Amazon is building a second headquarters, and this is what they are looking for in a city. Jason Boatright The Kansas City Star
Amazon is building a second headquarters, and this is what they are looking for in a city. Jason Boatright The Kansas City Star

Development

Does KC have a shot at Amazon HQ2?

By Mark Davis, Lynn Horsley And Steve Vockrodt

mdavis@kcstar.com

September 15, 2017 07:00 AM

UPDATED September 15, 2017 07:39 AM

If Kansas City is to stand a snowball’s chance of landing Amazon’s second headquarters, we’ve got work to do.

We’ll have to overcome our existing shortage of tech talent.

We’ll need not only to build a new airport terminal but also turn it into a sparkling international launch pad. And make public transportation here a snap.

We’ll need to throw millions of dollars in economic incentives at one of the biggest companies in the world.

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Perhaps most of all, we’ll need to decide that we want to live with Amazon’s HQ2 colossus, which the company says will deliver a $38 billion economic jolt wherever it lands.

Schulte talks about the city's bid for Amazon

Kansas City Manager Troy Schulte discusses the city’s prospects for winning the Amazon headquarters with The Star's editorial board members Colleen McCain Nelson and Melinda Henneberger.

Colleen McCain Nelson, Melinda Henneberger, and Beth Welsh The Kansas City Star

The online retailer says it will need up to 50,000 employees – more than twice as many as any Kansas City area company has ever employed. It will need room to invest $5 billion for buildings and technology – more than Cerner’s ambitious campus in south Kansas City. It wants a “high quality of life” for employees, complete with recreational opportunities.

Yes, Kansas City has a growing tech scene, low cost of living and high quality of life. But so do many other regions that also have more modern airports, extensive mass transit, huge research universities, and more progressive state legislatures.

“Kansas City boasts some notable assets in the way of its highly skilled talent,” said Richard Shearer, senior research associate with the Brookings Institution. “But it also faces deficits in some of these areas.... If you compare Kansas City to other major metro areas in the Unites States or in Canada, it’s hard to see how the region stands to win this contest.”

Paychecks and school books

Kansas City’s bid won’t be able to claim that this market can fill all of the technology jobs Amazon says it will need.

We can’t fill all of the tech jobs here now.

That was the conclusion of a self-assessment Kansas City made of its tech workforce in a 2017 report from the KC Tech Council.

Among its findings: Nearly 4,700 tech jobs lay vacant at the end of 2016 for lack of enough talented workers to fill them.

“No there’s not enough, but there’s not enough anywhere,” said Zane Burke, president of Cerner Corp., a health care information technology business whose headquarters, new South Kansas City campus and other area offices hold 13,000 employees.

He said the Kansas City area, drawing from throughout the Midwest, does have a committed, trustworthy and loyal working population that is eager to learn.

“We have the best raw materials here in the Midwest, and it’s our responsibility to cultivate them,” Burke said.

With that in mind, the Kansas City report emphasized that filling our expected technology needs – even before Amazon announced its plans – would require creating that talent here.

“In the future, we believe technology companies will only exist in cities that can produce their own talent,” KC Tech Council president Ryan Weber wrote in the report.

Weber is part of an all-hands effort to assemble Kansas City’s bid for Amazon’s HQ2. As such, however, he’s under a non-disclosure agreement and could not comment for this article.

Creating new tech talent puts demands on Missouri and Kansas education systems that fall short with their current computer science programs.

One set of data in the KC Tech Council report counted 14,350 tech graduates in Minneapolis over four years, 20,995 in Columbus, Ohio, and 22,771 in Detroit. Kansas City produced a fraction of that, 7,525, and added fewer tech jobs than those cities.

Any Kansas City bid for Amazon’s HQ2 will have to address broad educational short comings that limit the area’s ability to provide all of the kinds of jobs Amazon will need to fill.

“Given that we’ve sort of disinvested in our universities, at least at the state level, does that make it more difficult to for us to land Amazon? I’d say absolutely yes,” said Frank Lenk, director of research services for the Mid-America Regional Council.

Lenk said Kansas City’s bid needs to include a commitment from Missouri and Kansas governments to support educational spending, rather than viewing school spending as “one of the first places to balance their (own) budgets,” Lenk said.

Think KC

Carolyn Walters sells strangers on Kansas City for a living.

She is the director of talent acquisition at H&R Block, whose downtown headquarters employs 2,000. And she said the city has everything to offer.

Professional sports. Soccer complexes. Parks and other green spaces. Biking trails.

“We could check all of those boxes,” Walters said.

