Kansas is pushing lawmakers to fast-track legislation creating the state’s largest business incentive program ever as officials say a $4 billion factory could be on the line.
Details about that project, however, are scarce.
According to the Kansas Department of Commerce, the state is a finalist in what development officials call a mega project. It is anticipated to produce 4,000 jobs paying about $50,000 per year as well as temporary construction employment for 6,000.
But state officials said they can’t give lawmakers or the public details because they signed non-disclosure agreements with the mystery company. The lack of transparency, paired with Kansas’ history of failed and secretive incentive programs, has left some lawmakers skeptical.
Experts say the numbers point to a new electric vehicle, battery or microchip plant. Those industries are all expanding domestic footprints and their factories cost in the billions, said Ron Starner, a writer and editor at Site Selection magazine, which tracks the expansion and relocation of U.S. companies.
States have competed aggressively for such facilities in recent months as automakers embrace electric vehicles and the pandemic revealed major supply chain challenges with overseas microchip manufacturing.
“This is a wave of high-end advanced manufacturing, high dollar value capital investments like we’ve never seen before in this country,” Starner said. “It’s all just exploded in the last few months.”
Kansas leaders said the undisclosed company is expected to make a final decision next month before announcing the project in March. To seal the deal for Kansas, the department of commerce is asking lawmakers to rush passage of the new incentive program.
Though most lawmakers didn’t have direct knowledge of the project, they theorized Thursday that the Kansas City metro area was the most likely location.
Sen. Virgil Peck, a Havana Republican, said he was “confident” the project would land in the KC region.
“I don’t think you can draw the workforce (in Southeast Kansas),” Peck said.
Paul Hughes, the Deputy Secretary of the Kansas Department of Commerce, presented the project and incentive program as game-changing — drawing a new industry to the state and a workforce that yields even more investment.
“It’s a framework for growth that represents meaningful jobs and meaningful work,” Hughes said.
The legislation would establish new type of incentive by offering companies refundable income tax credits. That means a major employer could not only get its income tax liability down to zero, but the state could end up writing annual checks for millions of dollars.
The legislation says qualifying companies can receive 15% of their income tax liability, a 10% reimbursement on payroll costs, a 100% exemption on sales tax for construction and a 50% property tax incentive.
It also would reimburse the company for 50% of employee training costs, up to $5 million per year.
Using the figures provided by the state, the company considering Kansas could qualify for up to $800 million in just income and payroll tax benefits.
The law would also offer incentives to suppliers of the company.
“It’s looking at a supply chain of businesses and incentivizing a total footprint,” said Sen. Jeff Pittman, a Leavenworth Democrat.
The incentive program would remain in Kansas’s economic development tool box after the company in question has chosen its location.
“I was brought forward to Kansas to be a headquarter hunter,” Hughes said. “It stuck out like a sore thumb. We don’t have the right tools to go after these projects.”
In an interview, Kansas Lt. Governor and Secretary of Commerce David Toland said the project would prove “transformative” if Kansas were to land it.
“It will supercharge the rate of growth in our state and have a positive ripple effect on small businesses, both in the region where the business locates and across the state,” Toland said. “It is of significant importance to the Kansas economy that we win this opportunity.”
State officials say Kansas has missed out on 11 major economic development projects in recent years, including office campuses, advanced manufacturing plants and food production sites.
“We’re not in the game,” said Tim Cowden, president and chief executive of the Kansas City Area Development Council. “We’re missing mega project opportunities.”
Cowden would not comment on the specific project Kansas is competing for. But he said the state has an opportunity to lure the growing numbers of manufacturers who are working to decarbonize the economy.
“For Kansas City and our region to be competitive for generations to come, we have to be able to compete now,” he said.
Competing aggressively for electric vehicles
In recent years, states have liberally awarded incentives for manufacturers of electric vehicles, batteries and other green technologies.
Georgia last year approved what’s expected to be the largest incentive package in state history to lure the $5 billion Rivian electric vehicle plant.
Samsung won nearly $1 billion in incentives to build a $17 billion semiconductor factory outside of Austin. It’s the largest ever package awarded by Texas, according to the Austin American-Statesman.
