By Blythe Ridenour Jones and Dave Frantze,
Stinson Morrison Hecker LLP, Kansas City

One of the newest tools in the State of Missouri's incentive tool belt is the Missouri Downtown Economic Stimulus Act (DESA). The DESA Act, passed by the Missouri legislature in the summer of 2003, provides financing for public infrastructure improvements necessary for major initiative redevelopment projects located in the "central business district" of Missouri cities.

A Basic Overview of DESA

DESA is similar to tax increment financing in that it permits incremental increases in tax revenues to be used to reimburse approved project costs. The biggest difference between a TIF project and a DESA project is that the DESA statutes permit the incremental state sales and income tax revenues, as well as the local tax revenues, to be used to pay certain development project costs. TIF projects generally permit only the local tax revenues for payment of project costs; however, the TIF statutes do allow a "state supplemental TIF" that, if approved, allows either state sales or income tax revenues to be used to pay project costs. In contrast, DESA allows the use of both revenue streams.

Creation of a DESA Project

In order to consider a DESA project, the municipality must create an authority (similar to the TIF Commission) to review the application and make a series of recommendations to the city council. If a project receives city council approval, the approved application is submitted by the city to the Department of Economic Development (DED). The DED then forwards the application to the Missouri Development Finance Board with a recommendation, and that board determines if the project should be approved for funding. State funding cannot exceed $150 million for any one project.

Eligibility for DESA

Another exciting element of the DESA Act is its availability to smaller cities. The incentives are available for municipalities with median household incomes of $62,000 or less. As long as the other statutory requirements are satisfied, there is no statutory minimum requirement on the size of municipality that may initiate or use the incentive program.

The proposed project must be for a public undertaking that constitutes a "major initiative" promoting either:

· tourism, cultural activities, entertainment, education, arenas, museums, etc.,or

· the location or expansion of a private business.

The magnitude of the "initiative" is scaled based on the size of the municipality. For projects that promote tourism and other cultural activities, the project must cost at least $10 Million in cities with populations over 300,000 but only requires the investment of $500,000 in cities with a population of 50,000 or less, with additional increments for cities in between. For the second type of initiative, involving a private business, the project must create at least 100 new jobs in cities with populations over 300,000, at least 50 new jobs for cities with populations between 299,999 and 100,000, but only ten new jobs for cities with populations between 50,001 and 99,999 and five new jobs in cities with a population of 50,000 or less. The DESA Act states that the Missouri Development Finance Board will consider parity based on population and geography among the regions of the state in making its decisions.

Current DESA Projects

Currently, the City of Kansas City, Missouri, is the only city that has approved a DESA project and submitted it, successfully, to the state. Kansas City's project, known as the Kansas City Power and Light District, is located in the heart of its traditional downtown and compromises nine city blocks with mixed-use retail, entertainment, office and residential districts. The City of Lee's Summit, Missouri is currently reviewing a DESA project. At the time of this article, the proposed City Walk project has been considered by the Lee's Summit DESA Authority, and the Authority recommended the project to the City Council for approval. The City Council of Lee's Summit is currently conducting further public hearings and review. Lee's Summit, with a population of 70,700, is a perfect example of the use of the DESA financing incentive in a smaller municipality for a major initiative. Other Missouri cities (and developers) should remember the availability of the DESA financing tool when considering the use of economic incentives to enhance their central business districts.