#699: Kansas City Vs. Kansas City A bunch of you asked why so many cities threw billions in tax breaks at Amazon. It reminded us of an episode we did in 2016.
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#699: Kansas City Vs. Kansas City

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#699: Kansas City Vs. Kansas City

#699: Kansas City Vs. Kansas City

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NOEL KING, HOST:

Hey, it's Noel King here. You probably heard that earlier this week, Amazon announced the location of its new headquarters, and it picked two places. It picked Northern Virginia and New York City. And Amazon says each place is going to get about 25,000 jobs. Now, that was the end of a very long bidding war. There were dozens of states and cities that were courting Amazon by offering them billions of dollars in tax breaks and some other stuff, too. There was this one town in Georgia where the mayor said, OK, we'll carve out 345 acres, we'll make a new town, and we will let Jeff Bezos be the mayor or the CEO or the king or whatever he wants. We think that mayor was just joking. But a bunch of you wrote to us with the same question, which was basically why do cities and states offer these huge tax incentives? And when they do it, does it actually makes sense? Is it in their interest? Back in 2016, Stacey Vanek Smith and I reported a story on why this happens.

(SOUNDBITE OF ARCHIVED BROADCAST)

KING: Kansas City is kind of a unique place. It's not one city. It's actually two. And it's split right down the middle so that half of Kansas City is in Kansas and half of Kansas City is in Missouri.

STACEY VANEK SMITH, HOST:

There is a road running down the middle of the city that divides it. It is called State Line Road.

KING: We are in the car driving along State Line Road - perfect.

VANEK SMITH: So, OK, Kansas is on the left, and Missouri is on the right.

KING: Kansas is on the left, and also I need to get in the left lane - oh, perfect.

VANEK SMITH: So the Phillips 66 is in Missouri?

KING: Gas station in Missouri.

VANEK SMITH: And the Capitol Federal, Prairie Village is in Kansas.

KING: The bank is in Kansas.

VANEK SMITH: Yeah.

KING: The bank is in Kansas.

VANEK SMITH: Yeah.

People make a really big deal out of this line. We were hearing all this stuff about this huge rivalry between the two states.

KING: So we pulled off of State Line Road into a little shopping center on the Kansas side to see what people would say about it.

What are people in Missouri like?

UNIDENTIFIED PERSON #1: You'd look - you're talking to one.

KING: I am?

UNIDENTIFIED PERSON #1: We're friendly. We are good to be around, and we are very, very hard-working people.

VANEK SMITH: Are people from Missouri, like, a little different than people from Kansas?

UNIDENTIFIED PERSON #2: Yes (laughter).

VANEK SMITH: How so?

UNIDENTIFIED PERSON #2: Well (laughter)...

UNIDENTIFIED PERSON #1: They're kind of hard to describe.

UNIDENTIFIED PERSON #2: Yeah, yeah.

VANEK SMITH: Apparently, people from Kansas are a little bit snobby.

KING: Rachel Graham (ph) from Kansas says we are not snobby.

What are people from Kansas like?

RACHEL GRAHAM: I would say very down to earth, helpful, kind, big sense of community.

VANEK SMITH: We heard all kinds of things from both sides. People from Kansas told us people from Missouri were like city folk. They didn't have real country values. And people from Missouri told us people from Kansas were aloof and were bad drivers.

KING: We wanted to get to the bottom of this, and then there in the parking lot, we met Quentin Donnelly (ph), who broke it down for us like this.

QUENTIN DONNELLY: Kansas people are very short-minded.

KING: Very short-minded.

DONNELLY: You know, they're Kansas people.

VANEK SMITH: If you saw me and Noel - one of us was from Kansas and one of us was from Missouri - what would you guess?

DONNELLY: I'll say - I'd say you're more, you know, Kansas. She looks like, you know, she gets the party started.

VANEK SMITH: And I look like...

DONNELLY: You look like you like to read books often.

(LAUGHTER)

KING: He called you a nerd.

VANEK SMITH: It's like I'm back in high school.

KING: I know. It's like the readers versus the party kids.

VANEK SMITH: I know.

