The New York Times ran a series on investment incentives, including the Kansas City Border war.  I’ve also bloggedon the topic.  Kansas City is an extreme example of a competition for investment between two cities that share the same name:  Kanas City, MO and Kansas City KS.

As part of a book project with Eddy Maleksy, I had two of my undergrad RAs collect some data on this border war.

The states of Missouri and Kansas, along with cities in the Kansas City metro area, have fiercely competed for 67 firm investments just from 2010-2012. These 67 incentives have cost $312 million to the two states, with an average cost of over $4 million per investment.  These incentives were exceptionally generous, averaging over 50% of the capital expenditures of the firms and $37,000 per job created.  What is driving this border war?

Perhaps to the surprise of at least some readers, rarely did these firms provide direct contributions to the either the Missouri or Kansas governor’s election campaign.  Only 4 of the 67 firms provided direct contributions to the Governor’s campaigns in 2010 or 2012. The biggest player by far was engineering firm Burns & McDonnell.  Our data work for a book project (with Eddy Maleksy) identified direct contributions by employees to the Jay Nixon (Missouri-D) campaign of $137,000.  Documentation by OpenSecrets, an online campaign contribution tracking website provides a more complete picture of their contributions, including PAC contributions.  This company has a PAC that largely funds incumbent Representatives and Senators across the country.  The key point is that while this company is politically active in the state and Missouri and beyond, it is by far the exception.  The other three contributors provided $3,500, $2000, and $1000.

We also examined the contributions of employees of these 67 companies beyond the governor elections and coded any campaign contribution by employees of the firm to state politicians.  Only 6 more companies (a total of 10) provided contributions.  Burns & McDonnell and insurance broker Lockton Companies both gave roughly $22,000.  The remaining companies gave an average of just over $1000 each.  In summary, the 67 incentive recipients gave an average of $3,000 across all state and local elections in Missouri and Kansas from 2010-2012.

The use of campaign contributions, at least the direct ones we can track, doesn’t seem to be the deciding factor in shaping these incentive decisions.  Similar to an analysis of Texas investment incentives that we blogged about in the past, there is a strong correlation between the number of jobs created and the size of the incentives (correlation of 0.30).

Ok, if campaign contributions aren’t responsible for this incentive war, perhaps the tough competition for capital is driving this.  In most cases of these incentives, we couldn’t find evidence of competing incentive bids, or even concrete evidence that the firm was considering an alternative location. For 31/67 of these incentives, the firms were simply expanding existing operations in their previous locations.  For others, they were jumping to the other side of the border since “new” investment can receive incentives, while existing plants (without expanding) often can not.  We could only find evidence of claims of competition from other locations in 20 of the cases, with many of the companies citing “other Midwestern locations” or other vague claims of competitors.  In 6/20 cases, the competition was from across the state line in either Kansas or Missouri.  Only in two of the cases could we find direct evidence of competing offers, where two firms locating in the Kansas City, Kansas suburb of Overland received competing incentive bids from Missouri.

Thus in the majority of cases, there is little evidence that direct competitive forces, such as bids from alternative locations, were driving these incentives.

While we can not conclusively say what is driving this border war, our data collection efforts document that most of these firms do not provide any campaign contributions, nor where these incentives and obviously outcome of a bidding war.  In many cases, firms received only one offer, often to jump across the border to Kanas or Missouri.

Our book project extends the logic of this paper on the use of incentives for credit claiming by politicians.  Credit claiming, not campaign contributions are driving this incentive competition.