When Missouri and Kansas agreed to a border war truce in 2019, the agreement was widely celebrated as the end of an expensive and counterproductive competition.

After spending hundreds of millions of taxpayer dollars moving jobs back and forth across State Line Road, both states agreed to stop subsidizing the relocation of existing employers within the Kansas City region.

The agreement, which consisted of legislation on the Missouri side (which sunset last year) and an executive order from the Kansas side, was a good idea. But I argued at the time that Kansas Governor Laura Kelly’s executive order contained a glaring weakness. Specifically, I questioned how Kansas would define “net new jobs” and whether companies could continue receiving incentives by combining a relocation with a modest expansion.

Seven years later, Governor Kelly has provided the answer.

Defending Kansas’s $125 million incentive package for Lockton’s new headquarters in Leawood, Kelly argued the deal does not violate the border war truce because “We will not incentivize the move of current jobs. If a company is going to move and expand, we’ll talk.”

That is almost precisely the scenario I described in 2019: “Could a growing Missouri firm already planning to make a few new hires take that plan to Kansas and seek incentives—using those ‘net new jobs’ as leverage?”

The company is expected to move roughly 1,500 existing jobs from Missouri to Kansas while adding approximately 500 new positions. Under Governor Kelly’s interpretation, those additional jobs are enough to distinguish the project from the type of incentive-fueled relocation the truce was intended to prevent.

But the transaction looks familiar. Thousands of jobs move across the state line. Taxpayers provide substantial subsidies. Public officials attend a groundbreaking and celebrate job creation.

The fundamental question is whether those additional jobs would have been created anyway. It is a difficult question to answer from the outside, yet the system incentivizes businesses to claim the growth is due to the incentive.

A real economic border war truce is worth crafting. But unfortunately, the 2019 truce isn’t that.

The post The Border War Truce’s Predictable (and Predicted) Problem appeared first on Show-Me Institute.

That truce, however tenuous, is now over. And the legislative safeguards that underpinned it? Those are collapsing too. Missouri’s border war limitations on cross-state tax subsidies are set to expire in August. Earlier this year, legislation was introduced to preserve the truce by eliminating the expiration date entirely. Lawmakers added it to Senate Bill 10, which passed both chambers independently—but couldn’t get reconciled before session’s end. So the bill died, and with it, hopes for ending the economic arms race.

Kansas Governor Laura Kelly indicated last year she was never really serious about the truce. But now Missouri has let the truce expire. And in doing so, our lawmakers joined Kansas in an economic race to the bottom. It’s bad policy. Worse, it’s profoundly unserious governance.

Economic development isn’t war. It’s not supposed to be a battlefield where neighboring states trade artillery in the form of publicly issued bonds and tax abatements. Yet here we are again, watching legislators in Jefferson City and Topeka dress up like Civil War reenactors—reenacting the Border War with new costumes and worse math.

Meanwhile, Missouri public officials continue their own subsidy spree, throwing tax breaks at data centers and entertainment districts while the state is unable to keep the streets repaired or safe. If lawmakers were serious about our state’s economic health, they’d rein in their own giveaways first.

Instead, we’re back to playing an expensive, performative game—one that enriches developers, flatters politicians, and drains public coffers. Legislators in both states want to be seen as “fighting” for jobs, but all they’re doing is trading fire in border skirmishes that make the region poorer.

The original truce was imperfect, but it pointed in the right direction. It said we could grow the region without cannibalizing each other. That we didn’t have to subsidize the illusion of progress. That good policy could also be good politics.

By breaking the truce or letting it expire, politicians on both sides demonstrated they are not interested in sober economic stewardship. They may win a few headlines or ribbon cuttings. But the public—taxpayers, students, local governments—will be left paying the bill.

If this is a reenactment, let’s at least admit it: The weapons are new, but the economic costs are the same.

The post Border War is Back On! appeared first on Show-Me Institute.

What’s Happening in Jefferson City?

Get the inside scoop on the Missouri legislative session and policies that could directly impact the lives of Missourians at the Show-Me Institute’s Insider’s Hour! Join CEO Brenda Talent, Director of State Budget and Fiscal Policy Elias Tsapelas, and Senior Fellow Patrick Tuohey for a discussion on tax and education policy and the latest efforts to improve government efficiency.

