Why KC’s minimum wage is a big real estate issue

Kansas City Business Journal - Original Article
June 18, 2015

The leader of a Kansas City commercial real estate organization warns that increasing the minimum wage in the city could douse its sizzling industrial market by chasing away development, prospective tenants and existing firms.

Of the relocating firms, Kansas City CCIM chapter president Pat Murfey said, "A company that employs 100 workers with 15 to 20 affected will not just shift its lower wage workers outside of the city."

"It will, in fact, shift all 100 workers," Murfey added, "the net result (of such departures) being that the city's industrial/economic base will erode dramatically."

Murfey's warning is timely, given that the Kansas City Council is expected to act on a higher minimum-wage proposal in mid-July.

Earlier this year, the Missouri General Assembly passed legislation, House Bill 722, to preempt cities from passing their own minimum wage mandates. But language in that bill, which remains on the desk of Gov. Jay Nixon, excluded preemption of any local minimum wage ordinances in place on Aug. 28.

That language prompted a grass-roots petition effort seeking an Aug. 4 vote on a proposal to raise the minimum wage in Kansas City to $15 an hour — nearly double the state rate of $7.65 — by 2020. But at the urging of Mayor Sly James, the petitioners agreed to allow the Kansas City Council, which has been generally supportive of some increase in the wage, to address the issue.

Some sources have argued that Missouri cities don't have the authority to enact local minimum wages, regardless of HB 722's fate. But in St. Louis, where a higher minimum wage also is being considered, City Counselor Winston Calvert recently noted in a memo that the only statute now on the books "that prohibits municipal minimum wage ordinances ... was declared unconstitutional in 2001."

If Kansas City adopts an ordinance increasing its minimum wage, it "will limit our ability to attract businesses and further expand the fierce competition we already face across the state line," Murfey warned City Council members in a letter this week.

"More important," the letter states, "are concerns that this ordinance will result in unintended consequences ultimately harming the individuals this ordinance seeks to protect. I urge you to consider the loss of minimum-wage employment opportunities and devaluation of commercial and residential real estate, which will erode our tax base."

Murfey, a veteran industrial broker with Evergreen Real Estate Services in Mission, said the minimum-wage debate typically is viewed as a fast-food, hospitality and retail issue. But he said it could do considerable damage to Kansas City's industrial market, which includes more than 100 million square feet of the metropolitan area's 250 million square feet of industrial space.

Many of the tenants that occupy that space rely, in part, on a workforce that is paid between $9 and $12 an hour. Those employees, including some opting to work part time in retirement, often receive benefits in addition to their wages, Murfey said. But they could lose their jobs if employers relocate to neighboring cities or other regions to escape a higher minimum-wage mandate in Kansas City, he said.

Murfey said an estimated 94,000 employees currently work within the 94 million square feet of occupied warehouse space in the city, generating significant revenue for the city via its 1 percent earnings tax.

Developers added 1.3 million square feet of new warehouse space in Kansas City last year. But Murfey said leaders in the local industrial market "believe that this new ordinance will dramatically reduce the amount of new construction occurring in the city as companies will have lower-cost places to conduct their business."

To prevent such negative impacts, Murfey proposed a solution in his letter to the City Council:

"I propose creating a conditional ordinance that is effective only after 60 percent to 70 percent of our metropolitan area population enacts a similar ordinance (similar to the past metro area smoking ban or the ordinance for the revitalization of Union Station)," his letter states. "This way KCMO can enact an ordinance that will help its most vulnerable citizens without harming the city of Kansas City and its economic base in the process.

"Alternatively, the minimum-wage law could exempt industrial, distribution and manufacturing companies."

Pat Murfey, CCIMPat Murfey, CCIM specializes in Commercial Properties with Kansas City based real estate brokerage Evergreen Real Estate Services. Pat can be reached at 913-951-8402 or Pat@KCEvergreen.com.

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