Editorials

Tax break program damages Kansas and the Kansas City area

Perceptive Software will get millions in tax breaks for moving from Shawnee to this new building in Lenexa.
Perceptive Software will get millions in tax breaks for moving from Shawnee to this new building in Lenexa. The Kansas City Star

A Kansas website contains the latest figures that reveal how tax breaks are draining badly needed funds from the state’s coffers while also stoking the destructive economic border war in the Kansas City area.

Meet the Promoting Employment Across Kansas program, better known among businesses and their development attorneys as PEAK.

It diverts millions of taxpayer dollars from public purposes and gives them to selected companies that move into Kansas or create new jobs in the state. Employers get to retain 95 percent of qualified workers’ state income taxes for up to 10 years.

As of late 2014, the state had issued $370 million in PEAK grants since the effort started in 2010. Nine companies are scheduled to receive benefits worth more than $1 million a year, led by $4.6 million kept by General Motors for its Fairfax plant.

The PEAK program’s excesses make up another self-inflicted act of fiscal folly in a state that can’t afford any more lost revenue. Drastic income tax cuts backed by Gov. Sam Brownback are preventing Kansas from having the money it once did to operate public schools, provide social services and finance pension plans.

PEAK also has an outsized effect on where businesses are locating in this region.

According to the state’s KanView site, businesses in Johnson County gobble up 72 percent of the proposed PEAK grants in all of Kansas. Wyandotte County companies are in line for 15 percent of the grant funds.

Kansas is giving plenty of incentives for Missouri-side businesses that hop the state line but provide little or no net-new growth in employment for the Kansas City area. Missouri loses tax revenues, while Kansas forgoes revenue it would have received from companies paying their fair share of taxes.

In this region, the largest PEAK beneficiaries shuttled over from Missouri, most often from Kansas City. They include Teva Pharmaceuticals, with proposed benefits of $3.9 million annually; American Multi-Cinema, $1.5 million a year; KeyBank, $1.3 million a year; and FishNet Security, $1 million a year. All wound up in Johnson County and all the awards could last the full 10 years.

The list also contains businesses such as Perceptive Software. It could get an annual benefit of $2.1 million for 10 years even though it just moved a few miles from Shawnee to a new headquarters in Lenexa.

PEAK has its supporters. They say the new companies are bringing at least a little new tax revenue into Kansas.

It’s also unfortunately true that Missouri offers a similar Quality Jobs program. It lets selected companies that move from elsewhere keep 100 percent of their employees’ state income taxes for different lengths of time.

In a particularly financially wasteful example, Kansas City and Missouri a few years ago doled out $64 million in incentives — including Quality Jobs credits — to steal Freightquote, a large online freight-shipping broker, from Lenexa.

Leading local business leaders have harshly criticized this approach for almost four years. In response, Missouri lawmakers have approved a plan that would largely halt the awarding of state tax breaks to companies for simply going from one state to the other in the Kansas City area, if Kansas does the same.

So far, Kansas officials have refused to concede that the battle over jobs in the region has created a no-win situation in the long run for both states.

Brownback’s intransigence on the issue makes no sense, especially given Kansas’ dire economic woes. PEAK’s guidelines need to be changed, as do those for Missouri’s Quality Jobs. That would reduce poaching efforts by politicians and development officials in both states.

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