Greater Kansas City Economic Development Report

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Assessing Kansas City’s Promise and Potential Perils

What will drive KC’s regional economy forward? Wings, it seems. Of all the topics on the table for the 2016 Greater Kansas City Economic Development Assembly, the future of Kansas City International Airport loomed large. More than two dozen business executives and eco-
nomic-development professionals gathered May 16 at the Kauffman Foundation for this one-of-a-kind assembly, sponsored by JE Dunn
Construction, Husch Blackwell law firm and Kauffman Foundation. For three hours, they explored work-force conditions, Kansas City’s selling points, threats to continued growth and expansion and other topics, under the guidance of chairmen Dane Stangler (Kauffman Foundation), Dirk Schafer (JE Dunn) and David Fenley (Husch Blackwell). 

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Going Our Way

Co-chairs Dane Stangler, Dave Fenley and Dirk Schafer started by asking about the next significant opportunity that the region might embrace, or the biggest threat to continued prosperity. Their answers were as instructive, and as varied as their individual perspectives.

Dave Frantze, a development-law specialist with Stinson Leonard Street, did everything but bring out the pom-pons to cheer the region’s recent successes. “I really think we are on a significant upturn right now,” he said, so much so that the positives could portend a negative: “Our challenge and our opportunity is how we handle success.” 

Charles Renner of  Husch Blackwell sees a solid opportunity to build on some pillars of industry that are already in place. “I’m a big believer in the power of cluster economic theory,” he said, pointing to the animal-health corridor, as well as the wealth of firms in construction, architecture and engineering. “I think that’s a great opportunity.”

James Grice of Lathrop & Gage believes there are benefits to be realized from selling what he might call The Kansas City Story.  “Third parties from out of town do Google searches like everybody else,” he said, and they can be exposed to headlines that are truly reflective of what the region is all about.  “We could all talk about what’s good about Kansas City, and sometimes we may overlook it, but it’s fabulous” and it derives from affordability to entertainment and culture, to environmental quality.

John Engelmann, who manages economic development for Kansas City Power & Light, pointed to an expanding logistics sector. “What we’re seeing over the past couple of years is the loosening of money and the interest of the developers to build large  spec buildings” at a number of emerging logistics centers in the region. “We’re not Dallas yet, and we won’t be for a while, but this has really brightened the image quite a bit,” he said.

John Sweeney, Jr., director of economic development for Jackson County, would like to see a few more home runs. “For us, it’s finding that next major job generator,” he said. “What’s the next Cerner, the next Burns & McDonnell, and attracting those types of jobs to the community.”

Rosie Pivitera-Biondo, president at Mark One Electric, sees continued benefits flowing regionally by keeping momentum going Downtown. “I think that’s vital,” she said. “I also believe that bringing more conventions to both sides of the state line will also highlight and raise up the level of KC.”

Bob Langenkamp, president and CEO of the Economic Development Corp. of Kansas City, pointed out that businesses here often “don’t face the kinds of environmental restrictions that you might encounter in other parts of the country,” and that can be an opportunity for attracting new companies.

Dave Fenley raised the issue of the Kansas City value proposition—the low-cost factors that give companies based here a structural cost advantage against companies from either coast. John Murphy, chairman of Shook, Hardy & Bacon, pointed out that law firms here, in particular, had leveraged that advantage for decades. He also touted a strong lineup of public school districts as a huge selling point, as are highway access and quality of life. “I think that’s  a big value proposition right now—that people can come to Kansas City and be within half an hour of their work, and be in a school district that is second to none,” he said.

With Kansas City firing on most every cylinder, it may be a good time to ensure that all share in the benefits. “I see one of our greatest challenges, and one we’ve had, is addressing the needs of the disadvantaged communities among us,” said Jeff Simon, office managing partner with Husch Blackwell. “East of Troost comes most to mind, but other communities too.”

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Potential Pitfalls

Screen Shot 2016-06-01 at 9.31.48 AMJohn Petersen, who chairs the real-estate practice for Polsinelli PC, laid out a laundry list of things that must be addressed. “I think we have a tremendous challenge in regard to the image of our region,” he said, and it flows from both sides of the state line—in particular, from the two state capitals. “From urban schools to airport renovations, from crime to state budgetary challenges and more,” he said, “Kansas City can’t allow itself to be defined by factors that too often are outside its control.”Mike Fenske, senior vice president at Burns & McDonnell, sounded a theme that would be woven throughout the assembly’s duration—workforce availability and quality. Young workers, he said “don’t go into laying bricks any more, or welding pipes, and we’re going to see a real shortage of people who actually build things.”

Mark Laney, CEO of St. Joseph-based Mosaic Life Care, injected a caution that wasn’t nearly as subtle as its health-care origins might suggest. With the federal government being the largest payer of health-care expenses in the U.S., with health policy now focused on value and improved outcomes over volume, and with a market that’s oversupplied with hospital beds by roughly 40 percent, “this is a tremendous challenge, especially here,” he said. The likely consequence is that hospitals will consolidate, with fewer construction projects and loss of the work that supports them.

