Showdown at state line



By Jack Cashill

Courtesy of - October 2000

It didn't have to be like this. If, in 1867, those agents from the Chicago, Burlington & Northern had followed logic's course they would chosen to span the Missouri upriver, at Leavenworth, the proudest and most populous city on the Missouri's storied bend.

If they had done so, Leavenworth would surely have emerged as the "Kansas City" of the region. Its growth would have pushed westward into Kansas much as St. Louis's did into Missouri. As with St. Louis, there would have been some sporadic growth back across the bridge on to the other side of the river. And though it's painful to think of charming little Weston as our East St. Louis, a Leavenworth metropolis would have been an easier concept for everyone to grasp.

But it didn't happen.

What did happen is that the paleo-ED team of Kansas City put together a package of financial incentives - some on the table, some below it - so persuasive that the railroaders could not refuse. The resulting Hannibal Bridge would transform Kansas City from a pit stop into a metropolis, swelling its population from 4,000 at war's end to 160,000 by century's end. As to Leavenworth, it would remain stuck in time, a living testimonial to the consequences of a passive economic development program.

Still, it might have turned out differently had there been a spirit of bi-state cooperation in 1867, had there been an entity like today's Kansas City Area Development Council (KCADC) to cut through competing interests and wrap up the area like a package. But there was not. Remember, this deal was negotiated just four years after Quantrill and his fellow Missourians sacked the city of Lawrence and slew some 150 of its residents. When folks talked of "bad blood" between the states in those days, they meant it more or less literally.

Hold That Line

Over time the battle between the states has grown soft and symbolic. Today, "war" is waged openly only on the gridiron, where if Kansas University retains its bellicose Civil War identity as the "Jayhawks," Missouri University has turned blandly "Tiger."

Yet for all the signs of civility, the economic conflict between the states remains real and intense. There is one inescapable reason why: history has rendered Kansas City in two. It stands as the most bifurcated metropolis west of Buda and Pest, split down the middle by a state line almost Solomonic in its precision. No other metropolis in America faces the bi-polarity Kansas City does

"Ideally," says David Bodde, Charles N. Kimball Chair in Technology and Innovation at UMKC, "an entire metro area would fall within one state, and possibly one city, to streamline issues such as taxation, utility regulations, labor laws and many other business-related issues."

James G. Baxendale, Director of Technology Transfer & Intellectual Property for KU Medical Center concurs. "I believe our community is too small," he admits, "to benefit in any great way from bi-state competition."

Although the opinions of Baxendale and Bodde represent the accepted wisdom, there exists a lively dissent. For despite the state line - or perhaps because of it - Kansas City has enjoyed a diverse, dynamic and generally prosperous economy for years, if not generations.

"Competition is always good," says Jim Kayne, Director, Public Sector & Community Initiatives, Kauffman Center for Entrepreneurial Leadership. "Just as it forces for-profit companies to improve their products, it also forces jurisdictions to improve themselves, providing better schools, better infrastructure and effective government services."

Mary Birch, President of the Overland Park Chamber of Commerce, has a similar take. "From an economic development perspective, the state line has been and will continue to be one of this area's greatest assets," says Birch. "It offers the business decision makers choices they do not have in other competing cities and provides a very important retention tool for companies who need to move to grow." Kayne well sums up this counter-instinctive position. "If the regional government were a monopoly," he notes, " there would be no incentive to improve."

Both ends against the middle

To pick up the newspaper on just about any given day is to discover that some local enterprise has identified the "asset" the state line can be and taken advantage of it. "Butler Manufacturing selects Missouri site," reads a Kansas City Star headline from late September. "Incentive package beats Kansas' offer."

The headline leads the unwary to believe that Butler switched states, but it did not. In reality, Butler had announced in August that that it intended to move its headquarters from its current site on 31st street in Kansas City, Missouri to the "The Yards," a commercial office park in the West Bottoms.

A cagey move. As it happens, The Yards straddles the state line. To be sure, other cities face state line issues - New York City, for instance, or even Chicago - but in no American metro is the physical difference between the two sides as minimal as it is here. Butler could have moved to one state just as easily as another - in either case without inconveniencing its employees or its executives. In a tight job market, this was a critical variable for Butler, two-thirds of whose employees live in Missouri and one-third in Kansas.

As the Butler case illustrates, it would be a mistake to think of the companies as caught in some kind of crossfire. "What is more commonly the case," Bodde notes, "is that companies making location decisions shop for the best deal on both sides of the line."

Butler seems to have done quite well with its shopping. To seal the deal, the Kansas City, Missouri City Council approved a resolution to issue $20 million worth of bonds to construct a 1400-space parking garage primarily for Butler employees. In addition to the garage, Butler also qualified for property tax abatement and sales tax exemption.

To get some sense of the city's eagerness to retain Butler, the often fractious Council voted unanimously to approve the resolution, and Mayor Kay Barnes glowed in the light of "the shining example" that Butler set for potential growth in that area.

Missouri doesn't always do quite so well. A recent headline in The Business Journal bears witness, "Incentives prove big premium in Haake's move to OP." The mid-town KC insurance company had packed its bags for Overland Park. No shining example here.