KING: But, look; the rivalry between Kansas and Missouri goes beyond trash talk. While we were down there, people kept telling us there is a war going on along the border between Kansas and Missouri.

VANEK SMITH: And this war is over something very important. It's a war over jobs.

KING: The two states are fighting to lure companies to their state and not the one across State Line Road, and they're spending millions of dollars to do it.

VANEK SMITH: This is something that's happening all over the country right now. It's just that usually it happens over much greater distances, like California and New York competing over a tech company or Georgia and New Jersey battling it out over car companies. But with Kansas and Missouri, you can see this happening right up close because the tug of war is literally across the street.

(SOUNDBITE OF JEROME FABY SONG, "FEEL ALRIGHT")

KING: Hello, and welcome to PLANET MONEY. I'm Noel King.

VANEK SMITH: And I'm Stacey Vanek Smith. Today on the show - the Kansas-Missouri border war, a close-up look at what politicians like to call job creation but what looks a lot of times a little bit more like job stealing.

KING: And we'll tell you the story of the fight over one company. You probably know it. You may have even eaten one of their quesadilla burgers.

(SOUNDBITE OF JEROME FABY SONG, "FEEL ALRIGHT")

VANEK SMITH: In the Kansas-Missouri border war, just like in any war, there are generals.

BLAKE SCHRECK: I am a noncommissioned officer.

KING: Nice.

SCHRECK: Actually, no, I'm actually just a soldier.

KING: Blake Schreck works for a chamber of commerce in Kansas, and it's his job to make sure companies come to Kansas and stay in Kansas. Now, Blake is this really dapper guy. He's got thick, white hair. He wears jeans and blazers. He has these tortoiseshell glasses. And his office is in this old, sprawling Victorian house. It's a really lovely place. But, make no mistake, this is Blake's war room.

VANEK SMITH: He has got all of these top-secret documents on his desk with code names for the companies that he is trying to attract to Kansas because Blake doesn't want his rivals from, say, across the street in Missouri to know which companies are in play.

What are some of the code names?

SCHRECK: Oh, good heavens. I've got - let's see here. We've got - here is the latest. We've got Project George, Project Scout, Project Standard, Project View, Twin, Kodiak, Lantern, LSA, Sesame Two. That's just the last month.

VANEK SMITH: I have this fantasy that Sesame Two is, like, a fast-food company like Burger King because of the buns.

KING: I can't stop thinking about what Sesame One was.

(LAUGHTER)

VANEK SMITH: And all these code names, all the secrecy - Blake's job wasn't always like this.

KING: Yeah, he's been doing this for 30 years, and he said, for him, the war really ramped up about 10 years ago with one company - Applebee's.

VANEK SMITH: At the time, Applebee's had their headquarters on Blake's side in Kansas, and they were doing well. They were growing. And they came to Blake, and they said we need a bigger building.

KING: Right. They called him up and said, look; we'd like to stay in Kansas. We want to build this new headquarters - big, fancy, new place - but then there's, like, a shift in tone. And they tell him...

SCHRECK: You know, we're a pretty big deal, and we can go wherever we want to, and we may, you know, go to Missouri. So what can you do for us?

KING: Blake did not want to lose Applebee's. They were a big employer. They were a big company, a point of pride for the state of Kansas. So Applebee's suggested that Kansas give it a tax break - a big one. Like, how about for the next 10 years we basically pay no property taxes?

SCHRECK: Our feeling was a little bit at the time was that that just wasn't done. If you really want to be in our community, you need to pay full boat.

KING: This puts Blake and Kansas in a tough position, right? If they give Applebee's what it's asking for, then they're going to lose a lot of property tax revenue.

VANEK SMITH: On the other hand, if Kansas said no, it would lose even more. The corporate taxes from a multibillion-dollar company, payroll taxes for hundreds of employees and all of the property taxes from Applebee's. Tens of millions of dollars were on the line. So Blake calls the mayor and says...

SCHRECK: We can't let this payroll - I mean, it was a huge deal - leave the state. But we really need to step up.

KING: So Blake weighs these two kind of crummy options, and he decides we need to give Applebee's what they want. He makes his case to the local politicians.