Wednesday, March 26

Carriage Club

5301 State Line Road

Kansas City, MO 64112

Doors open: 4:30 p.m.

Discussion and Q&A: 5:15 – 6:00 p.m.

Ticket Price: $20.00 (includes light snacks and beverages)

Get your Tickets Here

The post March 26: Insider’s Hour in Kansas City appeared first on Show-Me Institute.

Governor Parson said that Missouri would “do everything we can” to keep the teams in Missouri.

This is dangerous. The reason state and municipal leaders welcomed a truce in the economic Border War was not because of the damage it inflicted on others—it was because of the damage it inflicted on their own cities and states. When signing the 2019 truce, Kansas Governor Laura Kelly noted:

In the past decade, folks in Kansas and Missouri had to watch and wonder why economic development forces in each state spent huge sums — together, some $330 million — to pull businesses a few miles across the border, and only to create an illusion of success with practically no economic gain.

Parson agreed, saying, “Sometimes common sense does prevail. Because you don’t have to be a scientist to figure out [the Border War] was a bad deal for both states.”

Just because Governor Kelly is violating her own executive order does not mean it is in anyone else’s benefit to re-arm and ride to the sounds of guns.

The only ones who benefit from such skirmishes are the corporations that pit the two states and their various municipalities against each other. A prime example was Applebee’s, which crossed State Line Road repeatedly, adding no economic benefit to either side, but racking up sweet taxpayer-funded incentives for itself each time.

All that Kansas did the other day was provide the Chiefs and Royals leverage to play the states against each other—potentially increasing the costs to taxpayers in both states. Should the Missouri side present a package that is competitive, the teams will very likely go back to Kansas and ask it to increase its offer. This is how negotiations work. Will Kansas, now that it has gotten its developers, municipal leaders, and residents excited by the prospect of hosting the two teams, be able to say no? Or will it sweeten the deal, just a little bit, to meet this “once in a lifetime” opportunity?

Anyone can see how this quickly becomes a race to the bottom.

Many Kansans are happy to have Jackson County foot the bill—and the hassle—of dealing with the Hunts and the Shermans. Conversely, there are plenty of Missourians who wouldn’t be bothered if Kansas decided to pick up the tab—and the bond risk—of hosting those teams and all their demands of taxpayers. But responding in kind to Governor Kelly’s gambit is not good for Missouri.

The only way to grow an economy is for government at all levels to be good at the basics. Maintain your infrastructure, keep the public safe, protect property rights, and do so as effectively and efficiently as possible. Missouri leaders ought to keep that in mind.

The post The Border War Is Bad Because It Hurts Us appeared first on Show-Me Institute.

Simply cutting the vast majority of tax incentive spending would accomplish this; the less discretion the states have to spend your money on their cronies, the better. But a secondary option, relating directly to the incentive war itself, would be the establishment of a “truce” between Kansas and Missouri—for both states to largely or completely prohibit the issuance of incentives that would draw businesses from one state to another. What that might look like was outlined in a recent Kansas City Star article: 

Missouri first approved a bill prohibiting the use of state incentives to poach businesses in Douglas, Johnson, Miami or Wyandotte counties in Kansas in 2014.

But to go into effect, the law required Kansas’ governor to enact a similar ban on incentives to lure businesses away from Cass, Clay, Jackson or Platte counties in Missouri.

Kansas, under then-Republican Gov. Sam Brownback, balked at the plan. He came back with a proposal of his own two years later, but it ultimately yielded no agreement.

The Missouri law expired in 2016. A bill filed this year by Sen. Mike Cierpiot, R-Lee’s Summit, would renew it through 2021 to open the door for further discussion.

Extending the period for the truce to be offered is an altogether reasonable proposition, one that I would hope the state of Kansas would consider. In an ideal world, Missouri wouldn’t be doling out vast amounts of money on special projects; bad policy is still bad policy, and tax credit reform that puts a hard cap on incentives should still be the ultimate goal. That said, an all of the above approach that includes a “truce” is nonetheless appropriate as the state’s overall tax credit problem is whittled down.