Team strategies

Even those in state or local government who question the wisdom of interstate competition know that they must do what they can to compete. Virtually all local political jurisdictions play the game in one way or another, but it is at the state level that the competition seems most intense and the strategy most focused.

Although there are any number of statewide economic development forces in Kansas, both public and private, it is KTEC - Kansas Technology Enterprise Corporation - about which one hears most.

"For young companies," Baxendale volunteers, "it is very advantageous to locate in Kansas and have the services and resources of a KTEC available." Jim Kayne of the Kauffman Center freely makes the same point. "Technology-based business support, led by KTEC," he argues, "is probably stronger in Kansas." Although neither believes KTEC gives Kansas an unqualified edge, both see it as a powerful and visible asset.

Founded in 1987 as a public-private partnership, KTEC positions itself as a "Renaissance network" designed to support researchers and entrepreneurs through each phase of the technology life cycle. Its president and CEO, Rich Bendis, has been with KTEC either as board member or executive since its inception.

"One of Missouri's priorities is to encourage growth by keeping the overall cost of doing business, including taxes, at the lowest possible level and by keeping regulations and permitting reasonable."

Joe Driskill, Director of the Missouri Department of Economic Development

KTEC's challenge, as Bendis sees it, is to reposition Kansas as an "industrial and knowledge-based state." in the eyes not only of the nation, but also of the world. Indeed, Bendis acknowledges the awkwardness of having been pitching Kansas to NATO in Brussels when the Kansas School Board story broke worldwide. Regardless of its merits, the evolution debate did not play well in a Europe that had long since written it off as a diversion for what noted British biologist Richard Dawkins calls "backwoodsmen."

Bendis speaks confidently of the state's strengths: its central location, its low cost of living, its work force productivity, the strength of its manufacturing base, the growth in its professional services sector, its strong Wichita-clustered aviation industry, its growing telecommunications and information technology base, and its relatively high percentage of high-tech workers, a percentage higher not only than the national norm, but higher too than that of any adjoining state save Colorado.

KTEC, as well as other ED entities in Kansas, boasts of Kansas's schools, colleges, and highly educated work force. In close quarters, when recruiting business from outside the metropolis, Kansas ED folks must surely use the educational disparity between the Johnson County schools and the KCMO schools as a trump card. They would be fools not to. Says Steve Kelly of the Kansas Department of Commerce & Housing, "We know that quality education is one of the reasons for the explosive growth on the Kansas side of Kansas City metropolitan area."

On the Missouri side, the ED entity one hears most about is the Missouri Department of Economic Development (DED), a state agency. If Kansas puts points on the scoreboard for its technology support, Missouri scores points for its intense, focused approach to economic development.

"Missouri has been more aggressive in developing venture capital funds," notes James Baxendale of KU Medical Center, "and allocating the tobacco settlement money to economic development."

Leading the charge on the Missouri side has been Joe Driskill, Director of the DED. Not surprisingly, in positioning Missouri, the DED emphasizes many of the same points KTEC does for Kansas, among them: a skilled and educated workforce, high quality of life, central location, excellent transportation system, lower operating costs, and international airports.

As Driskill notes, "We also like to talk about Missouri's high-technology resources that can create further synergies or collaborations between businesses and research facilities." Both sides agree that high-tech jobs provide the best foundation for long-term economic growth and pursue them avidly.

One advantage that Missouri offers, which all parties seem to affirm, is a generally lower tax structure. "One priority," says Driskill, "is to encourage growth by keeping the overall cost of doing business, including taxes, at the lowest possible level and by keeping regulations and permitting reasonable."

In addition, Missouri's "Hancock Amendment" prevents increases of state or local taxes without a public vote, and the state's strong economy has provided more than $1 billion in state tax refunds.

On the other hand, Kansas is a right-to-work state and is less beholden to the political influences of its unions than is Missouri. As should be evident, these are well-matched adversaries, both eager to win.

Push'em back, push'em back, way back

Imagine the state line as the 50-yard line on a football field. The goal of each team is to push forward on to the other team's territory and eventually to score.

In economic development, the score comes when a state or community lands a new company. Ideally, growth comes from outside the metropolis or even from within the state - "to grow your own," as Rich Bendis puts it.

When push comes to shove, however, neither state shies from butting heads with the other. "You don't need to twist our arms to talk about Missouri's advantages for business," says Joe Driskill. "While we enjoy cooperating whenever possible with our neighbors in Kansas, we think Missouri has a great story to tell."

As aggressive as the Missouri DED can be Driskill objects strenuously to recruiting sorties across the state line. In fact, Missouri has communicated its support for a "non-pirating treaty" to Kansas, and as Driskill notes wishfully, "We hope our colleagues there will respond positively."

Says Steve Kelly, Director of the Business Development Division of the equally able and aggressive Kansas Department of Commerce & Housing, "We have a firm policy of not pro-actively recruiting across the state line." He adds however, that "when contacted by Kansas City area companies that have determined that their location does not meet their current or future needs," the Department of Commerce & Housing pursues those opportunities intensely.

