Kansas City companies rush to cash in before border war tax breaks disappear

Missouri Gov. Mike Parson and Kansas Gov. Laura Kelly will get together Tuesday to celebrate the much anticipated economic development ceasefire between the two states.

The event will mark the end of the widely condemned practice of handing out taxpayer subsidies to companies that cross State Line Road without actually creating new jobs for the region.

But even as the two governors plan to celebrate the feat, both states continue efforts to induce companies across the state line ahead of Aug. 28 — the day the agreement goes into effect.

Overland Park’s Waddell & Reed Financial, which just announced it would lay off dozens of local workers, has qualified for incentives from Missouri for an upcoming move. Likewise, Hostess Brands, the maker of Twinkies, has identified state incentives as a major reason for its move from Kansas City to Lenexa.

“This just shows how lucrative this was to the companies that there would be this rush in the last minute when it appears we’ve reached a truce,” said Bill Hall, president of the Hall Family Foundation. “We have wasted so much money doing this and misused our incentives to play intramural ball instead of going after real, new jobs. It shows how silly but lucrative this has been.”

Parson in June signed legislation that would halt Missouri from offering tax incentives to companies that jump the border from Wyandotte, Miami and Johnson counties in Kansas.

Kelly reciprocated earlier this month with an executive order that bars Kansas from offering incentives to businesses in Jackson, Platte, Clay or Cass counties in Missouri.

Now, with the Aug. 28 deadline approaching, Kansas and Missouri officials aren’t talking about last-minute deals looming on both sides of the border.

For years, Hall has studied the issue and called for an end to such incentives. The Hall Family Foundation estimates the status quo cost Missouri and Kansas taxpayers a combined $335 million to shuffle some 12,000 jobs across the state line between 2011 and 2018.

Hall said he expects more companies will announce plans to hop the border in the coming weeks as the window for incentives closes.

“We had to pick a point in time,” he said. “And I think we’re looking to the future in saying hopefully the ones that would have happened next year or the following year won’t happen now.”

Missouri won’t disclose incentives

Waddell & Reed announced in early June plans to relocate its headquarters from Overland Park. At the time, the company said it was “considering a number of potential sites in Missouri.”

In late July, the company informed Kansas regulators of plans to cut 158 jobs. The company had previously told investors about plans to outsource some operations jobs.

The Missouri Department of Economic Development declined to discuss the financial firm’s application for state incentives. The department denied a records request under the state’s Sunshine Law, citing open records exceptions for pending applications, business secrets and private business financial records.

“Due to the status of the project, records are closed and information relating to the project remains confidential at this time,” department spokeswoman Holly Koofer-Thompson said in an email.

She declined to answer any of The Star’s general questions about the incentive program or how the state planned to transition under the new agreement with Kansas. A spokesperson for Parson did not respond to a request for comment.

Roger Hoadley, a spokesman for Waddell & Reed, said the firm has not selected a specific site in Missouri for its new headquarters. He would not say whether the company plans to build, buy or lease office space.

When asked about incentives, Hoadley would only say the firm was “evaluating our options.” He said local and state officials set the parameters around incentive programs.

“We will follow the appropriate processes laid out by those jurisdictions,” he said. “That being said, we are pleased that our current options allow us to remain part of the Kansas City community.”

KC mayor ‘disappointed’ by last-minute moves

Greg Flisram, president of the Economic Development Corporation of Kansas City, said Waddell & Reed has qualified for the Missouri Works incentive program, which offers companies payroll tax withholdings or tax credits in exchange for growing or retaining jobs.

He said the company has so far not applied for local incentives.

Much of the border war debate centered on state incentives, but officials in Kansas are quick to note the remaining disparity in local property tax incentives deployed by cities to lure companies. Kelly has said she hopes cities will go along with the spirit of the truce.

Newly inaugurated Kansas City Mayor Quinton Lucas recently announced he would introduce a city council ordinance that would limit local property tax abatements to 10 years to correspond with the cap in Kansas — Missouri abatements are currently capped at 25 years.

For now, Flisram said local city governments will determine whether to award incentives for border-hopping companies.

“I think it’s going to be determined by the city councils,” he said, “and whether they decide to grandfather projects that are in the pipeline or not.”

Lucas said he hopes Missouri and Kansas lawmakers will eventually approve legislation that equalizes local incentives in border counties. Until then, he’s encouraged by the upcoming deadline for state incentives.

