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A Misguided Heartland Border Truce

Kansas City skyline.
Kansas City. Photo by Nikonian Novice.

Suppose you are a politician who won the last election on a promise to bring jobs to your state. Would you care whether the jobs came from a state next door or from halfway across the country?

Being a Floridian – and also somewhat involved in the film industry – let me observe that our northern neighbor had no compunction about taking thousands of jobs from the Sunshine State. Georgia offered a world-class incentive program at about the same time as our own funding for film incentives ran out. If you wonder why you so often see the Georgia peach logo at the end of the movies or television shows you enjoy, there’s your answer.

But for today, let’s turn our attention away from the Florida-Georgia line and look at the border between Kansas and Missouri. In the mid-19th century, this was the region where “bleeding Kansas” got its nickname as part of the struggle over slavery’s future in the United States. In the 21st century, the competition along that border is still intense – albeit thankfully bloodless – as the two states vie for business in the greater Kansas City area.

Maybe not for much longer, though. Missouri’s Legislature has passed, and the state’s Republican governor has signed, legislation that would stop granting financial incentives for businesses that move into Missouri from across the state line in the metropolitan area. Kansas’s Democratic Gov. Laura Kelly has said she will impose a similar truce via executive order, which as of this writing she had not issued. Missouri’s law will take effect once Kansas reciprocates.

Jobs moving between Kansas City, Missouri and Kansas City, Kansas have incurred a collective $335 million in incentives between 2011 and 2019. Because of Kansas City’s unusual geography, in which the state line runs through the city itself, it can serve as a sort of miniature version of the economic bidding that often goes on between metro areas that are usually much farther apart. Since 2011, 5,526 jobs have moved from Kansas to Missouri; 6,729 moved in the other direction in that time.

This is not the first try at a compromise between neighboring lawmakers. Kansas rejected a similar plan from Missouri in 2015, and Missouri rejected Kansas’s counter-offer in 2017. But both states have new governors, and officials have been cautiously optimistic. Under the current legislation, if the deal takes effect, Missouri will still offer incentives to companies moving to the state – from anywhere other than three specific counties in Kansas. To trigger the agreement, Kansas will need to exempt four Missouri counties in the metro area from subsidies by 2021.

None of this really makes a lot of sense. That is, unless you subscribe to the widely held belief that business incentives themselves seldom make much sense. In the broadest perspective this is undeniable, since incentives generally add very little to the total amount of business being conducted. They just move existing business around, or redirect growth that would have occurred anyway from Point A to Point B.

But at the state level, moving business around is important. Just ask anyone who used to make movies in Florida and works in Georgia today.

In some cases, businesses have received generous incentives for simply moving a few miles across the Kansas City region. Such moves, by themselves, won’t “create” new jobs. But then again, incentives don’t generally create jobs in the first place. That does not mean that moving existing jobs can’t be worthwhile from the standpoint of the government that is paying for them.

In 2016, NPR used the campaign to get Applebee’s to move its headquarters from the Kansas section of town to the Missouri section as an object lesson in the way such incentives could play out. Some officials and lawmakers suggested that companies have secured tax breaks they didn’t deserve by moving across the street. But as a chamber of commerce employee explained, a new job is a new job; the distance is immaterial. “If it’s a new job to the state of Kansas, it’s a new job to the state of Kansas whether it’s from Mississippi or Missouri … because it’s not our state.”

Say you live in the Missouri section of the Kansas City region, and your employer moves your job across the state line. Chances are pretty good you won’t move, at least not right away. But you will start paying income taxes to Kansas, because that is where you draw your paycheck. Missouri, your home state, will give you a credit to offset the tax you pay to Kansas (as long as it does not exceed Missouri’s tax on the same income). Suddenly your income tax dollars are helping to support the University of Kansas Jayhawks, rather than the Tigers of Mizzou. Maybe you don’t like that. Your employer doesn’t care.

The rent your employer pays for the new premises in Kansas also becomes part of the Kansas local government’s tax base via property taxes. Those property taxes help support schools in Kansas, even though your kids go to school in Missouri. That’s a good deal for Kansas taxpayers in Wichita just as much as it is for those in the Kansas City suburb of Overland Park. Each dollar raised locally is a dollar the state won’t need to distribute to generate the same resources. Likewise, when your employer buys furniture or computers or office supplies, the sales or use tax will go to the state where those items arrive.

If your employer’s move across town means you spend more time in traffic every day, you might eventually move closer to the new location. That is good for the construction industry – in Kansas.

Maybe you are skeptical of incentives as a tool of local economic development. That’s fair. Maybe you think governments should issue incentives much more thoughtfully and strategically than they often do. That’s also fair. But if you are an elected official, you are accountable to the people who elected you – not to the folks in the jurisdiction next door. There isn’t much shooting on the Kansas-Missouri border these days, but there still seems to be a lot of confusion and smoke.

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