TOPEKA — Time is running out on the Kansas Legislature’s consideration of an extraordinary economic development incentive plan recommended by Governor Laura Kelly to improve prospects for landing a major manufacturer expected to inject 2.5 billions of dollars per year in the state’s economy.
Kansas survived a review process that began 10 months ago to become one of two state finalists for the project — no company name yet — which, according to a University study of Wichita State, could create thousands of jobs with a $4 billion investment and a package of government incentives. It would create approximately 4,000 direct jobs and have a total employment impact of 7,800 jobs linked to $440 million in annual labor income. There could be a temporary expansion of 16,500 jobs.
The manufacturing plant estimated production at full production – think of an operation consuming 3 million square feet of building space – would be $1.8 billion annually, based on modeling by WSU’s Center for Economic Development and Business Research.
Parts of the WSU report have been redacted to conceal the identity of the potential company, but the document noted Kansas had an established business targeted manufacturing sector with the second highest concentration of jobs and salaries in the country.
For those who are guessing, Kansas officials said the competition’s target was not Boeing and the rival state was not Missouri.
“We finally have a chance to not only catch up to our competing states, but beat them and accelerate our state’s growth rate by landing this whale of a project,” said David Toland, who is lieutenant governor. and Secretary of the Kansas Department of Commerce.
The Kelly administration has recommended that the Legislature effectively complete work this week on an economic incentive bill to financially support companies making a minimum investment of $1 billion in Kansas over a five-year period. . The Attracting Powerful Economic Expansion Act, or APEX, would provide comparable tax benefits for suppliers with annual sales of $10 million or more to the manufacturing giant.
“It’s a much bigger opportunity than anything the state has seen in its history insofar as it’s a realistic possibility for the state to earn it,” Toland said in an interview. “We’ve been pushing for a clean bill that’s moving fast and coming to the governor’s office this week so we can put forward a bid that will beat our competitor.”
The state’s final offer is expected to be submitted during the first week of February, Toland said, so the company can make a site selection later in the month.
Incentive bill on the clock
The legislation would offer the megaproject company a 15% investment tax credit, reimbursement of up to 10% of labor costs for up to 10 years and a 100% exemption from sales tax on materials of construction. A separate 50% land tax incentive would be available to the manufacturing company and up to five of its supplier companies if they participate in a free zone scheme, assuming local governments consent.
In addition, up to 50% of training and education costs for new employees, up to $5 million per year, would be reimbursed to manufacturing companies and suppliers.
Supplier companies would get a 15% investment tax credit, retain a maximum of 65% of payroll withholding tax for 10 years, and would also be eligible for training reimbursement as well as partial exemption from property tax and full exemption from construction sales tax.
The package crafted by the Kelly administration was presented to the Senate Commerce Committee last week. It would target employers in advanced manufacturing, aerospace, logistics, food, agriculture and technical services. Senate committee hearings revealed support for the bill from the politically influential Kansas House and support from local chambers of commerce.
Eric Stafford, the Kansas Chamber’s top lobbyist, said Kansas’ gross domestic product expansion has lagged competing states for years. The state also suffered a population decline for decades as young adults moved to other states for better jobs, he said.
“A lot of us have talked over and over again about wanting to grow the state and attract investment,” he told members of the Kansas Senate. “You have a great opportunity to grow. I hope this is a good catalyst for things to come in the future.
Sharp comments from conservative lawmakers on the bill revealed reservations about writing a big check to lure the company to Kansas.
Sen. Virgil Peck, R-Havana, said he’s worried the Legislature will be pressured to vote abruptly on Senate Bill 347. He could not recall such a compressed schedule for major legislation during his 14-session career at the Statehouse.
“Is there any program that would be too much for the Kansas Chamber?” said Sen. Mark Steffen, R-Hutchinson. “Or, are they all acceptable to the House?”
Stafford said a key metric would be the return on investment made on behalf of taxpayers. The state’s existing economic development tools are effective, he said, but insufficient to compete with other states in attracting companies willing to invest billions of dollars in a production plant. In a perfect world, states, counties and cities wouldn’t be in a bidding war for jobs, he said.
“We don’t live in a perfect world,” Stafford said. “Until all 50 states agree to disarm…we must have attractive and competitive incentive programs for economic development investment purposes.”
‘An unfair advantage’
On Capitol Hill, election-year politics plays a role in the review of important legislation. One wonders whether the bill’s passage could be jeopardized by lawmakers unwilling to risk giving Kelly a boost for re-election in November.
Instead of outright rejecting the bill, it’s also possible the House and Senate could bundle megaproject legislation with tax reforms the Democratic governor might find distasteful. A Kelly veto could create an unbreakable block that would not meet the company’s site selection deadline.
Dave Trabert, representing the Kansas Policy Institute, said the organization opposes the Kelly administration’s economic development legislation because it would hand over hundreds of millions of dollars to the megaproject and associated companies. The subsidies would be unfair to other Kansas businesses, he said.
“A subsidized company may offer better prices and pay higher wages, giving it an unfair advantage,” he said. “The subsidies are part of the reason Kansas has the highest effective tax rates on mature businesses.”
Trabert said state and local government had approved wave after wave of grants to Kansas businesses for years, but the state still trailed the country in job creation and GDP. The bill would give the state Department of Commerce too much discretion and too little protection for taxpayers, he said.
“After two years of austerity from government officials in their handling of the COVID situation,” Trabert said, “Kansas needs a lot more protection and a lot less government discretion.”
Trabert was the only person to oppose the bill at the Senate Commerce Committee hearing, while 16 economic development organizations endorsed the legislation.
Eric Brown, president of the Salina Area Chamber of Commerce, said the move by large companies to bring manufacturing capabilities to Kansas from overseas could benefit existing manufacturing businesses by avoiding the supply issues that are emerged during the COVID-19 pandemic.
He said Salina would welcome the opportunity to be a potential partnering spot for megaproject lagging suppliers.
“As the country seeks to repatriate supply chain and manufacturing, it is imperative that the State of Kansas seeks to position itself as a viable state to accommodate these high-skilled, high-paying jobs,” said John Jenks, Kansas policy director. City Chamber of Commerce. “The KC Chamber of Commerce has been a strong supporter of the use of fiscally responsible, data-driven incentives and believes this bill fits the model.”
Matthew Godinez, executive director of the Southeast Kansas 12-County Regional Planning Commission, said the organization supports the APEX legislation.
“APEX is a measure that strikes a reasonable balance between competitiveness, accountability, transparency and doing what is best for Kansas’s economic future,” he said.