February 18, 2012

Economic ‘border war’ spurs Missouri lawmakers to action

A bipartisan group of Kansas City-area lawmakers is ready for the economic “border war” between Missouri and Kansas to end.

A bipartisan group of Kansas City-area lawmakers is ready for the economic “border war” between Missouri and Kansas to end.

But if it doesn’t, they want Missouri to invest the resources needed to win.

Rep. T. J. Berry, a Kearney Republican, is sponsoring legislation that would prohibit the state from issuing certain economic development tax credits to attract jobs from Kansas to Missouri.

To go into effect, however, Kansas would have to pass similar legislation within two years, and at least a couple Sunflower State lawmakers are willing to consider it. But if Kansas doesn’t, Missouri would commit to spending $1.50 on economic incentives for the Kansas City area for every $1 that Kansas spends.

“If we’re not going to end it, we need to win.” Berry said. “But I would much prefer not to go to war.”

Seventeen local business leaders, including Sprint CEO Dan Hesse and Donald Hall Jr. of Hallmark Cards, sent a letter in April to Missouri Gov. Jay Nixon and Kansas Gov. Sam Brownback asking them to declare a moratorium on using incentives to induce businesses to move across the border.

In 2009, Kansas passed a law allowing relocating companies to retain 95 percent of their employee withholding tax for up to 10 years, upping the ante in the competition for companies in the Kansas City area.

In September, AMC Entertainment Inc. announced it was moving its headquarters and about 450 employees from downtown Kansas City to Leawood.

AMC was the third major Kansas City business to move to Kansas in less than two years. JPMorgan Retirement Plan services moved 800 jobs to Overland Park in 2009, and KeyBank Real Estate Capital relocated 300 jobs to Overland Park in 2010.

The battle, however, isn’t completely one sided. Last year, the Applebee’s restaurant chain moved its headquarters and nearly 400 workers to Missouri from Lenexa in exchange for $12.5 million in tax incentives over 10 years.

“If I was Kansas, I wouldn’t want to have a discussion about calling a truce, because they are perceived to be winning,” Berry said. “But Missouri’s economy is twice the size of Kansas’. So, if you talk about a border war, we have the resources to win. The question is whether we have the will to use those resources if we have to.”

The aim, Berry said, is that passing the bill will force Kansas to end “a race to the bottom where neither side wins.”

“Kansas lawmakers know they have a problem with tax credits,” Berry said. “It’s sucking more and more general revenue, just like ours are, and it makes it much more difficult to fund things like education.”

Rep. John Rizzo, a Kansas City Democrat, is co-sponsoring Berry’s bill and working on similar legislation of his own. Instead of the region competing against itself for the same jobs, the Kansas City area should be trying to spur investment from around the country, he argued.

“Our position would be so much stronger if we were on the same team,” Rizzo said.

The difficult part of selling the legislation, Berry said, is showing lawmakers from around the state just how much impact the “border war” can have on Missouri’s economy.

“Between St. Louis and Kansas City, we make up 70 percent of the general revenue of the state. If Kansas City continues to suffer, the general revenue will continue to suffer,” he said.

Although he said he’s had some discussions with Kansas lawmakers, Berry admitted the idea is not getting much traction on the other side of the state line.

But leaders in the Kansas Senate were intrigued by the Missouri proposal, noting that they have discussed how businesses move back and forth across the state line with the help of tax incentives without a net gain in jobs.

“We certainly don’t want to rule something like that out,” said Senate President Steve Morris, a Hugoton Republican. “If we can cooperate with Missouri to try to come up with a good policy that helps both states it’s worth considering.” Morris questioned the appropriateness of companies using incentives to criss-cross the state line with the use of incentives without producing a gain He wondered whether that was effective public policy.

Senate Vice President John Vratil, a Leawood Republican, said he would like to see Missouri approve the legislation first, with a trigger that would be contingent upon Kansas adopting something similar.

Vratil said he has seen some evidence to suggest that over time neither state really gains in such battles. He said it’s the companies that are reaping the benefits of the incentives without producing much benefit for either state. However, he said a more thorough review would be needed to determine whether such legislation would be justified..

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