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Kansas City enlists KPMG to make its case for business relocation

Of all the regions courting California companies, Kansas City is among the most aggressive and methodic.

The Kansas City Development Council recently hired KPMG LLP to carry out a detailed comparison of the costs of doing business in Kansas City, Mo., and three California cities: San Jose, Irvine and Fresno.

The results are no surprise, and the money spent on the report was a safe bet by the development council. KPMG’s conclusion: California is 30% to 35% more expensive for manufacturers and almost twice as expensive for offices than the Kansas City area.

“The difference is substantial,” said Rick McDowell, senior manager at the strategic relocation and expansion services at KPMG.

KPMG looked at six cost areas: wages, workers compensation, unemployment insurance, corporate income tax, real estate and electric power. For the study, KPMG used the case of a business with 200 employees.

“The biggest cost (in California) seems to be utilities and real estate,” McDowell said.

San Jose real estate was substantially more expensive, with an average lease rate for a 75,000-square-foot manufacturing space of $1.36 million a month. Irvine was the second-most expensive with the average lease rate running $684,000. The average cost of a 75,000-square-foot space in Kansas City was put at $274,000.

But Irvine was the most expensive place to set up manufacturing operations because of high energy prices. The total overall cost of a 200-person manufacturing operation in and around Irvine was estimated at $8.5 million, compared with $5.8 million in Kansas City.

The overall cost of running the manufacturing operation in Fresno was estimated at $7.2 million. Even in California, power costs would vary slightly because of geography, cost of setting up power plants and how a utility would structure its financing.

“For manufacturing operations, if I were doing plastic injection molding, than Irvine is not the place to be,” said Paul Hiller, managing director of Destination Irvine.

Hiller said that most of the manufacturing in Irvine is that of high value added items.

“Companies here are not concerned about how much they pay per square foot but are talking about survival of the company in a very competitive market,” Hiller said. “I would agree that manufacturing is cheaper in Kansas City than in Irvine, but Taipei is cheaper than Kansas City. It is like comparing apples to oranges.”

Kansas City’s McDowell is undaunted.

“These are not the only things that companies look at for making relocation decisions, but these are important factors,” he said.

KPMG also did a comparative analysis of the costs of maintaining an office in California vs. Kansas City. San Jose was the most expensive place to have an office, mainly because of prohibitively expensive real estate. Irvine came in at No. 2, and Kansas City being the least expensive.

“This makes our point that it is not just the power issue, but the overall cost of doing business in California is high,” said Tim Cowden, senior vice president of business development for the Kansas City Area Development Council. n

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