Kansas City's core, from the River Market to Midtown and beyond, is experiencing a resurgence in residential projects, most recently with the announcement of a plan to redevelop the venerable Western Auto building as residential condominiums in the $200,000 price range. This residential renaissance can create a market for additional retail and other commercial uses to service the new downtown gentry.

Yet, unlike suburban development, true urban redevelopment brings special challenges that often add prohibitive costs to a project. Many developers instinctively turn to tax increment financing or Chapter 353 tax abatement as a means to absorb these prohibitive costs.

While TIF and tax abatement are valuable tools, their availability is limited (legally and practically) to certain types of projects. However, several other Missouri development tools can play a part in a project's financing plan. Two tools that are less common are Community Improvement Districts (CIDs) and Transportation Development Districts (TDDs). These two tools can provide alternative financing even where the property is not "blighted" or otherwise qualified for TIF assistance or tax abatement.

A CID is a special purpose geographic district governed by its own board of directors. The CID has the power to construct a broad range of public improvements, including streets, sidewalks, traffic signs and signals, utilities, parking lots, streetscape, lighting and landscaping--so long as the public improvements are within the geographic boundaries of the CID.

A TDD is also a special purpose geographic district governed by its own board. The improvements that can be financed through a TDD are more limited than a CID but are still significant. A TDD can construct transportation projects, such as streets, access roads, interchanges, traffic signs and signals, and related improvements or infrastructure (i.e., drainage systems associated with roadwork). In contrast to a CID, a TDD can construct and finance off-site transportation improvements so long as they benefit the district.

The value to a developer from CIDs and TDDs comes from each district's power to impose special assessments and real estate taxes within its boundaries. The special assessments are secured by a lien against the real estate that is equal in priority to a real estate tax lien, making the lien "bankable" in the capital markets.

In addition to special assessments and real estate taxes, a TDD (and a CID, but only in Kansas City) can impose a sales tax of up to 1% on taxable sales occurring within the district. The special assessments, real estate taxes and sales taxes are then used to repay debt issued by the district to finance the public improvements.

Revenue generated by CIDs and TDDs can be used to support off-balance sheet financing for a development's infrastructure costs. Depending on market conditions, the special assessments and real estate taxes can be passed through to tenants or lot purchasers. In the case of retail projects, TDDs and CIDs are attractive because a significant portion of the debt service may be payable from the sales tax, reducing the need to rely on special assessments.

Since an undeveloped project will usually not support long-term bond financing, short-term self-funding promissory notes (guaranteed by the developer or supported by a letter of credit) are issued and then refinanced at maturity with bonds when the infrastructure is built and the project ready for occupancy. If properly structured, the interest on both the short-term notes and the bonds can be exempt from state and federal income tax, adding significant savings.

Use of CIDs and TDDs requires planning from the outset. Naturally, the confines of this column allows only a very general explanation of these tools, and there are nuances that need to be analyzed in the context of each specific project. Consultation early on with an attorney who is a specialist in development tools can identify how these and other tools may be available to enhance a project.

Doug Stone is chair of the Development Incentives Group at Polsinelli Shalton & Welte. His practice includes development incentives, real estate development, zoning and land use, and municipal bond and conventional financing. He can be reached at 816.360.4276