TOPEKA, Kansas – Republicans in the Kansas Legislature aren’t eager to give Democratic Gov. Laura Kelly any big wins ahead of her campaign for reelection.
Even so, many are backing her effort to close a potentially transformative business deal offering at least $1 billion in tax breaks and other incentives to lure a mystery manufacturer to Kansas.
Lt. Gov. and Commerce Secretary David Toland calls it “the largest economic development project in our history.”
The enhanced subsidies, Toland said, would go to a company promising to spend $4 billion on a 3 million-square-foot plant employing 4,000 people.
If the firm picks Kansas, Toland said several of the target company’s suppliers would follow, drawing another 4,000 jobs to the region.
Non-disclosure agreements signed by state officials and legislative leaders prohibit them from divulging the name of the company or the possible location of the plant. That bothers lawmakers who say they need to know more about the company’s ownership and what it produces before signing off.
“It could be a wildly profitable, foreign-owned company coming in and doing an environmentally dirty business,” said Sen. Mark Steffen, a Hutchinson Republican.
Like it or not, said Paul Hughes, the head of business development at the Kansas Department of Commerce, secrecy is part of the negotiation process.
“It would cause financial harm to the company if word got out that they were planning this,” Hughes said when responding to questions during Senate hearings.
Secrecy isn’t the only issue. Some lawmakers question the need for an incentive package significantly more generous than what the state has offered in the past.
Sen. Caryn Tyson, a Parker Republican, said a small business owner who contacted her suggested the name of the bill be changed to “crony capitalism kicks existing Kansas businesses in the face.”
Despite such objections, most Republican senators joined with Democrats in a 32-7 Senate vote to approve the incentive bill after it was amended to use money generated by the economic impact of new businesses to gradually lower the state corporate income tax.
Republican Senate President Ty Masterson said he generally doesn’t like subsidies, but that “this is a little different than your typical subsidy.”
“A project of this magnitude,” he said, is “something that can change the state for generations.”
If passed, the bill would authorize the following incentives for companies that agree to invest at least $1 billion in the state:
- A tax credit up to 15% of a company’s investment.
- A 10% payroll refund for up to 10 years.
- A 100% sales tax exemption for construction materials.
- A 50% property tax exemption for companies that locate in a foreign trade zone as long as local governments agree.
- Up to $5 million for up to five years to help cover workforce training costs.
Up to five suppliers of a target company would qualify for similar incentives if they also locate facilities in Kansas.
Read about Senate Bill 347 and its history here
Dave Trabert, president of the Kansas Policy Institute, a conservative think-tank that lobbies for reduced government spending, estimated the cost of recruiting this one company could exceed $1 billion over 10 years. That money, he said, would be better spent on policies that benefit all businesses in the state.
“We could give one big lollipop to one company, or we could wipe out the income tax liability of all the corporations in Kansas,” Trabert said.
That’s a false choice, said Toland. The beefed-up incentives, he said, are needed to make Kansas competitive for what he calls “megaprojects” that now go to other states.
Since 2017, he said, Kansas is zero for 11 when competing for companies looking to invest $1 billion or more.
The proposed incentives are generous, Toland said, but the company must earn them.
“The company gets the investment tax credit after they invest,” he said. “The company gets the payroll rebate after they’ve hired and paid people. This is performance-based.”
The bill also would allow the state to claw back benefits if the company fails to live up to its agreement with the state.
Mark Williams, president of a site-selection company that helps negotiate deals for businesses around the world, said the importance of incentives goes beyond dollars and cents.
“It’s psychological,” Williams said. “Many companies feel that they’re taking risks to make big investments and they like it when … they feel a state is embracing them and somehow taking some risk with them.”
Toland said the administration supports the amendment added by the Senate that would use proceeds generated by businesses locating in the state to buy down corporate income taxes. But he said a change to ensure the tax credit wouldn’t result in the state making payments to companies could be a deal killer.
“The states that are winning on these projects have refundable tax credits,” Toland said. “We don’t and that’s one of the reasons why we have never won a billion-dollar project.”
