Talk Of Detente In Kansas City’s Economic Border War | KCUR

Talk Of Detente In Kansas City’s Economic Border War

Jan 30, 2015

Blake Schreck, Lenexa Chamber of Commerce CED President & Economic Development Director, stands near Freightquote, a company was lured from Lenexa, Kan., to Kansas City, Mo.
Credit Frank Morris / KCUR

Stealing from your neighbor may not sound like a good idea, but Kansas and Missouri can’t seem to get enough of it.

For years now, the states have been locked in an economic border war, paying businesses –through tax incentives — to move across the state line, without necessarily creating new jobs. Lately there have been a few tentative signs of rapprochement. 

Blake Schreck is President of the Lenexa Chamber of Commerce. He’s got a good record of bringing businesses to his town, but every so often, one gets away. Freightquote used to be a fast-growing Lenexa company, but a massive incentive package lured it about 10 miles east on I-435, just into Missouri. 

Schreck’s not bitter.

“You’ve got a new capital investment in the region,” says Schreck. “The building they left in Lenexa is now full, a few months later. And so, essentially, maybe the incentives work.”

Shereck says tax incentives can help businesses thrive, hire, and put up new buildings. That activity helps the whole region. But, of course, this isn’t about the region.

“My responsibility is to our citizens, our tax payers, to do the best we can to get new jobs, new capital investment in our state,” says Schreck.

In Kansas City, that mindset has pitted Kansas against Missouri for generations, but the competition got nasty a few years ago, according to Bill Hall, president of the Hall Family Foundation.

“I think this started with the great recession of 2008,” recalls Hall.

That wasn’t long after Missouri’s Quality Jobs began letting companies that bring jobs to the state keep the withholding tax that the state would otherwise take out of those worker’s pay checks. It’s a huge cash incentive for businesses. Kansas fired back with a similar program called Promoting Employment Across Kansas, or PEAK.

“Economic incentives have their place, but they should generate economic activity,” laments Hall. “That’s the problem here, we’re using our economic incentives to shuffle jobs, not either create or attract jobs,” Hall says.

Hall’s done the numbers on this. He says that, as of last fall, PEAK had pulled 5,208 jobs to the Kansas side, from Jackson County. AMC Entertainment for instance, left downtown, taking more than 400 employees.  Last year Grantham University moved its 350 employees to Lenexa, into the old Freightquote building, as a matter of fact. Meantime, Missouri’s Quality Jobs incentive has taken 3,863 jobs from Kansas.

These are expensive jobs. Missouri is foregoing about $100 million in withholding taxes to get its share. Kansas is forgiving about $146 million. It’s money that Hall says should be helping to shore up state budgets.

“So as tax payers who don’t move, you and I have to pay more taxes to make up for the taxes that are being redirected to the companies, as opposed to paid to the states,” says Hall.

“The quarter billion dollars for PEAK and Quality Jobs programs, is only the start. 

States and municipalities layer on millions more in property tax abatements and other incentives in these deals, making Kansas City something of a national poster child for wasteful economic development incentives.

“I would say in recent years there’s been more money wasted on your state line there than in any other metro in the country,” says Greg LeRoy, founder of the Washington-based advocacy group, Good Jobs First.

LeRoy says that since the border war doesn’t draw companies or workers from outside the region, it doesn’t help it. 

“The two states, and some localities, have wasted enormous amounts of money, not really growing the regional economy, just changing people’s commuting patterns,” says LeRoy.

Meantime the Kansas City region has lagged others recovering from the recession, and in developing businesses that compete globally. 

All the money dropping off state tax rolls has sparked calls for a truce, by Hall and other business leaders. LeRoy says Jefferson City has made progress.   

“The Missouri Legislature last July, basically enacted the first half of a legally-binding two-state cease fire,” says LeRoy.

Missouri would stop using its Quality Jobs program to lure businesses from the Kanas side of the metro area, if Kansas would stop using PEAK for local area moves. 

The offer landed with a thud in Kansas.

“I don’t think there’s any sense of urgency, at least from the Kansas side, that we really need to fix anything right now,” says Schreck.

Schreck says getting rid of the two big state development tools isn’t enough. That’s because Missouri cities can offer much longer property tax abatements than are allowed in Kansas. In Missouri those abatements can stretch 25 years. In Kansas they are limited to 10 years.

Pat George, the Secretary of Commerce for Kansas, says state and local incentives have to be considered together.

“We do want to do something,” says George. “I don’t mean to sound like I’m anti-doing something, but I also realize that I’m the Secretary of Commerce for the state of Kansas, I don’t want to shoot myself, or people that I represent in the foot,” George says.

George says Kansas is getting good return on its PEAK program, even in the Kansas City area. Still, he says he’d gladly do away with all state incentives, if all other states would do the same. And George has been meeting, without fanfare, with a group of Kansas mayors and economic development types trying to find some way to dial back incentives.

“There’s a couple of things to look at, I think is net new jobs, and capital investment,” says George.

The idea would be to limiting payroll diversion incentives, like PEAK and Quality Jobs, so that they applied just the net new jobs created, and using them only when companies actually build, rather than just leasing existing space over the state line.  A Missouri-side border war committee is discussing the issue, too.  

Secretary George says he thinks the two sides maybe reach some kind of a partial treaty by summer.

This look at Missouri and Kansas is part of KCUR's months-long examination of how geographic borders affect our daily lives in Kansas City. KCUR will go Beyond Our Borders  and spark a community conversation through social outreach and innovative journalism.

We will share the history of these lines, how the borders affect the current Kansas City experience and what’s being done to bridge or dissolve them. Be a source for Beyond Our Borders: Share your perspective and experiences on the state line with KCUR.