Business border war must stop, Missouri Gov. Jay Nixon says

11/13/2013 10:49 AM

11/13/2013 10:49 AM

Missouri Gov. Jay Nixon slammed the business border war in the Kansas City area Tuesday as bad for the local economy and called for a moratorium on using tax incentives to shuffle companies across the state line.

In a policy speech to the Greater Kansas City Chamber of Commerce that surprised at least some people involved with the issue, the governor said he had reached out to the administration of Republican Kansas Gov. Sam Brownback to pursue legislation that would make a moratorium permanent.

Since 2009, the so-called border war has shifted more than 6,000 jobs across the state border within the metropolitan area, draining more than $210 million in income tax revenues from the states and resulting in no net gain to the local economy.

“That’s bad for taxpayers, it’s bad for our state budgets, and it’s bad for our economy, hampering our ability to compete as a region,” Nixon said.

The Democratic governor asked for an immediate moratorium within the metropolitan area on the use of discretionary tax incentives in cases where jobs are “merely” being moved across the border.

“Although resolving this issue once and for all will require legislation in both states, in the meantime there is no reason another dime of taxpayers’ money should be spent to subsidize the movement of jobs within this region,” Nixon said.

The timing of the governor’s call for a moratorium caught some Kansas City business leaders, Missouri legislators and Brownback’s top development official off guard.

They said that quiet discussions have been underway for more than a year to resolve the border-war issue and that Nixon failed to consult them before going before the chamber with his idea.

“We’ve been working with my counterparts in Missouri discussing potential solutions to the border war,” said Pat George, Kansas secretary of commerce. “It surprised me. We’ve communicated pretty well over the past year or so. We thought it might be a joint announcement.”

Missouri state Sen. Ryan Silvey, a Kansas City Republican, accused the governor of a power grab on incentive programs, something he said the Missouri General Assembly would not accept. Currently, most Missouri programs are entitlements, meaning if a company qualifies, they’re automatically granted.

“What he outlined today is different from what we’ve worked on the past couple of months and won’t pass the legislature,” said Silvey, who attended the chamber speech.

Republican Tim Jones of Eureka, the speaker of the Missouri House, issued a statement immediately after Nixon’s speech saying the legislature would not hand over the “keys” to incentive programs to the governor.

“The legislature has been working on fundamental reforms which will improve our economy while ensuring we are able to escape the cycle of job loss which has come about as a result of the border war,” Jones said.

What Missouri legislators have in mind is a blanket prohibition on authorizing incentive programs to recruit existing jobs within the metropolitan area. Missouri counties affected would be Jackson, Platte, Clay and Cass; the Kansas counties would be Wyandotte, Johnson, Douglas and Miami. It would not affect how the programs are used elsewhere in the state.

“What we need is a legislative fix more targeted geographically that’s bilateral,” Silvey said.

On the Kansas side, George said he recently assembled a seven-member advisory board of mayors, economic development officials and legislators. The board was established to prepare recommendations to the upcoming session of the Kansas Legislature.

Regardless of how the goal is accomplished, civic leaders were pleased the issue of the border war was getting high-level attention.

“The chamber’s position always has been that incentives should be used for net, new jobs and not subsidize businesses back and forth across the state line,” said Jim Heeter, president of the Greater Kansas City Chamber of Commerce.

The major incentive programs fueling the border poaching by both states allow companies that move to retain their employees’ state income taxes for a set period.

The Kansas PEAK program allows firms to keep 95 percent of those employee withholding taxes for up to seven years. The Missouri Quality Jobs program allows firms to keep up to 100 percent of those taxes for a set number of years. That incentive was folded recently into what’s now called the Missouri Works program.

Nixon said although the incentives were created with the intention of making each state competitive in creating jobs and encouraging new investments, those goals have not been the real result in the metropolitan Kansas City area.

“Too often here, in one of the nation’s largest metropolitan areas separated by a state line, these tools manipulate the market by subsidizing the movement from one side of the border to the other, without creating new jobs for the region,” he said.

George said a major obstacle preventing state officials from agreeing to a metropolitan truce is that the Missouri income tax incentive program is an entitlement conveyed automatically to qualifying firms, while the PEAK program gives state officials the discretion to use it or not.

Kansas City civic leaders have been calling for both governors to declare a moratorium on the use of incentives within the area for more than two years. In April 2011, 17 top executives from both sides of the border sent a letter to the governors describing the practice as eroding the area’s tax base with no net improvement to the local economy.

Bill Hall, president of the Hall Family Foundation and the author of the letter, estimated both states had forgiven $212 million in income taxes because of the border war since the PEAK program began in 2009.

During that period, Hall estimated Kansas had attracted 3,289 jobs across the metro border and Missouri had attracted 2,824, leaving Kansas with a net benefit of 465 jobs.

Hall welcomed Nixon’s call for a moratorium.

“It’s not a simple issue, and it’s important the two governors work together,” Hall said. “We hope we’re not far from a joint announcement by both governors.”