‘Mystery’ factory would cost Kansas taxpayers $1.3 billion. Is the state overpaying?
Kansas wants a $4 billion secret factory to come to the Sunflower State, and officials are willing to pay roughly $1.3 billion in incentives and risk a multi-million dollar budget deficit to get it.
Gov. Laura Kelly’s Department of Commerce is asking Kansas legislators to rush into law what would be the largest economic incentive package in state history. It would be used to lure a company currently deciding where to locate an advanced manufacturing plant that would create 4,000 jobs at an average $50,000 per year salary.
But as the cost of landing the project comes into focus, other basic questions are still unanswered. The location of the plant and the company involved remain closely held as lawmakers and state officials adhere to confidentiality agreements. Details on how and when Kansas could gain financially are unknown.
According to estimates from the non-partisan Kansas Legislative Research Department (KLRD )the package would cost the state roughly $1.3 billion in refundable tax credits, training costs, and payroll tax incentives to the company and five of its suppliers.
If the incentives are paid out on the schedule proposed by the Commerce Department, the state would run a $426 million deficit within four years.
The total cost to Kansas would break down to more than $320,000 for each full time job.
That is the price tag for jobs that pay less than the typical wage for workers across the Kansas City metro area.
The federal Bureau of Labor Statistics reported an average hourly wage of $26.21 in May 2020 for workers in the metro area. For forty hours per week at that rate, a worker would earn more than $54,000 per year. The potential jobs would, on average, pay $50,000.
A House committee voted Tuesday reduce the refundable tax credits from $900 million to $650 million and extend the payout from three years to ten years. The move would avoid the budget deficit but still take heavy chunks out of the state general fund.
The estimates are couched with uncertainty. Budget projections assume a stable economy and a GOP legislative supermajority approving every proposal in Gov. Laura Kelly’s budget. Both scenarios are fairly unlikely.
The governor’s budget for the fiscal year that begins in June includes funding for Medicaid expansion, state employee pay raises and the elimination of the food sales tax — none of which are guaranteed to gain Legislative approval.
Without full details of the project, the legislative research department warned that the numbers wouldn’t be exact.
“What we’ve done is make some standard assumptions,” said KLRD director J.G. Scott. “There isn’t a fiscal note because there are too many variables.”
The Department of Commerce and Kelly’s office did not immediately respond to questions about whether they agreed with the projections and what could be done to offset the lost funds.
But Rep. Stephanie Clayton, an Overland Park Democrat who signed a non-disclosure agreement, cast doubt on the estimates. She said it failed to account for the economic stimulus the project would create, but she declined to provide any details on when the return on investment would come or how high it would be.
“These numbers do not fully tell the tale,” Clayton said. “It’s only based on certain assumptions that tell the story that those who oppose this want to tell.”
Clayton is one of at least four lawmakers who represent Johnson County that have signed NDA’s.
Speculation from experts has pointed towards the Kansas City metro area and a possible chip, battery or electric vehicle plant.
But lawmakers that don’t know what the project is cite the lack of clarity and the cost as a major hangup for their support. Rep. William Sutton, a Gardner Republican, said he saw a future deficit as a “transformation” he wanted no part of.
Rep. Shannon Francis, a Liberal Republican, warned that this deal — if executed poorly — could be an albatross for Kansas for years to come.
“If we do this wrong it’s something we have to live with and our constituents have to live with probably for the rest of our life,” he said. “I hear it’s great for the state of Kansas but sometimes no deal is the best deal and we have to protect our constituents.”
Is the project transformative?
If Kansas landed the undisclosed plant, it’s uncertain when the state would start benefiting economically.
In an interview with KSHB, Gov. Laura Kelly said the project could yield $2.5 billion in economic activity yearly. But it’s unclear how much of that would convert into increased state tax collections.
Research has shown that companies generally don’t make major decisions based on economic incentive packages And, more often than not, states do not make back what they gave up in tax revenue.
Kansas has a particularly spotty record with economic inducements. A legislative review of STAR Bonds, the state’s largest incentive program, found that it would take decades and, in some cases, more than a century for the state to recoup the sales tax revenue lost on some projects. Only three of 16 projects met the Commerce Department’s goals.
Sean Tarwater, a Stillwell Republican and chair of the House Commerce committee, argued that the 10-year payout of the refundable tax credits could solve that issue.
“We want to make sure that we’re receiving some benefit before we start paying out too much,” he said. “If you pay it out over a 10- year period you don’t have to claw it back.”
The bill passed in the Senate last month. But it came with revisions that removed the refundable tax credit and created a trigger that could result in eventual elimination of Kansas’ corporate income tax. House lawmakers amended the bill to drop the corporate income tax by half a percent each year an incentive is paid out for two years.
And the bill could go through more changes even as the Kansas House prepares to debate and vote on it as early as Tuesday.
The House and Kelly’s office spent last week in negotiations over how to change the proposal which Tarwater called a “trainwreck” when it reached his desk and still condtends is an “extremely dangerous experiment.”
“All of us want to bring these jobs to Kansas, there’s no doubt about it and it will be a good thing for Kansas. It could change Kansas forever in a positive way,” Tarwater said. “How far are we willing to go to get this done?”
The bill, and undisclosed project, has been trumpeted as a “transformative” opportunity for Kansas.
In press releases and social media throughout the weekend Kelly urged Kansans to contact their lawmakers and ask them to support the project. Kelly, who is in the midst of a tough reelection fight, has staked much of her campaign on economic development.
“Thousands of new jobs for Kansas is a big deal. That’s why Kansas business leaders are pushing to pass this legislation. Let’s make Kansas competitive on a global level,” Kelly said in a tweet.
In her interview with KSHB, Kelly said the bill would stop Kansas college students from leaving the state after graduation and that she couldn’t “think of a downside” to the venture.
Rep. Troy Waymaster, a Russell Republican and chair of the House appropriations committee, said he “hoped” the project would prove beneficial for Kansas but that the lack of clear details leaves him uncertain.
“If we don’t know, it makes it difficult to be speculative on what it could do,” Waymaster said.
Lawmakers who signed the non-disclosure agreement insist that the project is a benefit, but cannot say why.
“I signed the NDA,” Clayton said. “Knowing what I know it’s like ‘oh this is something I can support.’”
“If I signed the NDA and I hated it I would still tell everyone it was trash … I can say as someone who signed the NDA that I do think this is a good project, and I do trust it and I really want this to happen for our state.”
Earlier versions of this story inaccurately described a House committee’s vote to extend the state’s payout period for refundable tax credits.
The Star’s Kevin Hardy and Jonathan Shorman contributed to this report.
This story was originally published February 8, 2022 at 5:00 AM with the headline "‘Mystery’ factory would cost Kansas taxpayers $1.3 billion. Is the state overpaying?."