She said local schools on both sides of the state line help sell parents on Kansas City. She woos candidates for posts at H&R Block by pointing out the many varied employment opportunities their spouses would have in other industries here.

“We recruit the entire family. It’s really important that the entire family can see themselves living here.”

And it works.

“Once we get folks here to see Kansas City, they are pleasantly surprised,” Walters said.

Part of the trick, however, is getting people to consider Kansas City. But not many of the folks setting odds on where Amazon HQ2 lands are doing that.

PC Magazine did, however. It flat out picked KC as the most likely landing spot for HQ2.

Google Fiber. Sprint headquarters. A startup community. Affordable. But no real international air travel.

But for writer Sascha Segan, Kansas City was the only city on his list for which he couldn’t find enough material to produce a second paragraph of recommendation.

The New York Times thought of Kansas City, one of 50 contenders in its pageant-style push toward a Metro Amazon winner. But our fair city was dismissed without mention along with half the group as lacking job growth. (Spoiler alert: The Times picked Denver.)

Mostly, Kansas City fails to get mentioned at all.

Forbes contributor Pete Saunders listed 12 cities and boasted he’d “wager a pretty big bet” one of them wins.

He reasoned that Amazon would want to avoid costly places – which Seattle has turned into – and might favor a city with a “nascent tech scene, yet to be fully developed,” and a city on which Amazon could have “the most transformative impact.” Saunders wrote that Amazon might want an “interior city” that could become the company’s domestic market hub while Seattle served as its international hub.

No mention of Kansas City. Not even among his seven also-rans.

Bloomberg columnist Conor Sen cited one factor after another to declare that Pittsburgh, Dallas, Charlotte, Vancouver, Toronto, San Francisco, Boston, New York, Washington D.C., North Carolina, Texas and Georgia all have reasons to worry.

His six-name short list mysteriously included four of those plus Atlanta and Denver. He found no need to even discuss Kansas City’s chances.

Joseph Parilla, a fellow in the Metropolitan Policy Program at the Brookings Institution, looked at population, a “talent pool” index and rail systems to kick Las Vegas, Orlando, Raleigh, Hartford, Riverside, Miami, Memphis and New Orleans off an original contenders list that included at least 53 names.

Again, he found no need to explain why Kansas City failed to make the cut as a top 20 contender city.

Shearer, also with the Brookings Institution, says Amazon’s request for proposals says a lot about what it takes to attract and grow 21st century companies and industries. These include proximity to a superior, highly ranked tech research university; an airport with international connections and mass transportation to its doorstep, plus a place where top tier talent wants to locate.

While Shearer says Kansas City is competitive in its cost of living and educated workforce, it’s challenged and less competitive in these other areas.

Airport primed

Kansas City’s bid for Amazon’s second headquarters offers another prime reason to resolve our enduring debate over Kansas City International Airport.

While many leisure travelers and residents like the existing airport, the airlines and big businesses here say it’s poorly configured for direct connections to many U.S. destinations, despite its central location. It’s even more disadvantaged on international destinations, with just a few flights to Mexico and Canada.

Justin Meyer, Kansas City deputy aviation director for air service development, has aggressively marketed Kansas City International for new flights. But he notes that Southwest Airlines is moving more and more flights to St. Louis while adding fewer destinations from KCI.

Other airlines complain they can’t grow at KCI because of tight gate areas and other existing terminal constraints.

Meyer also points out that Kansas City is now the largest American city without direct service to Europe. Denver has nonstop flights to London and Germany. Indianapolis is adding nonstop flights to Paris.

Chris Hernandez, spokesman for Kansas City government, says the city is working on its airport problem, and could have the nation’s most up-to-date airport in a few years.

"The fact that we’re working on the airport sends a strong signal to Amazon and any other national company that’s looking at a place to locate – that we are working on addressing our transportation issues," he said.

If voters approve a new airport terminal, one development team has said the new KCI could be open by November 2021. But that’s a big if. Kansas City voters go to the polls this November. It’s still an open question whether they will approve that new terminal concept with a more modern international space.

Hernandez acknowledges Kansas City is playing catch-up on its airport, mass transit, and tech capacity. He said Kansas City has other advantages with Google Fiber, Cisco’s Smart City initiative downtown, the vibrant arts scene, extensive highway and distribution system and little traffic congestion.

“We’re going to put in a very strong bid,” Hernandez said of the proposal to Amazon, which is due Oct. 19.

A statement from Mayor Sly James’s office said: “This is going to be an effort we work hard to compete for. Kansas City and our regional partners will be able to present a community that's dynamic, innovative, built for the future and growing. The mayor looks forward to this process and the chance to display what makes the city the best place in the country to live, work, and raise a family.”

