Missouri Gov. Jay Nixon slammed the border war for businesses in the Kansas City metropolitan area Tuesday as “bad” for the local economy and called for a moratorium on using tax incentives to shuffle companies across the state line.
In a policy speech to the Greater Kansas City Chamber of Commerce, the governor said he had reached out to the administration of Kansas Gov. Sam Brownback to pursue legislation that would make a moratorium permanent.
In recent years, the so-called border war has shifted more than 5,000 jobs across the state line within the metro area, draining more than $200 million in income tax revenues from the states and resulting in no net gain to the local economy.
“That’s bad for taxpayers, it’s bad for our state budgets, and it’s bad for our economy, hampering our ability to compete as a region,” Nixon said in prepared remarks to the chamber.
The governor asked for an immediate moratorium within the metropolitan area on the use of discretionary incentives in cases where jobs are “merely” being moved across the state line.
“Although resolving this issue once and for all will require legislation in both states, in the meantime there is no reason another dime of taxpayers’ money should be spent to subsidize the movement of jobs within this region,” Nixon said.
Pat George, Kansas secretary of commerce, acknowledged that discussions have been underway for more than a year to find ways to resolve the issue, but added he was surprised Nixon decided to discuss the subject now.
“We’ve been working with my counterparts in Missouri discussing potential solutions to the border war,” George said.
“It surprised me. We’ve communicated pretty well over the past year or so. We thought it might be a joint announcement.”
George said he recently assembled a seven-member advisory board of mayors, economic development officials and legislators from the Kansas side of the metro area. The group had its first meeting about 10 days ago.
“We would like to find a solution,” George said. “This is the taxpayers’ money we’re trusted to use wisely.”
The major incentive programs fueling the border poaching by both states allow companies that move to retain their employees’ state income tax for a set period.
The Kansas PEAK program allows firms to keep 95 percent of those employee withholding taxes for up to seven years. The Missouri Quality Jobs program allows firms to keep up to 100 percent of those taxes for a set number of years. That incentive was folded recently into what’s now called the Missouri Works program.
Nixon said although the incentives were created with the intention of making each state competitive in creating jobs and encouraging new investments, those goals have not been the real result in the metropolitan Kansas City area.
“Too often here, in one of the nation’s largest metropolitan areas separated by a state line, these tools maniplate the market by subsidizing the movement from one side of the border to the other, without creating new jobs for the region,” he said.
“This problem – unique to our region – of taking jobs that already exist and treating them as if they’re brand new is the unintended consequence of incentive programs in both states, and all of us have a shared responsibility to fix it.”
George said the major legal obstacle preventing state officials from agreeing to a metropolitan truce is that the Missouri income tax incentive program is an entitlement conveyed automatically to qualifying firms while the PEAK program gives state officials the discretion to use it or not.
“What’s been the biggest stumbling block is on the Missouri side a lot of the incentives are entitlements versus the discretionary way we do incentives on the Kansas side,” George said.
The advisory board was established to prepare recommendations to the Kansas Legislature, George said. Though disappointed that Nixon decided to make his policy address earlier than envisioned, George said it wouldn’t disrupt his effort.
“We’re in as much favor as Gov. Nixon and Missouri to look for a solution,” he said. “We’ll continue to meet.”
Kansas City civic leaders have been calling for both governors to declare a moratorium on the use of incentives within the area for more than two years.
In April 2011, 17 top executives from both sides of the state line sent a letter to the governors describing the practice as eroding the area’s tax base with no net improvement to the local economy.
At that time, the border war already had shifted such local firms as JPMorgan Retirement Plan Services, 800 jobs, and KeyBank Real Estate Capital, 300 jobs, from Kansas City to Johnson County. Later that year, AMC Entertainment took a $47 million incentive package to move 400 jobs from downtown to Kansas.
Going the other direction, Missouri has landed several Kansas firms including North American Savings Bank, 200 jobs; Freightquote, 1,225 jobs; and Applebee’s International, 390 jobs.
A year ago, Bill Hall, president of the Hall Family Foundation, estimated both states had forgiven $191 million in income taxes because of the border war since the PEAK program began in 2009.
During that period, Hall estimated Kansas had attracted 3,030 jobs across the state line and Missouri had attracted 2,514, leaving Kansas with a net benefit of 516 jobs.
Whether Nixon’s proposal for a moratorium will gain traction in the Missouri General Assembly is uncertain.
Nixon has long wanted to have the same kind of discretion with incentives that Brownback enjoys in Kansas. But the idea of giving the Democratic governor more control over millions of dollars’ worth of business incentives is considered a non-starter in the Republican-controlled General Assembly.
Instead, lawmakers have focused their efforts on legislation that would leave the current system intact but prohibit Missouri from issuing economic development tax credits to attract jobs from Kansas into certain counties surrounding Kansas City.
To go into effect, Kansas would have to approve a similar ban.
Last year the Missouri House approved the bill 140-11, but it never received a hearing in the Senate.