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Overland Park City Council members push to overturn company's tax break

Dimensional Innovations.JPG
Posted at 12:07 PM, Jan 27, 2020
and last updated 2020-01-29 15:56:58-05

OVERLAND PARK, Kan. — There’s a new battle brewing over hundreds of thousands of tax dollars in one Johnson County suburb.

Overland Park City Councilwoman Gina Burke gave notice Monday night at the city council's meeting to put an item on the next meeting's agenda to rescind a tax break for Dimensional Innovations.

Burke originally voted in favor of the tax break in December, but she now has concerns after her new colleague, Councilman Scott Hamblin, researched the tax break and found several issues.

Hamblin is preparing a presentation for his colleagues outlining his concerns about the tax break.

That presentation will be made at the next Overland Park City Council meeting next Monday.

Dimensional Innovations is located in the northern corner of Overland Park, just northwest of the Interstate 35/Interstate 635 interchange.

The company makes high tech decorations or architecture for a diverse national clientele that includes corporations, professional sports franchises and college sports teams. Area clients include the Chiefs, Cerner, Garmin, the University of Kansas, Kansas State University and the University of Missouri.

Dimensional Innovations CEO Tucker Trotter told the Overland Park City Council in December that the company is outgrowing its current facility.

“What makes us really unique is that we need production space to weld and fabricate, but we also need office space,” Trotter said.

At that meeting, Dimensional Innovations unveiled a plan to expand at their current Overland Park location, which includes buying the existing warehouse and property just south of the company's location and additions to the company’s existing building.

To help pay for the roughly $14 million expansion, Dimensional Innovations asked the city council to reduce its property taxes by at least 50% and up to 65% for the next 10 years.

Based on Dimensional Innovations' last property tax bill, the minimum savings would be about $385,000 during the next decade.

Company executives also promise to add 225 new jobs during that time with an average salary of $75,000.

"I think without this benefit, we’d have to put a pause on everything and really think what we could justify,” Dimensional Innovations Finance Director Tyler McLenon told the city council in December.

Trotter and McLenon also indicated that Dimensional Innovations has looked at out-of-town options for the planned expansion.

They said those options include a facility in Lenexa, which the company is currently renting, and another Kansas City area location the company hasn’t publicly identified, which Dimensional Innovations said would allow its operations to be all under one roof without expansion.

Dimensional Innovations executives also said their preference would be to stay at their current location, where they've been for 26 years because any move would include a disruption of the business.

Hamblin said one of the serious issues with Dimensional Innovations' tax break is timing.

Overland Park city records show the company's formal application for the tax break was submitted Nov. 6, one day after Hamblin defeated incumbent Rick Collins in the most recent city council election.

Collins’ son, Tom Collins, is a part owner and executive at Dimensional Innovations.

The vote on the proposed tax break for Dimensional Innovations came while Rick Collins was still on the council and just a couple of weeks before Hamblin and other new council members took office.

Rick Collins did not vote or participate in discussion of the tax break. He recused himself due to the conflict of interest, but it remains a red flag for Hamblin.

"It obviously brings up major ethical concerns," Hamblin said. "Quite frankly, it’s part of the reason I ran for office."

Councilman Paul Lyons, who voted in favor of the tax break, said, "The fact that it occurred during that period of time makes perfect sense to me."

Lyons noted that Dimensional Innovations first approached Overland Park about a possible tax break in June and that the council has no down time between the election and new members taking office during the so-called “lame duck” period.

As a result, he said, city business is still conducted as usual in that time frame.

However, Councilman Faris Farassati said he believes Dimensional Innovations' application was rushed through too quickly.

“I wanted the full council with the new members to be there when there are important decisions being made,” Farassati said.

He was the only "no" vote on the proposed tax incentive at the December city council meeting.

Farassati's explanation of his no vote prompted an emotional reaction from Councilman Chris Newlin, who was seated next to him during the meeting.

"I didn’t see the data," Farassati said during the meeting. "I did not find evidence."

To which Newlin exclaimed “Jesus” during Farassati’s explanation.

“And I’m going to explain, if you don’t get too emotional Mr. Newlin,” Farassati said in reply.

Since December's meeting, Hamblin found out Dimensional Innovations purchased the lease for the warehouse building south of the company's current location from Robert Burdiss in early 2019, long before the company approached the city council for a tax break.

That warehouse is a major part of the planned expansion executives presented to the city council.

Burdiss confirmed the timing of the lease agreement to the 41 Action News Investigators and also said the company's lease agreement includes an option to buy the warehouse.

Burdiss declined to provide a copy of that lease/purchase agreement and Dimensional Innovations has declined comment on it.

However, Hamblin and Farassati say that lease/purchase means Dimensional Innovations already had a significant investment in its Overland Park expansion long before the company went to the council threatening to leave the city without a tax break.

“It does bring the question of why the incentive is necessary,” Hamblin said.

Burke said that purchase of the lease with the option to buy was not disclosed to the council in December when she voted in favor of the tax incentives.

She said that's one factor in her decision to rescind the agreement, but not all council members agree.

"None of that concerns me," Lyons said. "My focus was on the 225 jobs the company was committed to provide."

Hamblin, on the other hand, found other issues with Dimensional Innovations' application.

Among his concerns is that the city and Dimensional Innovations claimed the company is a chemical plant in the information submitted to the Kansas Commerce Department, which performed a cost-benefit analysis regarding the proposed tax break.