If approved, the new Kansas program would easily become the most lucrative incentive available to businesses looking at the state. It would also make Kansas competitive with efforts elsewhere to lure new electric vehicle, battery and microchip factories.
“It’s fairly typical of what we’re seeing in other states right now,” said Starner, with Site Selection magazine, “Which is why you’re seeing states like Texas, Georgia, Tennessee and Kentucky landing a lot of these really big deals. Because those are the states typically and historically that have had the ability to craft large incentive packages.”
While state officials won’t disclose the potential location of the new factory, Starner says options are limited in Kansas. A $4 billion dollar plant with 4,000 employees would likely locate in the Kansas City metro area, he said.
“There’s only a handful of companies in the world that have the kind of resources to build a $4 billion plant,” he said. “That tells me they’re going to want access to an international airport. I would be shocked if it were more than one hour away from an international airport.”
Greg LeRoy, executive director of incentive watchdog Good Jobs First, said the state’s description of the project sounded like an electric vehicle plant.
“My antenna went up because we’re seeing so many big deals for EV facilities,” he said. “And they often come in with numbers like that.”
LeRoy is skeptical of many incentive programs employed by state and local governments. But he said taxpayers should be especially wary of refundable tax credits. Other incentive programs can decrease future revenues available to governments by abating new property taxes or payroll taxes.
“We’re still critical and skeptical of those because you’re giving a big advantage to one company,” LeRoy said. “But at least you’re not writing checks out of the general fund, which is an important distinction.”
That’s exactly what could happen under the proposed legislation.
“Calling them a credit is kind of a misnomer. Because most tax credits mean you pay less in your income taxes or you pay nothing. But refundable is a euphemism. It means payable. It means cash.”
And that could get risky over the long term. While Kansas is flush with cash now, thanks to high tax revenues and federal coronavirus relief funds, that may not be the case years down the road.
While exact numbers are unclear, back-of-the-envelope math shows the state could commit some $800 million to the company it’s hoping to land.
“That would rank among the biggest deals of all time in U.S. history,” LeRoy said, “and I suspect the biggest all time in Kansas history and among the largest in Midwest history.”
Will lawmakers approve new incentives?
Lawmakers reviewing the proposal expressed a combination of excitement and caution about the project.
“It sounds like something we might ought to have considered anyway and this is just bringing it up,” Sen. Mary Ware, a Wichita Democrat said. “Kansas doesn’t have to remain the quiet little stray puppy dog in the corner. We can be in the realm of acquiring big businesses and big scales.”
“This sounds to me so far like something that could take us to the big leagues.”
Sen. Caryn Tyson compared the bill and its opaque process to back door deals in “smoke-filled rooms.”
“We are here to be transparent and it goes against the grain,” Tyson said. “I find it difficult especially with my existing constituents who are trying to make ends meet and all we are doing is trying to attract new businesses.”
But Sen. John Doll, a Garden City Republican, called the lack of definitive information on the project a necessary sacrifice for major developments.
“We lost two projects when I was (on county commission) in Garden City because it got out that these people were there,” Doll said. “Whether I like it or not, that’s just common practice.”
“If we have the opportunity to bring a $100 million plus business in, you’re going to have to throw some carrot out there.”
Kansas business incentive programs have had a mixed track record. An audit of the state’s biggest program, STAR Bonds, found that only 3 of 17 projects reached key success benchmarks. Some projects, the audit projected, wouldn’t break even until next century.
Sen. Renee Erickson, a Wichita Republican and chair of the Senate Commerce committee, said she hoped the bill would include adequate guardrails to prevent disaster.
“The time constraint we’re feeling the pressure about how do you properly vet this and make sure we’re not blowing an opportunity but yet doing the work of the people to make sure we don’t have a situation (that fails,)” Erickson said.
If the bill hits the House, Rep. Sean Tarwater, a Stillwell Republican, said his committee would take a thorough review of the bill moving it forward.
“I think it’s going to have difficulty getting out of the Senate,” Tarwater said. “We’ll make sure it’s right before it leaves this committee … it’s more important to get it right than to get it out the door.”