The post Will There Be a Cease-fire in Kansas City’s Economic “Border War”? appeared first on Show-Me Institute.

Moving from a $7.65 minimum wage to a $15 wage by 2020 is a huge increase, and something that is not even supported by all the usual liberal pundits. Matt Yglesias wrote in Vox of the effort in St. Louis,

In St. Louis, people are much more likely to adjust to a higher cost of employing people by employing fewer people. The most relevant precedent for a big hike in a relatively poor jurisdiction may be Puerto Rico, where an effort to match the US federal minimum wage led to a rise in unemployment and increased migration to the mainland United States. St. Louis is richer than Puerto Rico, but moving a person or a job across the St. Louis city line into the suburbs is a lot easier than migrating from Puerto Rico to the US mainland.

Here is what will happen in Kansas City if the wage is increased: Employers who rely on minimum wage employees will seek to avoid the higher labor costs by hiring fewer people and investing in technology. We’re already seeing the latter in fast food restaurants that rely on kiosks for ordering. With fewer jobs available, the competition for them will grow, and those with the fewest job skills—who are also those with the greatest need for that first job—will be harmed the most. There just won’t be enough work for them. This is true is most places that require an increase in wages.

The second item is particular to Kansas City and will further diminish job opportunities for poor and low-skill workers. Middle class kids from Overland Park, where the minimum wage is $7.25, will suddenly have an incentive to cross State Line Road to earn $12, $13, and perhaps even $15 an hour. (Remember, 44.6% of those earning minimum wage or less come from households that earn three times the poverty level.) Many of these kids will have work experience and skills that make them more appealing to employers. If you’re going to pay a higher wage, you will want a better employee.

There will be pressure on Overland Park employers to raise wages to keep workers on their side of state line. And Kansas City workers may then have to commute to Kansas to get the lower wage jobs that are suddenly available, but they may not have the access to transportation that their wealthier suburban job-seekers have. Kansas City’s urban poor will find themselves with fewer job opportunities locally and no good way to get to the jobs that are available to them outside of Kansas City.

There is no shortcut to creating an environment for more jobs and higher salaries—government cannot create wealth and success by fiat. Instead, local governments need to focus on delivering basic services efficiently and cost-effectively and on limiting taxes and business regulation.

The post A Minimum Wage Increase and the Unintended Consequences for Kansas City appeared first on Show-Me Institute.

The Royal is a Kansas City institution, one whose fall catalog of rodeos, barbeque, and livestock competitions herald the start of winter and the region’s holiday season. Thanks to tens of millions in sales tax revenue STAR Bonds, those traditions will soon move away from the Royal’s current digs in Kansas City, Missouri, to nearby Kansas City, Kansas. Kansas’s $80 million contribution to the project is about double what American Royal was publicly trying to get out of Kansas City, Missouri, officials just two years ago to keep the Royal in the city’s West Bottoms.

But did Kansas even have to “build it” with taxpayer money to entice the American Royal to move? The Royal’s brand is defined by its history in the Kansas City area—even Kansas City’s baseball team is named after the organization—so it’s safe to say that American Royal wasn’t going to move its operations to Texas or Florida.

But setting aside for now the important question of whether this is an appropriate role of government (it isn’t), Wyandotte County has been seeing significant economic growth that would have made it an attractive landing spot for the Royal anyway. More families are moving there today than were coming 10 years ago. In 2004, 1,871 tax filers—bringing more than $57.6 million dollars of income—moved to Wyandotte; fast-forward to 2014, and tax filers were pouring in 25% faster, bringing in around $74 million with them.

Wyandotte County was “building it”—a functioning economy that has, in contrast to its basket-case reputation, attracted investments from Google, Amazon and others in recent years—before Kansas’s $80 million incentive was ever put on the table.

But Wyandotte’s recent successes don’t justify Kansas’s decision to subsidize the American Royal move. Indeed, the state’s $80 million giveaway has all the hallmarks of bad policy and poor judgement from Kansas’s political class. The American Royal was already getting cheaper land and a prime location close to its support bases in Johnson County, Kansas, and Kansas City, Missouri. The tens of millions in taxpayer support is just the KC Strip on top of this gravy train sundae.

