Kirk Hasenzahl is a little conflicted when considering the long-standing economic “border war” between Kansas and Missouri.
Hasenzahl is pleased that his tech startup RareWire, which makes apps for mobile devices, has received payroll tax credits from the state of Missouri for relocating from Prairie Village, Kan., to downtown Kansas City, Mo. The company has grown from three people to 13 since moving to its new location.
But he’s also concerned that the bistate fight over Kansas City area companies—which have received hundreds of millions of dollars in tax incentives to cross the state line without necessarily creating new jobs—doesn’t make fiscal sense for citizens of either state.
“As the founder of a business, the more opportunity and choices I have, the easier it is for my company to continue to grow and create more jobs,” Hasenzahl said of the tax credits he’s received. “In our case, it truly created a new job that didn’t exist before in KC. If it doesn’t, and is just moving jobs from one state to the other, it is tough to support that.”
The debate has raged for years over the so-called border war between Missouri and Kansas. Yet a developing truce between the longtime combatants appears to be under way, as reflected in comments made late last year by Democratic Missouri Gov. Jay Nixon and Republican Kansas Gov. Sam Brownback that both are seriously interested in resolving the issue.
With proposed legislation in the Missouri Senate calling for an unprecedented bistate moratorium on border war incentives, 2014 may be the year when heated competition turns to historic compromise.
‘A Real Possibility’
Missouri Senate Bill 635, filed by Republican Sen. Ryan Silvey of Clay County, seeks to end the shuffle of companies between Missouri and Kansas by instituting a bilateral agreement between the states to halt the incentivized enticement of companies in the Kansas City metro to move across the state line.
Here’s how it would work: Businesses relocating from Johnson, Wyandotte, Miami or Douglas counties in Kansas to Jackson, Clay, Platte or Cass counties in Missouri would no longer be allowed to take economic incentives, unless net new jobs were created. For the bill to become law, Kansas would need to establish a comparable mechanism.
“The bill has a real possibility of passing,” Silvey said. “And Kansas has expressed interest in doing something similar.
“Basically, what you have are the two states spending a bunch of money to ‘create’ new jobs, but they’re not creating anything. The jobs are already in the region, and those people have already been paying sales taxes and income taxes. So you’re not bringing any real economic development to the area.”
The Hall Family Foundation in Kansas City studied relocation incentives from the PEAK (Promoting Employment Across Kansas) and MO Quality Jobs programs and has found:
> A total of 3,343 jobs have relocated from Jackson County, Mo.,
to Johnson or Wyandotte counties in Kansas at a cost to Kansas
of $141 million.
> A total of 2,929 jobs have moved from Johnson or Wyandotte counties in Kansas to Jackson County, Mo., at a cost of $76 million.
> All told, $217 million has been spent on job relocation, with Kansas achieving a net gain of 414 jobs at a cost of $340,000 per job.
“The massive amounts of expenditures that have been made on these incentives for the little to no gain as a region is what I think is finally making people wake up and say, ‘OK, this is silly, we need to stop,’” Silvey said. “But nobody’s going to unilaterally disarm, right? And so that’s why you have to make it a bistate compact.
“We’re going to take that first step and say we’re willing to lay the framework. And then, once Kansas responds, it’s in effect.”
Not everyone is convinced the solution is workable, though. The Associated Industries of Missouri, a business trade association, believes the measure could be unconstitutional and instead recommends a broad-based tax cut for all employers.
‘Not Red or Blue’
The bipartisan co-sponsorship of Missouri Senate Bill 635 is another hopeful sign for its passage, said Silvey.
“In the Kansas City delegation on the Missouri side, I’m not sure you’ll find anyone in either party against it,” he said. “The lead co-sponsor on my bill is Jason Holsman, who’s a Democrat from south of the river in downtown Kansas City. I’m north, he’s south—both sides of the river, both sides of the aisle.”
Holsman may be on the other side of aisle from Silvey, but he’s no less disturbed by economic incentives that he calls madness.
“The taxpayer is subsidizing essentially relocation costs,” Holsman said. “On top of that, because of the fear of these incentives, you also have retention dollars being spent, because companies are threatening to leave, so the taxpayers are on the hook to try to keep the jobs that they have. And all of this equates to no new net economic development. That is the definition of lunacy.”
Despite the legislature’s frequently confrontational nature, Holsman said that the border war issue shouldn’t come down to politics.
“This is not something that’s red or blue,” Holsman said. “This is something that’s ultimately green. We can agree that the current
circumstance is economically destructive. And we can try to stop it.”
‘Businesses Have Choices’
Republican Kansas Rep. Stephanie Clayton, who represents constituents in her native Johnson County, isn’t ready to side with the proposed moratorium on border war incentives.
“I see Johnson County as the engine of my state,” Clayton said. “I see a lot of people who want to put sugar in the gas tank of that engine. It’s my job to keep the cap on and make sure it doesn’t happen.”
Clayton believes in protecting those jobs already in Johnson County and attracting as many new ones as possible, whether through economic incentives or other features on her side of the state line, which she views as distinctly different from the Missouri side.
“I see them as two separate markets,” Clayton said. “What Johnson County has to offer businesses is its educated workforce, with great transportation and excellent schools and essentially that sort of intrinsic link between high quality of life and, basically, what brings in business.
“Kansas City’s urban core has what it has,” she said. “They have their own advantages. We have our own advantages. And I think that businesses have choices, and shouldn’t those choices be open?”
More than 150 miles from the Kansas City metro, Republican Kansas Rep. J.R. Claeys of Salina, Kan., is also opposed to making a deal.
“It’s not my responsibility to build a cross-border community,” Claeys said. “I’m interested in the state of Kansas and what we can do to grow.”
Taking a middle path is Kansas Secretary of Commerce Pat George, who perceives “a willingness on both sides to correct a problem.” George has formed an advisory committee of local and state leaders to advise him on any possible deal.
“We’ve been talking about this (border issue) for over a year. Some say we’ve been talking about it for 150 years, dating back to the Civil War. I’d say, it’s even odds—50-50—that we do something about it in 2014.”
‘The Sky’s the Limit’
Jim Heeter, president and CEO of the Greater Kansas City Chamber of Commerce, is tickled by the prospect of once and for all ending the economic border war between Missouri and Kansas.
“Our economic future is about greater Kansas City,” Heeter said. “It’s not about Missouri or Kansas or Wyandotte County or Jackson County. It’s about greater Kansas City, which we tend to refer to as Big KC.
“And the reason that that’s so important is our competition is other major cities in the United States, as well as cities around the world. And to compete effectively for jobs and economic growth with those cities, we need everybody on both sides of the state line pulling together.”
Heeter understands that a complicated cast of characters with must come together to make the dream come true.
“The solution involves the governors of both states and their economic development teams,” he said. “It involves the legislators of both states. It involves the economic development agencies, not only of the states, but of many municipalities and counties. So there are a lot of players in this to get on the same page. But I’m quite optimistic that we will achieve that.
“The idea is to resolve this, stop the competition and begin the cooperation. That’s the deal. And I believe the sky’s the limit.”