That chemical-plant designation triggers the use of a jobs multiplier in the cost-benefit analysis, which boosts the company's promise of 225 jobs during the next decade to a total of 705 jobs when including indirect jobs.

A spokeswoman for the Kansas Commerce Department said the jobs multiplier includes regional and national jobs. Hamblin noted, and the Commerce Department spokeswoman confirmed, that many of those estimated new indirect jobs might not be in the area.

Hamblin also said in the application to consider spin-off or indirect jobs, the calculation is typically one indirect job for every 10 new jobs. As a result, Hamblin contends the total jobs calculation with indirect jobs should be roughly 248 instead of the 705 under the cost-benefit analysis.

Burke also found the "chemical manufacturing" designation for Dimensional Innovations troubling.

"We need to go back to the drawing board and get a new application with accurate numbers," she said.

Hamblin also questioned Dimensional Innovations' claim of bringing 3500 out-of-town visitors who would stay at Overland Park hotels to its facility each year.

“What do they project will draw those people?” Hamblin asked a city staff member via email.

In the same email, Hamblin questioned the cost-benefit analysis calculation, estimating that Overland Park would only lose out on roughly $26,000 in tax dollars in the last year of the proposed tax break or abatement.

Hamblin said, based on Dimensional Innovations' planned investment, the company’s compound will be worth more than $17 million in the last year of the tax abatement when finished. That property tax bill would exceed $26,000.

Hamblin and Farassati said they spoke recently with Overland Park City Manager Bill Ebel in a closed-door meeting to ask about how the city determined Dimensional Innovations is a chemical plant and other concerns.

“The majority of the answers was that he didn’t know,” Farassati said.

Lyons said he’s willing to listen to his colleagues’ concerns, but he also downplayed the estimates in the cost-benefit analysis.

“It’s not an overwhelming element here in terms of deciding whether we want to make this investment or not,” Lyons said.

During the December city council meeting when the tax break was approved, nearly every council member other than Farassati spoke in favor of the plan. The most frequently cited reason was the estimated benefits to every taxing district affected by the plan based off the cost-benefit analysis.

According to the Commerce Department's analysis, due to the new jobs created and building growth, Overland Park would receive $3.50 for every dollar invested via the tax break.

Johnson County would get $2 for every dollar, while the Shawnee Mission School District would receive $2.50, Johnson County Community College would get $1.72 and the state of Kansas would get $7.29.

However, Hamblin said his research indicates the cost-benefit analysis grossly underestimates the costs to the taxing districts and overestimates the benefits.

Farassati agreed, "I'm not buying that, because, as I said at the council meeting, where is the real data and the study."

At last month's meeting, Councilman Dave White said, "I think this is one of the best applications I’ve seen in a long time."

However, White didn’t run for re-election.

Tom Carignan is now in that council seat.

Reached by phone, Carignan said he’s open to listening to Hamblin's and Farassati’s arguments to rescind the tax break for Dimensional Innovations.

The 41 Action News Investigators reached out to all 12 council members to ask about potentially rescinding the decision. Only Hamblin, Farassati, Lyons, Carignan and Burke responded.

Although Farassati was the only “no” vote at the December city council meeting, with Hamblin now on the council, it only takes a motion and second to put the rescind vote before the council.

Because Burke was previously a "yes" vote in December and will offer the motion to rescind the tax break at the next meeting, it will only take a majority of the council to overturn the proposed abatement for Dimensional Innovations.

If Farassati, who voted "no" or someone who wasn't on the council in December, like Hamblin, propose the motion to rescind, Hamblin said it would take a super majority, or nine of the 12 council members, to overturn the tax break.

"I would've preferred Councilman Hamblin put forth the motion to rescind the tax incentive due to all the research he did, but because of the difference in the number of votes needed I will make the motion," Burke said.

Lyons countered that there’s a political motivation for Farassati to be involved in the rescind movement. noting that Farassati has already announced plans to run for Overland Park mayor.

"I have a real concern that this is just part of a campaign, the start of a campaign,” Lyons said.

He also questioned Hamblin’s motives.

“It creates an impression that I think to some extent may be deliberate that the city has something nefarious going on here and that these guys are going to clean it up" Lyons said, "and that is by no means the truth."

Farassati pushed back: “Councilman Lyons is just repeating what I should’ve said. He acts like he’s talking on behalf of my campaign. I have no problem with that. We have found a problem and we have to fix it. The way to fix it procedurally is to rescind this action."

Hamblin added, “Somebody has to pay the bill. It’s not just money out of thin air."

It’s unclear at this point if there will be enough votes to rescind the tax break, but, if it happens, Dimensional Innovations could submit a new application with new numbers.

If there aren’t enough votes to rescind the tax break, the next step would be for the company to enter into a development agreement with the city of Overland Park.

Under Kansas law, Dimensional Innovations will be responsible to pay back up to $14.6 million in city bonds to finance the company’s expansion plans.

The city of Overland Park would have no liability with those bonds.

Part of a deal between Dimensional Innovations and Overland Park would include a payment in lieu of taxes or “PILOT” agreement. That agreement would outline a plan to pay part of the tax savings to the city for rent while the company is expanding.

Those numbers haven’t been determined yet.

There could also be a so-called "claw back" in the development agreement.

It would protect the city if Dimensional Innovations doesn't reach certain specified milestones, like jobs created for a given year. In that case, the company would lose out on the tax break for that year and possibly future years if the goals aren't met.

That part of the potential agreement hasn't been determined yet either.