Kansas? Sure, it gets a talking point in the battle for the economic soul of the region, but it’s a point that is likely to be eclipsed by the next round of billion-dollar business-poaching that’s certain to come.

While the Royal’s decision could be seen as a slap in the face of its historical roots, Kansas City, Missouri isn’t exactly a victim in the matter, either. The city has a terrible track record of poaching Kansas businesses in precisely the same way and is an equally bad actor in the billion-dollar tax-incentive border war that has bedeviled the region, creating no strategic advantages on either side of the border.

To put it delicately, the bull manure is blowing onto taxpayers from both sides of State Line Road. It’s time to end this tax incentive rodeo and finally pursue a mature economic development policy—one that doesn’t force taxpayers to build the fields of their politicians’ dreams.

The post Creating a Field of Dreams for the American Royal appeared first on Show-Me Institute.

One of the biggest problems in Kansas City (as with other metropolitan areas) is that the city’s affairs have been so poorly managed for a very long time through regular rounds of bad “public investments.” It’s not that Kansas City needs more money—it receives plenty through various taxes—but that the city spends and invests that money so poorly, chasing glitz while letting basic services languish. Throwing more federal dollars at failed initiatives won’t retroactively salvage these projects.

Here’s some background. Kansas City is the 29th-largest metropolitan area in the United States. Like many Midwestern cities, our population growth hasn’t kept up with that of cities in other regions.

Unlike many cities (but similar to Washington, DC, where I grew up), our metro region is divided right down the middle by State Line Road. Half our population resides in Kansas, with the entire city proper and the urban core in Missouri.

Also like many urban cities over the past few decades, our city leaders have chosen to bet our future on large development projects. In our downtown we spent—and continue to spend—millions to prop up a large entertainment district whose revenue has yet to meet rosy projections. We have diverted taxpayer dollars to subsidize luxury apartment buildings and world headquarters for wealthy international corporations. We have committed millions more to build a convention hotel downtown despite the unpleasant experiences of our sister cities in Missouri and across the country with similarly ambitious—but ultimately disappointing—investments.

The assessed value of property in Kansas City has been largely flat since 2007, but because of tax diversions to developers, the amount we actually collected in taxes in 2015 was $200 million less than it would have been without those giveaways.

City leaders are eager to spend over a billion dollars to tear down and rebuild our international airport despite its widespread popularity as a convenient and efficient place to travel to and from. And we have the honor of having just finished one of the country’s most expensive streetcar systems for over $46 million per mile, and advocates now want to expand it at an even higher cost.

Kansas City bears the scars of all this misspending. While we suffer through a spike in homicides, our police department has fewer officers than it did in 2011. Embarrassed by a recent documentary on the plight of the urban core, city leaders issued bonds to demolish 800 dangerous buildings—the majority of which were city-owned. City leaders now contemplate a billion-dollar bond to fund badly needed infrastructure repairs due to years of neglect.

Yet Kansas City’s taxes are high. We have a combined sales tax in many neighborhoods of 10% or higher. The Tax Foundation listed Kansas City as having the 15th-highest sales tax in the country. A 2013 Brookings Institution study found that our county and the surrounding counties have well-above-average property taxes paid and taxes paid relative to home value. And of course, Kansas City also charges a 1% earnings tax on those who live or work within city limits.

Mayor James is correct to say that “we clearly cannot afford the status quo.” But his solution is to seek more government funds to bail out decades of bad investments and decision making in Kansas City and elsewhere. If cities like Kansas City, Chicago, Detroit, Newark, and Stockton are allowed to throw good money after bad, none of us will be any better off. America’s new agenda for cities must start with those cities, and it must involve a serious effort to right the wrongs of the past and return to sound management. The solution is not federal bailouts but better management of the money that cities are already collecting.

The post A New Agenda for Cities Must Come from Cities appeared first on Show-Me Institute.

The Aldi in Gladstone, Missouri, just outside the city limits to the north, is not shown on the map. It charges only 4.725 percent sales tax. Again, that was no surprise because Kansas City is generally a high tax city.

