Missouri passed legislation two years ago to curtail the area’s economic border war — the poaching of businesses across the state line.
On Thursday, Gov. Sam Brownback said his state would do its part by halting some of his state’s business tax incentives.
To take effect, Brownback’s move would require further action by the Missouri General Assembly. And the assembly has just about a month left in this year’s session.
“It’s late, but this is a major issue, and it would be a good step forward,” Brownback said. “I’m hopeful it can get done.”
The luring of businesses across the state line with tax incentives has cost millions in state tax revenues with little or no boost in Kansas City area employment.
Although Missouri passed the anti-poaching legislation in 2014, Kansas didn’t agree to the plan. To align with Brownback’s proposal, Missouri would have to amend its tax incentive program.
The Promoting Employment Across Kansas program and the Missouri Works program are the major state incentive weapons in the border clash. Those programs allow companies to keep employee state income taxes for several years as an incentive to move to the state.
Under the proposal, a renewable one-year plan, such tax incentives no longer would be offered to firms that lease space when they relocate across the state line. But the incentives could be used for any net new jobs created.
“This would address much of the abuse of the tax incentive programs, incenting the move across the state line without the creation of new jobs in the area,” Brownback said.
The proposal would allow PEAK and Missouri Works incentives when a firm moves across the state line and invests at least $10 million in a new building. That provision would require an amendment to Missouri law. People interviewed Thursday said they thought it was doable change.
Brownback has authority over the PEAK program, but Missouri Works’ rules are a part of Missouri state law.
Brownback said developing a proposal agreeable to local elected and economic development officials was a challenge.
“This has taken a long time on the Kansas side,” he said. “I wish we could have gotten it done sooner.”
Scott Holste, Gov. Jay Nixon’s press secretary, said the Missouri governor will review the latest proposal. Nixon, Holste said, has been “a strong and consistent supporter of growing the Kansas City economy and ending the border war, including signing legislation in 2014.”
The counties designated in Brownback’s plan are Wyandotte, Johnson, Leavenworth and Douglas in Kansas and Jackson, Clay, Cass, Platte and Ray in Missouri.
Under the plan, both states would be required to refrain from actively recruiting in each other’s border counties. But, Brownback said, the states also should develop a process to offer incentives when there’s a legitimate threat of a company leaving the metro area.
Brownback called for a new Kansas-Missouri study committee to consider the impacts of other local and state incentives. His plan requires an independent study of all such incentives. The Hall Family Foundation has agreed to finance the study.
A group of Kansas City area business and civic leaders has worked for years to reach a border war truce, motivated by the knowledge that cross-border poaching hasn’t led to overall job growth.
“We have pinpointed 108 companies that moved cross-border since 2009,” said Bill Hall, assistant to the chairman of Hallmark Cards, who has led the Kansas City civic community in seeking an end to the “zero-sum game.”
Hall said those incentive-based moves have cost $262 million in lost tax revenues, for a subsidy cost of about $60,000 per job involved.
Since 2009, 5,702 jobs have moved from Jackson County to Johnson or Wyandotte counties using PEAK incentives, and 3,998 jobs have moved from Johnson or Wyandotte counties to Jackson County with Missouri Works incentives.
Hall noted that a two-state agreement also won’t be effective until the study is completed to quantify all of the metro area’s economic development tools — city, county and state — “to assure both sides they’re not putting themselves at a substantial disadvantage vis-à-vis each other.”
“We’re never going to stop people from moving from one part of the community to the other, and we shouldn’t,” Hall said. “But we do want to lower incentives so that decisions aren’t based on ‘What can I get from the state?’ by making the move.”
Hall acknowledged that it takes a long time to reach bistate agreements.
Reaction from area leaders and economic development officials was positive.
“Moving jobs across state lines isn’t economic development,” Kansas City Mayor Sly James said in a statement. “It’s score-keeping, and we can do better than that.”
“I’m glad Gov. Brownback has decided to be more strategic in his economic development policy,” James said “A bistate group of elected officials and staff have been working for a year and a half to find a way to truly add jobs to the region. Today we’re seeing a step in the right direction. I look forward to working with the Missouri General Assembly and Gov. Nixon to keep the conversation moving.”
Joe Reardon, president and CEO of the Greater Kansas City Chamber of Commerce, applauded “disarmament by both sides in the economic border war.”
Reardon was in Washington, D.C., with a group of chamber leaders and hadn’t seen details of Brownback’s proposal. But, he said, “we applaud any effort to end the unproductive back-and-forth that we’ve seen too often in our metro area. The region’s focus, as we’ve said before, should be on the creation of new jobs, rather than moving a company’s operations a few miles away.”
In addition to recognizing Brownback and the political leadership in Kansas, Hallmark Cards CEO Don Hall Jr. said, “I particularly want to recognize the leadership of Missouri Sens. Ryan Silvey and Jason Holsman, Gov. Nixon and Mike Downing of the Missouri Department of Economic Development. ... The ball is now back in the Missouri legislature’s court to help put an end to this wasteful public policy.”
In 2014, Nixon signed legislation that would have established a moratorium on state incentives to lure companies across the state line — if Kansas did the same. But the Brownback administration deflected the idea, saying the issue was more complex.
Five years ago, Kansas City area development and business leaders made a strong push for a cease-fire. Seventeen top executives from both sides of the state line signed a letter sent to Brownback and Nixon.
“The states are being pitted against each other, and the only real winner is the business who is ‘incentive shopping’ to reduce costs,” the letter said. “The losers are the taxpayers who must provide services to those who are not paying for them.”