Business

Kansas City Border War: A Truce in Sight?

The economic Kansas City border war may soon come to an end. How and Why?

By Nancy Zurbuchen

Since the Civil War days, Kansas and Missouri have had a thing about “border wars.” With the KU-MU historic rivalry now also a thing of the past, it seems we just cannot let the border war mentality go. Currently, the war is all about economic development … or at least that is how it started. More accurately stated, the border war is about each state luring—some would say poaching—businesses in the metro area to move across the state line. The lure is significant tax abatement offerings for the company; typically, they are allowed to keep employee state withholdings for a designated number of years.

However, in a perversion of the economic development intent, the incentive has become the driver. After the allotted time, some companies have successfully received tax incentives to move back to their original side of the state line. More recently, it looks like some companies are using the tax incentive programs as a bargaining chip by letting it be known they are negotiating with the other state, so their current state steps up with incentives to stay. The company never really had a serious interest to relocate, but they saw a bargaining chip to reduce costs. The upshot is they receive tax abatements to stay put; in other words, they get paid if they do nothing.

The only winners in this scenario are the companies themselves and perhaps a brief PR moment for state officials as they announce their success in “bringing jobs to the state.” But their victory has a hollow ring because the losers are the taxpayers in both states, particularly the small businesses that are not large enough to meet the criteria for tax abatement incentives, but who pay taxes year after year.

As of the writing of this article, an estimated $230 million will have been spent in tax abatements by both states to shuffle about 6,500 jobs back and forth in the Kansas City metro area, with a resulting net gain of 50 jobs to Kansas. (Figures are based on the 2013 Hall Family Foundation study, plus current moves since the study.) That is an astounding figure, representing colossal failure on all sides. But there is one ray of hope: It also signals an excellent time for a truce to be called.

With the poaching scorecard at equilibrium right now, it is safe for both sides to offer white flags. Both need to resist the urge to get one more last-minute deal made. Look at this period of time akin to the Quiet Period just prior to an IPO. Stop talking deals, and let the process play out. Politically speaking, it is also a safe move for both governors to act because the ability to reach a cooperative, bi-partisan agreement means everything to voters these days. It is also a safe move due to the immense support and grassroots efforts by the local business leaders who live and work on both sides of the state line. Even large companies who would stand to benefit from the programs are calling for an end to the madness.

The process for disarmament began earlier this year with a bill by Missouri Senator Ryan Silvey to freeze incentives for 8 counties in the Kansas City metro area. It has passed and is expected to be signed by Governor Nixon because he has been vocal about his support in finding a solution to the issue. This begins a two-year window for Kansas to act, and when it does, both sides agree to lay down their arms at the same time, so to speak.

Kansas can act in one of two ways. The legislature can pass a bill or Governor Brownback can issue an executive order freezing incentives for the same eight counties. The latter is the most straightforward way given that, unlike Missouri, Kansas’ incentive program is already structured so that the governor can pick and choose who gets the incentives. In Missouri, the incentives are part of a program that automatically kicks in when criteria are met. This is why Missouri had to pass a bill in the legislature to make the change, but Kansas does not need to do so. Hopefully, Governor Brownback will act very quickly once the timer has started.

Companies are, of course, free to move anywhere they want, in or out of the targeted eight counties. The truce agreement would simply mean they would not get paid to do so. The agreement does not affect Kansas or Missouri from pursuing tax-incentive offers to attract new companies from outside the Kansas City metro area, allowing them to compete on a national level. But in the larger picture, many states are learning that giving large tax breaks to certain companies at the expense of other companies is not the best way to encourage economic development. Instead, they are finding that the best way for government to develop the state economy is to be business-friendly, have a low tax rate and a fair and predictable regulatory system, and invest in infrastructure. Leave the rest to market forces.

If the legislation in Missouri is successful, over the next few months, the fate of the Kansas-Missouri border war lies with two signatures: Governor Nixon and Governor Brownback. That would an historic, bi-partisan first.

Nancy Zurbuchen is co-founder of the Kansas City Council of Women Business Owners, gubernatorial appointee to the Missouri Small Business Regulatory Fairness Board, mayoral appointee and inaugural Chair to KCMO Fairness in City Contracts Board, and a 30-year entrepreneur and public policy advocate for small business interests.