VANEK SMITH: And in the end, Kansas takes his advice. It makes an offer. They say, Applebee's, if you stay, we will give you more than $12 million in tax breaks and some other perks. We will also fix up a bunch of roads around where your shiny new headquarters will be.

KING: And even then, Blake wasn't sure they'd be able to keep Applebee's in Kansas. Finally, the company called him.

SCHRECK: We had it on speakerphone, and they said Kansas is the choice. And then we're going, like, yay in the background, but we...

KING: You're, like, jumping up and down.

SCHRECK: Absolutely. So we're very happy. But we can't just jump around and do an end zone celebration. We just had to say, well, we're glad to have you.

KING: And it's right around this time that the Kansas-Missouri rivalry, the war for jobs, starts to heat up because both states put in place incentive programs to lure companies in. And they say, basically, if you create jobs here, we'll give you a tax break.

VANEK SMITH: And if you are a company in, say, Missouri, there is a really easy way for you to create a bunch of jobs in Kansas and get those amazing tax breaks. You just move right across the border - move across State Line Road. You don't have to hire a single new person. Your workers just change their commute a little bit, and now you qualify for this huge tax break.

KING: Right. And when a new company crosses State Line Road, the politicians could say, hey, we created a bunch of new jobs.

VANEK SMITH: Well, you say creating jobs, but it's kind of like stealing jobs.

SCHRECK: No because 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 and because it's not our state.

VANEK SMITH: So you're creating jobs in the state of Kansas that were, like, stolen from across the street.

SCHRECK: No. Every time that somebody comes from, say, Missouri to Kansas, that is a new revenue stream that we create with payroll taxes and capital investment and all the things that go along with that that we didn't have before. It's easy to come down from outer space and think, well, that doesn't make any sense. But the reality is, it does.

KING: There are Blakes in every state. This is not just Kansas. According to one study, states all over the country are spending $70 billion a year to create/steal jobs from each other.

VANEK SMITH: And on the Kansas-Missouri border, this has heated up so much that it's kind of gotten out of control.

KING: Yeah. Let's list some of the companies that are hopping back and forth.

VANEK SMITH: OK. Let's see. J.P. Morgan Retirement moved across the border from Missouri to Kansas - win for Kansas.

KING: Freightquote - a shipping company - Kansas to Missouri. Blake lost that one.

VANEK SMITH: AMC, the big movie chain, moved from Missouri to Kansas - another win for Kansas.

KING: North American Savings Bank - Kansas to Missouri. That's a loss for Blake's side.

VANEK SMITH: We even found one company that moved from Missouri to Kansas and then back to Missouri. It's an accounting and insurance firm called CBIZ.

KING: Right. So we went by to talk to them, and we met Jeff Carlstedt. He's the senior managing director. We met him in a conference room on the 11th floor of the building. They have a beautiful view. And from that conference room, he can see his old office from the window.

VANEK SMITH: Well, it's not actually his old office. It's his old, old office from when they used to be in Missouri before they moved to Kansas and then came back to Missouri.

JEFF CARLSTEDT: Where were we? We were right through that Skelly sign right down there about that parking garage. I can see my very first window that I had from this window.

KING: We asked him about the moving, and he said there are a lot of factors. He did admit that tax breaks and incentives played a role. He wouldn't tell us how much Missouri gave the company, but according to what we read in the local papers, it was about $26 million in incentives.

VANEK SMITH: That was in 2014. And CBIZ now has a 15-year lease in Missouri.

CARLSTEDT: You're always going to be looking and evaluating what that next step is. I'm - you know, we're 15 years away from the end of this lease and, you know, I look at it and say, what's the next - what's even the next move?

KING: Would you go over the state line again?

CARLSTEDT: We would evaluate whatever makes the most sense for our employee base. I can say that you would never say no to anything.

VANEK SMITH: Never say no. It's kind of like he's sending a coded message over to Blake Schreck. Like, Kansas, make me an offer.

KING: Yeah, for a company, this makes sense. It's the smart thing to do. But you can see where all of this ends up, right? The states want to keep these companies, so they're slashing taxes. And they are digging themselves deeper into a hole. That tax revenue was going to pay for stuff like roads and schools and police. In fact, just a couple months after Kansas spent $50 million snatching AMC Theaters from across the street in Missouri, Kansas cut its education budget by $104 million.