One concern David Frantze cited was an inability to collaborate, with various factions turning against one ano-ther rather than finding solutions. “When it comes to broadening success, you don’t do that by pitting one element of the community against another. Right now, we seem to be at the point where we’re saying, ‘If I can’t succeed, nobody should succeed,’ rather than let’s figure out a way to broaden that success.”

Charles Renner thought that was right. “Once you have this success, it needs to be capitalized on in a way where investment yields for the entire community,” he said. “We’re running a risk of what I call inaction by faction, from the state line or imaginary street lines or demographic lines.”

Screen Shot 2016-06-01 at 9.31.56 AMFrom the local public-sector perspective, Lenexa Mayor Mike Boehm noted the potential benefits, and draw-backs, of Kansas turning more responsibility over to cities, but without providing the financial tools or flexibility to effectively do so. “They’re tying our hands on the ability to do this,” he said. “We’re happy to take the responsibility and take care of our own, and can do it better than they can as a state, but what we need is generally different than what Wichita needs.”

The risk we now face, said Pete Fullerton, assistant  director of commercial properties and development for the city’s aviation department, is complacency, a pattern he’s witnessed for 30 years after bursts of civic progress. One reason for that, he said, is a failure to look at the human side of development. “We’ve talked about facilities, buildings, real estate, and forgotten the people who actually build them or are working in them, and what that means to a community,” he said.

John Murphy pointed out that the absence of public dissatisfaction, as witnessed with low turnouts in the mayoral election, had the unintended consequence of gumming things up, since fewer signatures would be required on petitions challenging pro-growth efforts. “That can put a roadblock in front of things we’re trying to do,” he said.

One hindrance to growth in St. Joseph, said Brad Lau of that city’s chamber of commerce and ED department, is one of resources, particularly with the industrial base. “Our availability of industrial land is very slim right now,” he said.

Terry Dunn, director of JE Dunn Construction Group, who in retirement has been active both as an investor and in exploring the capital-formation processes in the region, took all of that up and tied it into a 30,000-foot view for moving the region forward. “The pluses and minuses the city is looking at center on regionalism and our ability to collaborate, communicate and develop, really, a common vision
that we have to have in order to focus we need to do a much better job banding together as a region to address our challenges.”

Talent Search

As the discussion turned to improving the quality of the work force, Beth Johnson, senior vice president for the Overland Park Chamber of Commerce, said the standing eco-devo pitch of “location, location, location,” had morphed into “work force, work force, work force.” Tied in with that, though, was the quality of space where young employees work. “How do we make sure all those buildings we have around continue to be viable and can attract new companies that can attract talent as well?”

Interestingly, Tim Cowden pointed out that the Kansas City Area Development Council had recruited five companies from Northern California to this market within the past three years. But growth must be organic, as well. “We’re growing companies here and entrepreneurs are here; they have to have talent,” he said. “That’s the first, middle and last question we’re asked:  ‘Are you going to help me find and ramp up talent, and sustain and grow that talent over time?’”

That, participants, said, is directly tied in with the ability of K-12 education, community colleges and higher education to produce the necessary work force that drives growth.

Mike Copeland’s perspective as mayor of Olathe, Johnson County’s second-lar-gest city, was that people don’t move to the suburbs because potholes get fixed quickly there: “The No. 1 economic-development tool for us is the quality of life, and the quality of our public-school system has always been at the top of that list in the
15 years  I’ve been mayor.”

Screen Shot 2016-06-01 at 9.32.04 AMBut once qualified workers are in place, they have to be retained, and the region stands a better chance of doing so if there are more opportunities with similar kinds of companies. Doug Girod, executive vice chancellor at the University of Kansas Medical Center, addressed that from his perspective with the regional development interest group called KC Rising. 

“We have heard through the research that if you want to recruit talent, people are very cognizant of what their opportunities are in a region. It’s a much riskier move for somebody to come here if their potential opportunities for advancement are just with one firm.”

Karen Fenaroli, a professional talent recruiter with Fenaroli & Associates, said that Kansas City had significant opportunities to expand its talent base by importing from larger eastern cities. “There’s lots of opportunity here,” she said, but “we need more anchor companies that are entrepreneurial.”

Bob Langenkamp expressed concern that continuing restrictions on funding for education at all levels would even-tually impair the regional work force. “How are the states going to be able to continue, and are they going to be able to continue, to fund higher education?” he asked. “Those are elements we have to address and pay attention to in terms of having an adequate work force that meets the needs of companies as they’re trying to grow and expand.”

Jeff Simon questioned whether current educational structures were applicable to modern work-force development. “There’s a real discussion about whether the high school model we’ve used for a long, long time is the right one for the future,” he said. “We need to be courageous enough to overcome the past.”

One initiative paying major dividends on the Kansas side was the Johnson County Education and Research Triangle, created with funding from a tax voters imposed on themselves back in 2008. That money contributed to expansion of programs at the University of Kansas-Edwards Campus in Overland Park, and the Kansas State University Olathe Innovation Center.  KU is now issuing degrees from Edwards, he said, and K-State is performing research that can lead to commercialization and spin-off.