“I’m glad to see it ending, but I’m a little disappointed that some of these are left out there,” he said. “I hope what we’re seeing in these final weeks is the end.”

Lucas said economic development officials need to “play in a bigger sandbox” and recruit companies from outside the metro area.

“If our economic development strategy in Kansas City, Missouri, is to just try and get companies from Johnson, Wyandotte and Miami counties, then we’ll be forever limited,” he said. “And the same is true in Kansas.”

The mayor said he wasn’t aware of the particulars of Waddell & Reed’s move into Kansas City. He did not know whether the city would award the firm local incentives.

“I guess the question is should we just not do them at all in the spirit of the border war truce,” he said. “I’d be wiling to do so as long as Hostess isn’t getting incentives to take jobs out of Missouri.”

Hostess expects ‘significant’ incentives

In a quarterly call with investors on Wednesday, Hostess Brands leaders cited economic development incentives as a reason for their move away from their current headquarters on Armour Boulevard in Kansas City.

“With the relocation of our distribution center and now our corporate headquarters to Kansas, we expect to receive significant future tax incentives and credits based on our ability to partner with the State of Kansas and local governments on the relocation,” said President and CEO Andrew Callahan.

The company already has leased space for a distribution center in Edgerton.

Headquarters of the once-bankrupt brand left Kansas City once before to relocate in Texas before coming back here in 2013. The new headquarters, planned for Lenexa, will include a test kitchen and consumer research center — a move executives said would save time and money in the product development process.

Johnson County property records show the company has purchased an office building at 7905 Quivira Road, just off of Interstate 35 in Lenexa. A Securities and Exchange Commission disclosure shows Hostess spent $6.4 million on its July 30 purchase of the property.

Hostess Brands announced Lenexa as home to its new headquarters in a Friday evening news release. In that document, executives thanked state and local government officials for support and assistance. They also pointed out that the new headquarters further consolidates the company’s footprint in Kansas.

Company leaders declined to discuss the move — or incentives — with The Star last week.

Officials in the Kansas governor’s office did not respond to a request for comment. And a spokesperson for the Kansas Department of Commerce declined to answer any questions last week about the incentives Hostess will receive.

Blake Schreck, president of the Lenexa Area Chamber of Commerce, said Hostess received no local incentives for the move.

In the future, companies will not qualify for state incentives unless they can show they are adding new net jobs, rather than just moving jobs around. Hostess didn’t have to meet those rules.

Schreck served on a Kansas advisory committee that studied the border war issue several years ago. He said the Waddell & Reed move, which comes at a time of job losses, is exactly what the border war ceasefire is aimed at ending.

“If this were happening a few months from now, it wouldn’t be OK,” he said. ”But it looks like they just got in under the deadline.”

It can sometimes take months or years to finalize economic development deals, Schreck said, so some in-the-works projects will likely be grandfathered in ahead of August 28.

“There may be a little gold rush to get it in before the deadline,” he said, “but we’ve only got a few weeks before the deadline.”

‘This is really historic’

On Tuesday morning, both governors will meet in Kansas City, Kansas, to sign “a joint commitment to regional collaboration.”

That’s indicative of what some believe is an even bigger change for the two states: rather than just laying down arms, the two plan to join forces in recruiting investment to the region, said Joe Reardon, president and CEO of the Greater Kansas City Chamber of Commerce.

“You saw with USDA that the governors came together in common cause,” he said. “I don’t think this is just a ceasefire at all. I think you’re seeing a sea change in how the governors view economic development in the region.”

In June, the United States Department of Agriculture announced it would ship more than 500 jobs from Washington, D.C., to the Kansas City area after a national competition among cities and states. Federal officials have not announced on which side of the state line those workers will locate.

Reardon said the rare bi-state effort to lure USDA shows the future potential of cooperation.

“It shows that when there’s an alignment like this we can win, the Kansas City region can win,” he said. “Those governors can help that happen.”

Hall, with the Hall foundation, said it’s hard to overestimate the importance of the ceasefire from the border war, which some developers, brokers and economic development officials fought to protect.

“If you step back and if we don’t worry about what I think are going to be some short-term disruptions, this is really historic not just for the region but for the country,” he said. “And the two governors deserve a lot of credit.”

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Kevin Hardy covers business for The Kansas City Star. He previously covered business and politics at The Des Moines Register. He also has worked at newspapers in Kansas and Tennessee. He is a graduate of the University of Kansas