benefit the city, but what we have seen is the rapid growth of a single type of development within town: luxury student housing,” he said.
This type of development is the least beneficial, Root said, because it occupies valuable space downtown that won’t generate retail sales tax or provide meaningful income for Columbia residents.
Downtown development has undoubtedly been on the rise, Boone County Assessor Tom Schauwecker said.
Scroll over the interactive map to view new construction developments and the tax revenue they generate for the city and county.
“If we were to look at growth, new construction, there is no more rapidly growing political subdivision in Boone County.”
Real estate is a commodity, Schauwecker said. It’s subject to the forces of supply and demand, and the dramatic increase in enrollment at MU is driving development.
“It’s all about location, location, location,” he said.
Boone County Collector Brian McCollum explained that, with a rise in property values, the Downtown Community Improvement District has experienced a large budget increase.
“From 2011 to 2015, (downtown) has seen about a 31 percent increase in the amount of revenue that has come in,” he said. “Thirty-one percent is pretty huge.”
While property value has been on the rise in downtown Columbia as construction and investment booms, revenue from property taxes has not increased at nearly the same rate.
Boone County Assessor, Tom Schauwecker, explained that property tax revenue growth has been limited by an amendment Missouri voters made to the state constitution in 1980. The Hancock Amendment, designed to limit state and local government taxation, requires new tax increases to be approved by voters, according to the Missouri House of Representatives website.
But, it also includes a tricky provision, Section 22 of Article X of the state constitution, which, Schauwecker said, has strongly impacted Columbia. It mandates that counties must collect the same gross amount of revenue from property taxes as they did in the year before from existing properties, adjusting only for inflation. This means that the amount of tax dollars the county collects can not increase from what it collected the previous year simply because property values have increased.
Reassessment, when a property’s value is re-evaluated by the county assessor, is revenue-neutral because of the amendment.
“The Hancock Amendment limits the growth in property tax revenue,” Schauwecker said. “It’s like algebra: x is the assessed valuation, z is the amount of revenue and y is the state-certified tax rate (that you have to determine).”
This provision, however, excludes the value new construction and improvements may bring to a property. For example, if a parking lot is turned into an apartment building, the county can reassess the property and tax it at its new value.
“If the assessed value of Boone County doubles, tax revenues would not, they would only go up by inflation — not to exceed 5 percent — plus the new construction that comes on the tax rolls every year,” he said.
To assess the value of a property for taxation, Schauwecker first has to determine the appraised value of the property, which is what he estimates the market value to be.
He then determines a property’s assessed value based on its classification.
There are three subclassifications of real property: agricultural, residential and commercial. Each classification is assessed at a different rate, so for a property appraised at $100,000, a farm’s assessed value is 12 percent of that, or $12,000, a student-housing complex is 19 percent and a retail store is 32 percent.
The property tax rate is then applied to the property’s assessed value Schauwecker determined.
The owner of the farm would owe $700 a year in taxes, the student-housing complex $1,250 and the retail store $2,250.
Schauwecker explained that tax revenues haven’t risen as dramatically as one might think from the new construction because the different subclassifications limit that growth.
“It would take $200,000 of residential value to replace $100,000 of commercial value, so there hasn’t been a big windfall of revenue because of that,” he said.
Most of the new construction downtown is residential and therefore taxed at a lower rate than many of the commercial buildings that had previously been on the properties.
“What we’ve seen downtown is the conversion of commercial (property), with about a 2 percent tax rate, to residential, with about a 1 percent tax rate,” he said.
Schauwecker noted, though, that despite the limitation of the Hancock Amendment, property tax revenue has still increased overall.
“This year, the assessed valuation of Boone County increased by 2.65 percent in 2015,” he said. “The assessed value of downtown, even though it’s residential, increased by 6 percent. That translates to tax dollars.”
With this bigger budget, the improvement district has been able to complete more projects.
They’ve been able to hire a janitorial firm to keep downtown clean, add lighting to make downtown safer and add district-wide Wi-Fi, said Katie Essing, the executive director of the improvement district.
“I think we’re really fortunate for having this continued growth and vitality,” she said.
Root notes, though, that local businesses are struggling.
“For example, Cool Stuff was replaced with Rally Sport,” he said. “We have also seen a cultural shift towards businesses that cater to this single demographic, to the exclusion of other segments of our community.”
Zenner said he hears the concerns of residents but is unsure of a better solution.
The question planners struggle with is, ‘If you don’t want them downtown, where they have the opportunity to be absorbed into the fabric of the community and have a minimal impact on transportation infrastructure, where do you want them to go?’ Zenner said.