“We don’t have, right now, the right business alignment between what businesses need out of their graduates and what the schools are providing,” said David Frantze. “I don’t think that’s anything negative on either side, it’s just that there’s not been that communication between the two sides, and it’s a problem that exists all over the United States.”

As Mike Boehm noted, programs like the Blue Valley school district’s Center for Advanced Professional Studies—a model now being replicated by other districts in the region—was having an impact by helping students identify career tracks and to get a head start on college credits. The issue, he and others noted, is one of scalability throughout the K-12 process.

As much as that’s needed, said Beth Johnson, “the thing we continue to hear from people is that soft-skills piece. We keep thinking that gets better, but we still hear that consistently: How do you get people to show up on time and put in a full eight-hour workday?”

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Entrepreneurs and Capital

We live, said Mark Laney, in an era ripe for disruption, fertile ground for innovators. “The opportunity is, whether that’s within Kansas City or whether it’s nationally, for entities that see a situation as a chance to disrupt,” he said, “to be the first to find value with innovation, and be first to market with it. That’s been clearly evident with health-care insurance in
this era of reform,” he said. 

What Kansas City has going for it, said Karen Fenaroli, is access to capital, even if “it’s not as visible as it should be.” “The $1,000 level is there, the $10,000 level, the $100,000 level, the venture capital level, the private equity level, the banking level. We have a huge opportunity to tell people to come sink that money into Kansas City with jobs, talent and building your business here.”

She suggested that there could be several hundred entrepreneurs capable of building companies with revenues in the $50 million to $100 million range if the support system linking them to appropriate sources of capital were better articulated. “The talent’s already here,” she said. “They’re starting the business, we just don’t know who they are.”

Event co-chair Dirk Schafer said a cultural piece at work could be holding Kansas City back. A chamber sojourn to Silicon Valley reinforced for him the importance of being able to fail. Kansas City, by contrast, “is a really small town, and if you fail, you’re on a blacklist,” he said. “In Silicon Valley, it’s a badge of honor and people know you’ll do better next time because you made those mistakes.”

Terry Dunn said organizations like SourceLink and the Kauffman Foundation had done ground-breaking work to connect entrepreneurs with financing. “There is a major focus, and it seems like once a month, there is a new venture capital fund that wants to come into Kansas City,” he said. “I think that vacuum is being filled in rather quickly,” he said, and the coming two or three years would demonstrate that.

Kansas City International Airport

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When it comes to the fate of Kansas City International Airport, Dave Frantze summarized what the business community knows full well: “We all had that experience,” he said, “and I was talking to a client last week who said Kansas City was a “great city, great people, *@$#ty airport.”

And unquestionably, the single greatest source of frustration to those around the table was the city’s inability to forge consensus on upgrading KCI to a single-terminal configuration. 

“This business community has to take the lead on the education component re-flecting the need for a new airport,” he said. “The polling now reflects a lot of short-term interest in convenience and ignoring the fact that the existing terminals are not good for this city as a first face to the nation.”

For Bob Langenkamp, the fact that public officials, whether through term limits, voter uprising or simple burn-out, can’t be a consistent voice for change. “The business community,” he said, “this is the group that has continuity. Members of the business community can sustain that momentum and that focus on issues that can be difficult to sustain politically.”

Part of the problem, said Charles Renner, is that “we have empowered but not engaged a consistent voice of no. There are consistent names who have made a profession of saying no.” If such groups aren’t engaged early on, he said, the public-education challenge becomes considerably more difficult.

Screen Shot 2016-06-01 at 9.32.24 AMDane Stangler interjected a moment of levity into the discussion when he mentioned  the what-goes-around aspect of KCI’s current structure. Transportation executives have mused whether a Uber for air service might emerge, as it has for taxi service nat-ionwide, and an associate from Washington who came through KCI not long ago told him “your airport is perfect for that!”

Rosie Privitera-Biondo asked why there was a public vote attached to discussion of KCI improvements, and Terry Dunn said it was a commitment from City Hall to the electorate, even if it wasn’t required. Irrespective of that, he said two issues were at work: “One, a number of national and international companies that have to move their employees to and from KC, with outstanding service.” Yet even a decade after more than $250 million in upgrades, KCI is looking at $300 million more in necessary maintenance.

The bigger issue, Dunn said, “is that we have at least 25 flights, possibly more, that are hanging in the balance, possibly even international flights.” Daily flights have dwindled to about 75, so “we have a lot at stake,” he said. “It is our front door. It is the opportunity for companies that are national and international, and if we have a backwater situation, and say it’s not our front door and we don’t want it to be, and we have to live with it and not be forward-thinking, we have to live with that.”

John Murphy dropped the discussion back in the laps of those around the table when he cited a Harvard Business Review’s guidance in a piece a decade or so ago. “The key to getting something done is doing something,” he said. “That’s what we ought to do right now.”