VANEK SMITH: And once you lure a company over, there is no guarantee it's going to stay.

KING: We met Dave Frantze, who's a lawyer in Kansas City.

Is your job to leverage Kansas and Missouri against each other?

DAVID FRANTZE: That's a part of it, yeah.

VANEK SMITH: And one day, Dave was talking to a friend of his, another lawyer, one who happens to work for a certain company that, let's just say, makes a mean quesadilla burger.

FRANTZE: A man I knew for a long time, a friend of mine, was an in-house lawyer at Applebee's. And we ran into each other, and he mentioned to me that they were looking at relocating their corporate headquarters.

KING: Applebee's, which Kansas had fought so hard to keep just a few years before, was thinking about moving. It was under new ownership. The company was downsizing, and the big, new office building was too big.

VANEK SMITH: Applebee's hires Dave Frantze, and Dave starts doing his thing.

FRANTZE: We reached out to both states, and we said we are representing Applebee's. Here's the number of jobs. Here's the average wages. Here's the the capital investment they're planning to make. And we asked each state, you know, what they would propose.

KING: So now our border warrior on the Kansas side, Blake, is running around trying to find Applebee's a smaller building. Meanwhile, Missouri is scrambling to get its own incentives package together.

VANEK SMITH: Both states put their best offer on the table, and Applebee's weighs its options. Some time goes by, and they call Dave with their decision. He was on his way to a Boy Scout camp where he volunteers.

FRANTZE: I remember I was driving down, and, you know, I was on a hands-free speakerphone on my - in the car. And, you know, I said, guys, I got five more minutes, and then I'm going to be out of cell range (laughter).

KING: And Applebee's tells him, we're going with Missouri. Blake's side, Kansas, had lost.

FRANTZE: The last thing I did before I went out of cell range was called the two states and said, you know, sorry, Kansas, they've decided they're going to move to this other location, and then called Missouri and said, hey, congratulations. They've selected Missouri as their location.

VANEK SMITH: Applebee's moved 14 miles from Kansas to Missouri, and it got $12 million in tax breaks. And this was just six years after Blake Schreck, our Kansas border warrior, gave Applebee's millions of dollars in tax breaks to stay in Kansas.

KING: So Dave Frantze, the lawyer, negotiated this deal. He's negotiated a lot of them, actually, and he may be the dealmaker, but even he acknowledges this is madness.

FRANTZE: When I start talking to clients that are in the area, the first thing I say to them is, you know, now, before we talk about what the incentives are, I need to tell you that what we're going to talk about is probably the worst public policy in the history of the world. It's terrible thought process by both states of Missouri and Kansas.

KING: It is also part of how Dave makes his living, so it's not like he tells companies don't do it.

FRANTZE: It is lawful. It is encouraged by both states. And there - it is an opportunity that you as a business have to consider whether you want to do that or not.

VANEK SMITH: With Dave's help, Applebee's negotiated its move to Missouri in 2011.

KING: We went to see their new offices. They are right on State Line Road - like, a few feet inside of the Missouri border.

Let's just go see. OK, going in the lobby. Hi, good morning. How are you?

SHORNA ANDREWS: I'm good.

KING: Good, good. Is this the Applebee's building?

ANDREWS: Yes, this is.

KING: That's Shorna Andrews (ph). She's the receptionist here.

VANEK SMITH: It feels so quiet in here.

ANDREWS: It's very quiet.

VANEK SMITH: It's quiet for a reason. We ran into Dion Crooks (ph) in the lobby. He's a facilities manager at Applebee's. And one day last fall, he came to work. He was actually very excited that day because they were having a big all-staff party for the upcoming football game.

DION CROOKS: We had - had beers and, you know, hot dogs and, you know, everything set up. Then about an hour later, I got an email to say that we have to do a room set up for 300 people.

KING: This was not a part of the party plan. This was an all-staff meeting.

CROOKS: Well, fast-forward another hour, we get an email - tailgate party's cancelled.

KING: So Dion sets up the conference room, all of the employees come in.

