The Kansas City Public Library

What are We Fighting For?

Over the last few years the classic bickering across the border between Kansas and Missouri has taken on added heat ever since Missouri businesses started moving to the other side of the state line. Missouri politicians are upset by how these moves have negatively affected the economy. Conversely, Kansas politicians and business owners are thrilled by the influx of new jobs and revenue in the state that their business-friendly incentives are reeling in. Missouri legislators and business owners have cried foul against Kansas’s competitive policies, claiming that they have aggressively pursued corporations to take business away from Missouri.

Though Kansas Governor, Sam Brownback, has denied any claims that the Sunflower State is actively “poaching” businesses away from the Show-Me State, Kansas recently offered AMC Entertainment a $47 million incentive package to relocate from its current downtown Kansas City headquarters. So far intense discussions with mayor Sly James have waylaid any plans to relocate thus far (KC Leaders Want to End the Economic Border War). Already, a number of former Missouri businesses have clicked their proverbial ruby slippers together and found a new home in Kansas. Three sizable companies--FishNet Security, KeyBank Real Estate, and JP Morgan Retirement Plan Services (a whopping 800 jobs)--relocated to some of the vacant spaces on the Sprint Campus in Overland Park. Meanwhile, Leawood offers another lucrative spot for businesses, as Hoefer Wysocki Architects seized when they hopped over the border to a new home down the road from the developing shopping district at 119th and Roe.

In an attempt to compete with other states and international economies, Kansas has employed some lucrative incentives for businesses looking for a new home. According to the Kansas Chamber of Commerce’s ThinkKansas promotional website, there are many benefits to moving a business to Kansas. When businesses move to Kansas from another state, it is eligible for the Promoting Employment Across Kansas (PEAK) incentive, which allows businesses to retain up to 95% of state payroll withholding for five or more years provided that the business meets several requirements. Other lucrative offers for businesses include sales tax exemption for equipment and machinery, sales tax exemption on personal property absorbed into the business, property tax abatement on personal property for up to ten years, and forgivable loans for project-related costs associated with the establishment or expansion of a facility among other benefits (ThinkKansas).

Additionally, there is an even greater benefit to larger corporations seeking to reap rewards on the Kansas Plains called the High Performance Incentive Program (HPIP), which issues a 10% income tax credit for eligible investments that exceed $50,000 in addition to sales tax exemption and tax incentives to companies that pay above average wages (Kansas Economic Incentives).

However, Missouri has its own share of business incentives to offer. But while Kansas’s policies seek out businesses to relocate, Missouri’s offers seem to target existing businesses to keep them in the Show-me State. One example of a tax credit program that Missouri offers in order to retain businesses is the Business Facility Tax Credit Program. Though the program is being phased out, businesses operating before December 31, 2004 are still eligible for the income tax credits in the form of $100 ($150 if in a distressed area) per each new job created or $100,000 invested in a new or renovated facility. Additionally, Missouri offers up to 25 years of tax abatement for businesses that relocated to urban and blighted areas--many in Kansas City--as a redevelopment incentive. For the first ten years, businesses are not subject to pay property tax, and for the next 15 years, they may only be taxed for up to 50% of the assessed property value. The Missouri Quality Jobs program also works to incentivize the creation of new jobs within the state, including special bonuses for employers who offer above average wages, much like the Kansas High Performing Industries Program. Similarly, Missouri also offers exemption from sales taxes for the purchase of machinery and equipment used to establish new facilities (Missouri Development Toolbox).

Kansas also offers a lower corporate income tax rate of 4% of net taxable income plus income over $50,000, which is subject to a 3% sur-tax (which dropped in 2011 from 3.05% in 2009 and 2010). Conversely, Missouri’s corporate income tax rate is 6.25% of net taxable income earned within the state, but the state also allows up to 50% of federal income tax to be deducted prior to computing taxable income. On top of this, businesses in Kansas City, Missouri proper also must contribute a 1% earnings tax on profits gained each year, which helps fund various services and programs in the city (KC Area Development Council Tax and Incentive Profiles).

While the grass may seem greener for businesses looking to relocate to Kansas, but there are other costs of Kansas relocation to consider. To relocate a business to the economically fertile ground of Johnson County, as many Missouri-side businesses have opted to do, one might assume that the employees would move with the business; a shorter commute and quality schools are among some of the more appealing aspects that persuade employees to relocate with the business. However, the cost of living in a Kansas suburb is significantly steeper than living in a Missouri suburb. For a someone relocating from Kansas City, MO to Leawood, KS housing costs 120% more, and overall cost of living is 31% more; Overland Park and Olathe are slightly less costly, but still more expensive than Kansas City and the Missouri-side suburbs (Best Places' Cost of Living Calculator). It can also be assumed that commercial real estate is perhaps more expensive as well, since it is in higher demand given Kansas’ magnetic policies, and the readier availability of short-term leases for smaller businesses that may be growing in the near future.

However, both states still manage to thrive; A recent study by Pollina Corporate Real Estate ranked both states among the top ten pro-business states in 2011--Kansas at number 6 and Missouri at number 8 (Kansas And Missouri Rank in Top 10). While some are calling for “non-compete pacts” to end the economic border war, others argue that the competition between the two states is one healthy way to motivate both sides to develop business-friendly policies that can stimulate their respective economies to keep both sides of the border attractive places for new and old businesses.

What are your thoughts on the issue? Offer your take in the comments below.
(Photo by Lee Turner, Walton Construction)

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