But in a meeting with south Kansas City residents this week, James also said the region must confront its inadequacies.

“We have to be aware of all of our failures and failings,” he said. “We have work to do with building a workforce that can replenish itself without looking for help from outside talent.”

He added that Kansas City’s undeveloped potential could be an asset in courting Amazon, which is looking for a “civic partner.”

Overland Park Mayor Carl Gerlach points to the region as a hub for great engineering firms and an educated workforce, and he believes it is on the verge of improving its airport and mass transportation systems. He says the area can put together a highly competitive proposal.

He also points to WalletHub’s recent ranking of Overland Park as the best place in the country to raise a family.

“I think if we’re all willing to get into a room and look outside the box, I think we can do this,” Gerlach said. “You might call us the quiet contender or the underdog of all these cities listed, but us Midwesterners don’t mind at all being the underdog.”

Paying for Amazon

Shearer also cautions that Amazon may be trying to extract a huge incentives deal wherever it chooses to locate.

“It has been one of the savviest players at collecting economic incentives for job creation,” he said. “What’s difficult about that is that most of the state and local leaders who ultimately go after this deal are not going to win.”

Gerlach agreed that the Kansas City region should not “give away the stars and the moon” just to lure Amazon.

“We have to look at return on investment for the entire metro,” he said. “We have to make sure we don’t give away too much.”

It’s likely, however, that Amazon HQ2 aspirants will offer up a vast package of tax breaks from local and state governments to pin the opportunity down.

Kansas and Missouri have similar tax break programs that allow companies to keep 95 percent of employee withholding taxes as an inducement to attract new companies and keep existing ones. Those would likely be on the table, alongside a combination of workforce training credits, local tax abatements and other tax credit programs.

“Taxpayers should watch their wallets as the trophy deal of the decade attracts politicians to a hyper-sophisticated tax-break auction,” said Greg LeRoy, executive director of corporate subsidy watchdog Good Jobs First in a written statement. “We fear that many states and localities will offer to grossly overspend to attract Amazon, even though the business basics — especially a metro area's executive talent pool — will surely control the company's decision.”

Good Jobs First research indicates that Amazon has received more than $1 billion in subsidies for its fulfillment centers across the country since 2000.

Both states would almost certainly get to work on special legislative tax break packages to supplement existing programs. Amazon’s request for proposals all but expects it.

“We acknowledge a Project of this magnitude may require special incentive legislation in order for the state/province to achieve a competitive incentive proposal,” Amazon’s proposal says.

There’s precedent, particularly in Missouri, for such pursuits.

Missouri lawmakers in 2013 convened for a special session in which they passed an incentive package worth as much as $1.7 billion over two decades. The goal was landing a proposed Boeing passenger airline manufacturing plant in the St. Louis area.

In 2008, the Missouri General Assembly approved a $240 million tax credit package to entice Bombardier to build a manufacturing facility near KCI.

In the end, neither of those efforts worked. And there’s no certainty it would work to bring Amazon’s HQ2 here.

Troy Schulte, Kansas City Manager, suggested that if the Amazon competition comes down to incentives, Kansas City will be back on its heels.

“If that’s the case, Kansas City won’t win that conversation,” Schulte said.

Kansas and Missouri don’t currently have some incentive programs that other states possess. One example is the Texas Enterprise Fund, a discretionary fund controlled by that state’s governor that allows Texas to hand companies cash grants as a final inducement to companies considering locating elsewhere. Texas refers to this fund as the “deal closer.”

Lenk with MARC said Kansas City should consider how an incentive package will affect the local economy.

“There is a cost to acquiring it, in terms of the incentives and what would have to be given up to get it and does that damage other parts of the economy,” said Lenk, the director of research services at MARC.

Economic disruptions almost certainly would follow Amazon’s arrival.

The 50,000 jobs the company’s HQ2 promises would dwarf anything Kansas City has seen before. Uncle Sam, easily the area’s biggest local employer, tops out at around 27,000.

Sprint at its heyday became the area’s largest private employer, but even it had fewer than half as many employees as Amazon expects at HQ2.

Yet even Sprint’s build up was disruptive to the local economy. Sprint robbed talent from other employers. It drove real estate prices higher.

Sprint’s subsequent decline from such heights hit the area again. The Kansas City economy lagged the nation during our recovery from the 2001 recession, and Sprint was a key reason.

“We rode it up in the ‘90s and we rode it down in the 2000s,” Lenk said.

Staff writer Bill Turque contributed to this report.