Business raids cost Kansas City millions in taxes

The states of Missouri and Kansas are divided here only by the yellow stripe of State Line Road. It's a single community, but the division is sharp when it comes to the cutthroat business of economic development.

The two states have burned through hundreds of millions of dollars to lure businesses to one side of that stripe or the other in the pursuit of jobs. Yet sometimes, those jobs merely have shifted to different buildings across the border with little real growth for the region's economy.

Amid ramped-up competition nationwide for "job creation," Missouri and Kansas have committed more than $750 million of tax incentives and bonds in the past five years for nearly 200 businesses to locate or expand in the Kansas City area, according to state records obtained by The Associated Press. The cross-town battle, among the most intense anywhere, also has drawn in millions more dollars in incentives from cities and suburbs.

The two states sacrificed revenue and incurred debt even during tough budget times that forced cuts to public school districts, universities and social services. Kansas and Missouri each had projected budget shortfalls of around $500 million last year.

Calls for a truce in the business border war have been growing from local business leaders, some lawmakers and even from former officials who once doled out the incentives.

"You get to a point where you have to say we are wasting taxpayer money," said Greg Steinhoff, who served as Missouri's economic development director from 2005 to 2008. He added: "At a time when you need to value ever dollar, it's silly."

Yet a truce appears unlikely anytime soon — in part because the states are still scrambling for every job.

"Politically, it sounds good — can't we all get along? — but competition's competition," said Gary Sherrer, who served as Kansas lieutenant governor and commerce secretary about a decade ago.

About three-fourths of the $750 million of tax breaks and bonding approved in the past five years has come from Kansas, though Missouri has given incentives — in smaller amounts — to about twice as many businesses to keep them from leaving or to attract new firms. Some of the companies are new to the Kansas City area.

In part because of the glimmer of its big-ticket projects, Kansas appears to be winning the business border battle.

The spoils of success are highly visible in the sprawling Village West district at the junction of Interstates 70 and 435. Anchoring the development is the Kansas Speedway, the NASCAR track the state landed more than a decade ago with a $150 million package of bonds, tax breaks and infrastructure aid after Missouri's $42 million incentive package failed in the Legislature. The Kansas incentives included bonds with a 30-year repayment life.

Nearby is a new 18,500-seat stadium for the Major League Soccer team Sporting Kansas City, built with $145 million of bonds after Kansas lured the franchise away from Kansas City, Mo. Also in the neighborhood is a new office complex for Cerner Corp., a medical computer systems firm that employs about 5,500 people on the Missouri side and planned to expand. Missouri and Kansas offered nearly equal incentives of about $85 million for Cerner's expansion, which is projected to employ an additional 4,000.

Kansas' willingness to issue bonds backed by tax revenues, which Missouri couldn't match, helped cinch the deal, said Marc Naughton, Cerner's executive vice president and chief financial officer.

"From our standpoint, we're a public company. We've got obligations to our shareholders to find the best opportunity to build a new campus," he said.

Kansas Gov. Sam Brownback, a Republican, was unapologetic about so freely giving away public revenue that otherwise would go for schools, police and public services. Last year, Kansas cut basic aid to public schools by nearly 6 percent.

"You've got to go out to compete and hustle," Brownback said after a recent ground-breaking ceremony for Cerner's office complex.

Missouri Gov. Jay Nixon, a Democrat, appears only slightly more open to a truce. In the past two years, he has cut funding for public colleges and universities by more than 12 percent.

"I'm going to compete for jobs for our state, I'm not backing up on that," Nixon said. "But I think that the real long-term solution is how do we get more out of the region as far as joint economic impact?"

States with border cities have been struggling with that question for decades. New York, New Jersey and Connecticut compete in the nation's largest metropolitan area. In a southeastern rivalry, Continental Tire moved in 2009 from Charlotte, N.C., to adjoining Lancaster County, S.C., which South Carolina scored as a gain of 300 jobs.

In Kansas City, the most recent cross-town defection came in April, when Teva Neuroscience Inc. announced that it would move its headquarters — and 400 jobs — from Kansas City, Mo., to a site about 4 miles away in suburban Overland Park, Kan. Records provided to the AP show that Missouri offered $11 million of incentives to try to keep Teva. Kansas did not disclose how much it offered, but the Kansas City Star reported the package totaled nearly $31 million.

Some firms have bounced back and forth across the state line. Restaurant chain Applebee's International moved its headquarters from Kansas City, Mo., to a Kansas suburb in 1993. Last year, it was lured back to the Missouri side with nearly $10 million of state incentives plus additional local aid. But Missouri's victory was short-lived. A few months later, movie-theater operator AMC Entertainment Inc. announced it was moving to the suburb of Leawood, Kan. Missouri offered $4.2 million of incentives to keep the company, according to state records. Kansas declined to disclose its incentives, but media reports have valued the total aid at $47 million.

The recent business shifts may result in less in overall taxes without any overall employment boost for the Kansas City region. The winning state hopes to gain temporary construction jobs, some sales taxes from employees dining during their lunch breaks and the long-term potential for more income taxes.

But the defections of Teva and AMC are projected to cost Kansas City about $800,000 in employee earnings taxes — equivalent to the annual cost of two pumper truck crews for the city fire department, which already has been hit by $7.6 million in budget cuts this year, said Danny Rotert, a spokesman for Kansas City Mayor Sly James. Add to that losses in local sales, property and corporate profit taxes and the blemish of two vacant office spaces.

"Empty buildings obviously do not produce much revenue, and they're just not good — that's the added pain to Kansas City for this to happen," Rotert said.

A group of 17 Kansas City area business owners — from both sides of the state line — sent a letter to the governors of Kansas and Missouri decrying the "economic arms race" and urging them to concentrate on attracting businesses from outside the Kansas City area.

"Money has been given to companies that would've stayed here anyway," Robert Regnier, president of the Bank of Blue Valley in Overland Park, Kan., said in an interview. "We're almost defaulting to an environment where everyone is expecting something, and that's not the way it's supposed to work."


Associated Press writer Wes Duplantier contributed to this report from Jefferson City, Mo. Lieb also reported from Jefferson City.