Kansas City recently released a study of its economic development incentive programs. Unfortunately, rather than a rigorous examination of the link between incentive investment and returns, the city presents a basic logical fallacy: that because development happened after an incentive, it happened because of an incentive. And for this bit of sophistry taxpayers parted with $350,000.
The Kansas City Business Journal reported that the consultant who prepared the study couldn’t show “how much development might have occurred in the absence of all incentives.” This is no small oversight. Kansas City is spending or diverting hundreds of millions of dollars into various development schemes at significant cost to school districts, counties and other basic services. We ought to have some sense of whether this is working. No private sector CEO worth her salt would permit such a significant investment of resources without any idea of the return it was likely to generate.
Worse, the report’s inability to connect investment with return was not a bug; it was intentional. Plenty of organizations, academic and otherwise, have conducted research into this very relationship. In 2016, the St. Louis Development Corporation—the River City’s version of the Kansas City’s Economic Development Corporation—conducted exactly this sort of study and determined that the use of incentives could not be said to drive private investment or create jobs. Incidentally, the company that produced St. Louis’s study, The PFM Group, also submitted a lower bid on the Kansas City project than the vendor the city eventually chose.
A 2018 working paper published by the Upjohn Institute of Employment Research concluded in part, “For at least 75 percent of incented firms, the firm would have made a similar location/expansion/ retention decision without the incentive.” That is a devastating conclusion—and one that is largely supported by research elsewhere. Is Kansas City wasting three out of every four incentive dollars?
Unfortunately, city leaders don’t seem to want to know; the study they commissioned did not even attempt a but-for analysis. City Manager Troy Schulte heralded the study and encouraged developers to make more use of the program. Are we really to believe that every economic development incentive program in Kansas City is a wild success? Really?
The biggest disappointment of the study, as alluded to in the Business Journal’s editorial on the matter, is that the report cannot help policymakers sort good projects from bad. It cannot ensure that future decisions regarding incentives are data-driven. It simply took every bit of economic growth the city has seen and attributed it to the incentives that came before. That is not analysis that encourages better policy. It is political cheerleading, and it is unworthy of the people and policymakers of Kansas City.