These interstate raids, if considerably less bloody, are no easier to manage than they were in Quantrill's time. For one, it requires that civility prevail over economic expediency, and history shows that this almost never works. For another, the line between recruitment and self-promotion is a thin one. If, for instance, a colleague or friend from Missouri asks Rich Bendis about KTEC, how could he do other than promote Kansas.

It is precisely these kind of close encounters that give Kansas an advantage in metropolitan Kansas City. Much of the state's power elite lives here, including its governor, and Topeka is only an hour away. Bendis says on the record what others have said off. "Missouri leans towards St. Louis," he comments. "Kansas City is a step child in Jefferson City."

A third complication in controlling recruitment is the welter of players in the local ED field. What concerned Jim Kayne as he got to know Kansas City was "the lack of coordination among business support organizations regardless of whether they were on the same or opposite sides of the state line." If the Indianapolis metro comprises only one county, one state, and one city, the core Kansas City metro comprises two states, five counties, and God only knows how many cities. Coordination is inevitably going to be more difficult here.

Throwing the Bomb

Dave Frankland, the CEO and President of Digital Archaeology, has experienced the game on the ground level. Last year this high tech data warehousing company began shopping around the Plaza area and Kansas City's Freighthouse District for a new space. The primary motive was the need find a more appropriate environment than Lenexa where the six year-old company got its start.

Once Missouri caught wind of Digital Archaeology's itchy feet, it let loose with its bomb, the one weapon in its arsenal that strikes fear into the heart of the Kansas ED people: the Certified Capital Company Program - CAPCO. According to Frankland, the state "offered a significant sum of money through its CAPCO program to entice us to move."

Created three years ago by the State of Missouri, CAPCO raises venture capital funding by giving tax credits to insurance companies which in turn invest in approved businesses. To qualify for the money, of course, the company must agree to move to Missouri. In February of this year, Digital Archaeology announced that it would.

Home field advantage

For all the talk of Missouri's indifference to the Kansas City area, Frankland sensed none of it. "Missouri did a very good job at the State level," Frankland says - a better job, he admits, than Kansas.

Although Frankland gives credit to organizations like KTEC "that have been working diligently to build a strong technology base within the State," he suggests that certain state legislators and administrators undermined that effort.

Yet for all of Missouri's attention and the CAPCO financing, Digital Archaeology finally chose not to move. The problem was at the level of local infrastructure. "State-to-state comparisons are often an afterthought," Driskill acknowledges. "Any real comparison must be evaluated based on the specific sites involved." And it was at this level that Digital Archaeology finally pulled back.

In a bi-state environment like Kansas City's, it may be easy to play one state off another - and profitable to - but... in the final analysis, the home team usually has the advantage.

KTEC's challenge is to reposition Kansas as an "industrial and Knowledge-based state." In the eyes not only of the nation, but also of the world.

Rich Bendis, President and CEO, KTEC


The higher ground

For all the competition between the states, and the occasional tension, there seems to be a growing recognition of the value of cooperation, a recognition that has blossomed in the aftermath of the largely successful bi-state salvation of Union Station.

Bob Marcusse may be in the best position to know. Marcusse is head of the Kansas City Area Development Council, or KCADC. The role of KCADC is to represent the entire 15 county metropolitan area to corporate prospects around the world. The product it represents is the Kansas City area, and the products Kansas City competes with have equally strong brand names like Denver, Dallas, and Atlanta.

KCADC and its community and state partners work together to overcome regional differences and to attract corporations to metro Kansas City. When KCADC and its partners were wooing the International Speedway Corporation, the Kansas team and the Missouri team flew together to Daytona on the same corporate aircraft to receive one presentation from the client. When they recruited Transamerica Insurance, they met Governor Finney of Kansas for breakfast, Governor Carnahan of Missouri for dinner, and business leaders from both states for lunch. For the record, the NASCAR track went to Kansas, and TransAmerica went to Missouri.

Another bi-state initiative that has opened many eyes is the proposed creation of a Life Sciences cluster in metropolitan Kansas City. Says James Baxendale of KU, "Memorandums of Understanding have been created across state lines between organizations that would not have considered such a venture in the past." He notes that bi-state task forces have been created to develop strategies and pool resources, "all in an effort to make this a vibrant Life Science community."

Mary Birch of the Overland Park Chamber reaffirms the value of both states pursuing what she calls "a mutually beneficial situation." She cites the Harley Davidson plant in North Kansas City and the Sprint World Headquarters Campus in Overland Park as examples of projects that strengthen both Kansas and Missouri.

In the final analysis, there may be no need to choose between a competition model and a cooperation one. Marcusse, among others, has a firm grasp on the paradoxical value of managing both simultaneously. "To succeed against strong competition," he observes, "we must present a united, seamless metro that presents the client with a choice of two business climates, two sets of regulations, two incentive packages, but one highly skilled labor force, one set of cultural amenities, one well served transportation center, and a clear, well branded national identity."

And he makes it all sound so easy.


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