Smart (and Not-So-Smart) Uses of Incentives
The Cerner Continuous Campus in Kansas City, Kansas. (Image via WikiCommons.)
As the pandemic lingers on for another season, corporations are facing the reality of an enduring virtual future. One corporation in particular has been making headlines lately for a major real estate announcement. Cerner, a leading health technology company, has announced that they’re selling their 660,000 square foot Continuous Campus, located in Kansas City, Kansas. The Continuous Campus opened in 2013, with many promises of new jobs and life to the Kansas Speedway area.
The geoanalytics firm Urban3’s analysis found that this is certainly not one of Kansas City, Kansas’s most productive buildings on a value-per-acre basis, but losing the job anchor will surely be a hit for the complex altogether. The Cerner campus is labeled on the map below, and it is clear that this development is of high value and importance to the city’s economic health.
Click the above images to enlarge. (Images via Urban3.)
In 2010, the state of Kansas agreed to issue STAR (sales tax and revenue) bonds, to construct the expansive Cerner campus along with Sporting KC’s new soccer stadium. The developments were expected to drive more traffic to the area, increasing sales at the nearby outlet malls and restaurants.
A whopping $170 million in STAR bonds were issued for the development of the office campus and the soccer stadium; these bonds are reserved for the state of Kansas to issue to drive tourism, entertainment, and commercial projects. On top of that, another $50 million was granted to Cerner from Kansas for creating jobs.
The promise was that Cerner would bring up to 4,000 jobs to the area, and those employees would patronize the surrounding businesses. Obviously, this was an exciting prospect for Kansas City, Kansas, as it’s often overshadowed by its neighboring Kansas City, Missouri. But the real question is, was this a smart use of state incentives?
At Strong Towns, we encourage cities to think critically about subsidizing big corporations like Cerner. Instead, we advocate for more of an incremental approach to development wherever possible. A development like the Cerner campus, where hundreds of millions are spent on a project and the project is built all at once to a complete state, can often be fiscally unsustainable for a city.
Thinking critically about the VPA of the Cerner campus, the building is not a highly productive use of land; this office complex serves as an example of a place subsidizing unproductive development. Millions were dished out by the state to build an office space that gave little back to the city in revenue per acre, not to mention that the corporation pulled out of the state altogether less than a decade after the office opened.
Millions of dollars went into making infrastructure updates—expansive highway interchanges—only further investing in the suburban context. The funds would have had more impact investing in local businesses and growing the downtown area, diversifying its economic base.
Projects like the Cerner campus can be financially problematic because it is difficult to repurpose such an enormous space and remain productive under the new use. Smaller scale downtown investments can be a better choice to encourage, because a small downtown storefront can easily house many different businesses over time. A huge, 660,000 square foot office space can only really house another large corporation, those of which are now needing less space on average because of the new, popular, hybrid work environments. Public subsidies should be used to bring in businesses that plan to stay around for the long haul and create developments that are dynamic in use and adaptable over time.
Now that Cerner has pulled out of the area, Kansas is left to figure out how to recoup the money.
Kansas City may be an example of what not to do when it comes to incentives. We can look to Rancho Cucamonga, California, for an example of a city turning a more critical eye toward how they should incentivize development. Rancho Cucamonga is a city of 180,000 located in southern California. It recently made headlines for a legacy steel mill, the last of its kind in California, deciding to leave the state for greener, cheaper pastures.
Commercial Metals Company came to city hall looking for a deal last year, as the cost of operating in the city seemed to only be rising. The manufacturer was hoping for some kickbacks from the city to make operating there worthwhile. Though the city and the steel mill had a close working relationship and the mill was a point of pride for Rancho Cucamongans, they declined to give the mill incentives to stay. And off the mill went to Arizona, where they could buy cheap land and make more in profits.
The City declined to give the business incentives simply because they did not have them to give. Furthermore, at the end of the day, businesses typically do not have city loyalty (as we saw in Kansas City, Kansas) and their bottom line is what truly matters, so there was no guarantee that the mill would stick around much longer, anyway.
The City was comfortable letting the mill go because they had recently contracted Urban3 to analyze their economy on a value-per-acre metric. This changed how they saw their land use. Now, they could see exactly how productive the mill was for how much land it took up, and it was not nearly as productive as they would have assumed. This lens was aligned with the existing ethos of Rancho Cucamonga’s development style. Matt Burris, the Deputy City Manager, states that their city has always looked at land as a finite resource, and it has long been their goal to “get the most out of every piece.”
Click to enlarge. (Image via Urban3.)
Rancho Cucamonga’s city council already believed in prioritizing diverse land use and highly productive developments. Urban3’s work gave them the lens needed to make an actual change to ensure fiscal sustainability for generations to come. From Urban3’s analysis, the city found that the steel mill site could be better used for higher productive typologies, such as smaller-scale manufacturing businesses.
Rancho Cucamonga took a critical look at the development happening in their city, and how their planning policy influenced it. Unlike many cities, they prioritized the future generations of Rancho Cucamonga instead of being hyper-focused on developing as much as possible as fast as possible. They found that they could transform their development codes and update their comprehensive plan to prioritize diverse, high-return developments and discourage low-value, expansive, built-all-at-once-to-a-finished-state projects.
Rancho Cucamonga’s example shows that Kansas could greatly benefit from being more critical about what types of development they encourage and even subsidize. Maybe a 660,000 square foot office space isn’t the best use for state funds, especially when relying on a sole business to occupy the space.
The lack of diversity of uses in this development certainly has come back to bite the state of Kansas, creating yet another example of the unwise use of incentives. It is crucial that more cities start to think about their place in the long term, and have the goal of ensuring a great place to live for generations to come.
Conventional thought would tell us that the new commercial developments in a city should be the most productive compared to the older buildings downtown, but that’s not necessarily the case.