The stores in Waldo and East Brookside to the south both charge 5.85 percent sales tax. The Aldi to the north, supposedly in the middle of a food desert but definitely in the poorer part of town, charges 6.35 percent sales tax.

The reason for this higher rate is the Independence Avenue Community Improvement District (CID), which collects an additional .5 percent tax on top of the existing sales tax. This means that the tax rate on unprepared food such as groceries is 6.35 percent; for restaurants it is 11.35 percent. According to their website, the purpose of the CID is:

to provide for enhanced and reliable improvements, security, services and activities, such as general maintenance of public areas, continued efforts to address area beautification related issues, as well as other concerns within the Independence Avenue corridor not already receiving such services.

It used to be that security, general maintenance, and beautification were addressed by the police, public works, and the parks department. As the city fails to provide these basic services, neighborhoods step in and do it themselves. As a result, the poorest neighborhoods, where the need is greatest and the ability to pay lowest, pay higher taxes.

The post Kansas City’s Reverse Robin Hood appeared first on Show-Me Institute.

The latest anti-smoker proposal aims to raise the cigarette taxes to around 90 cents a pack (cigarette taxes in Missouri currently are 17 cents a pack) in order to fund scholarships for students. On the surface, this proposal sounds appealing, but raising excise taxes in order to fund education is not good policy. There are a couple reasons why this is the case: First, cigarette taxes are regressive. Poor people smoke more than higher-income individuals, and smoking takes up a higher percentage of their income.

Second, an increase in cigarette taxes can harm Missouri businesses. More people commute into Missouri than out of it. Our low excise taxes serve as an inducement for out-of-state visitors to purchase alcohol, gasoline, and cigarettes in Missouri instead of Kansas and Illinois. The chart below from  showmedata.org shows just how low Missouri’s taxes are in comparison to Kansas and Illinois (Missouri is in yellow).

If this proposal becomes law, Missouri’s cigarette tax rate will be higher than in Kansas. It isn’t hard to imagine commuters on State Line Road choosing a Kansas convenience store over a Missouri one if products are cheaper.

Now, some might argue that raising cigarette taxes is good in and of itself because doing so will reduce cigarette usage and improve public health. That’s partially true, but the effect is small. If the increased tax revenue would be spent on treating smoking-related illnesses, then the conversation would be worth having. However, even if we agreed that a tax hike should go to increased health spending, if taxes go up too much, people would simply resort to smuggling.

Personally, I’m not a fan of smoking. My grandfather suffered from emphysema due to his smoking. However, just because I don’t like an activity doesn’t mean I believe the government should treat it as a piggy bank for more spending. Let’s find ways to cut spending, not increase it.

The post Still Coughing Up More for Education appeared first on Show-Me Institute.

The number of jobs shrunk and we have an economy that barely grew last year. Considering the other issues that face these tax credit programs, does anybody really think that the taxpayers are getting a good bang for their bucks?

Economic development tax credits interfere with the markets by trying to determine what the future of Missouri’s economy will look like. Monkeys throwing darts have a better chance of determining the future economic needs of Missouri than bureaucrats in Jefferson City.

Meanwhile, Kansas just took a chainsaw to its personal income tax. Starting in January, 191,000 small Kansas businesses will not be paying taxes on their income. How is Missouri going to stop the avalanche of small businesses (especially those in Kansas City) from stampeding across State Line Road, with more tax credits?

The state can carry on with the same game they have been playing (and losing) for years. Or it can try something new. Patrick Ishmael and I continue to express our view that eliminating the state’s corporate income tax would help the state catch up. Eliminating the state’s corporate income tax would benefit all Missouri corporations, not just those who happen to be politically favored. It would give Missouri a leg up on Kansas (which still taxes its C-corporations) and coupled with a phase-out of some state tax credits, would not harm state revenue.

Missouri faces a critical choice. It will either keep playing the development game or it will try something new. Ditching the corporate income tax is not the cure-all, but it would be a positive first step.

The post The Tax Credit Problem Is Still A Problem appeared first on Show-Me Institute.