CROOKS: We got upstairs. We walk in the door. Our CEO - she's the first person we saw when we walked in the door. Not only did we see her, we saw every department head from every department.

KING: The CEO starts talking, and Dion can tell it's something big. She starts out with good news. She says, we've had a great year. The company is doing well, which makes him suspicious.

CROOKS: I used to sell cars for several years. I know how it is to - in a car salesman, we like to put people up at the top and get them happy and then drop a bomb on them.

VANEK SMITH: And then came the bomb. Applebee's was moving again and not across the border to Kansas - to California. And most of the people in that room would be losing their jobs.

CROOKS: It was kind of a big sigh in the entire room.

KING: What did it sound like?

CROOKS: (Sighing) And then the next thing, everybody's head went straight down to their phones. And I personally got up and walked out. I didn't hear the rest of the - what she was saying. I came back downstairs, went to the office, and I just kind of sat there for a while.

VANEK SMITH: Since that meeting, which happened last year, Dion says people have been trickling out, and the office has gotten quieter and quieter. Dion says the last Christmas party, which happened just a couple of months after the meeting, was truly awful.

CROOKS: Not this past Christmas but the Christmas before last, it was just so fun and energetic and everybody's in the spirit. Oh, man, it was great. Then this past Christmas, it was just kind of like this is my last Christmas party, you know. You know, I won't be here next year.

VANEK SMITH: Dion says he understands why Applebee's made this move. Its parent company is headquartered in California, so it made sense to consolidate.

KING: So after years of fighting over Applebee's, Kansas and Missouri both lost. And when you hear politicians talk about creating jobs, sometimes those are new jobs, but a lot of times, it looks like this. Yeah, there's been a job created in California, but somewhere else, there's a guy like Dion trying to smile through a Christmas party.

VANEK SMITH: So here's one tally of where things stand along the Kansas-Missouri border. From 2010 to 2015, 5,702 jobs moved from Missouri to Kansas.

KING: You could look at that and say that sounds pretty good for Kansas, but you know how many jobs went the other way from Kansas to Missouri? Almost as many - 3,998.

VANEK SMITH: In the end, it's one of those wars where neither side has really won, but everyone has spent a lot of money fighting. The dueling tax breaks have cost the governments half a billion dollars. These numbers, by the way, come from the Hall Family Foundation, which is a local philanthropic group, and they looked at a bunch of counties right around the Kansas City area.

KING: So maybe not surprisingly Missouri and Kansas have both been talking about a truce.

VANEK SMITH: Missouri wrote what amounts to a treaty - kind of along the lines of, Kansas, if you don't steal our jobs, we won't steal yours.

KING: Kansas ignored it. And then just a few weeks ago, Kansas wrote its own version of a treaty, which is slightly different from Missouri's.

VANEK SMITH: Missouri responded saying, Kansas, we will not sign your treaty. You should sign ours. It is a truce war.

KING: This is what Kansas and Missouri are fighting over now - how to make peace.

All right. So we did that story back in the spring of 2016. Did Kansas and Missouri end up calling a truce? If they did, whose truce did they call? That's coming up after the break.

When we left off in 2016, Kansas and Missouri were talking about a truce, about a way to avoid these bidding wars. So I did a quick Google search today to find out if they struck a deal, and I found this story in the Kansas Star from February of this year. Kansas - the state of Kansas offered $3 million in tax breaks to a company called HCA Midwest Health if that company would move four miles across the border into Kansas, and the company took the deal. So no truce as far as we can tell.

(SOUNDBITE OF MUSIC)

KING: We always love to hear what you think of the show. You can send us an email to planetmoney@npr.org. And we're on Facebook and Instagram and Twitter - @planetmoney. Today's show was originally produced by Alex Goldmark and Sally Helm. The rerun today was produced by Shane McKeon. Special thanks in this episode to Kevin Collison, Frank Morris, Nancy Mays (ph) and Greg LeRoy. Our editor is Bryant Urstadt, and our supervising producer is Alex Goldmark.

VANEK SMITH: I'm Stacey Vanek Smith.

KING: And I'm Noel King. Thanks for listening.

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