Kelly’s admin wants KS lawmakers to OK more incentives for Panasonic, Integra suppliers
In the past year Kansas Gov. Laura Kelly’s administration has committed more than $1.1 billion to Panasonic and Integra Technologies through the state’s largest economic incentive tool.
Now the Democratic governor’s administration is asking lawmakers to make even more state dollars available to suppliers of those major companies, arguing the incentives already available aren’t enough.
The request comes as the administration says it is working to land a third major company and wants lawmakers to extend its APEX incentive program another year.
But Republicans and Democrats in the Kansas Legislature worry that the state budget can’t sustain another massive incentive commitment and some have said they want to see results from the first projects before offering more.
“I would prefer to see some production before we add on at this point,” said Sen. Renee Erickson, a Wichita Republican who chairs the Senate Commerce Committee. “We’ve moved rather quickly on APEX and Integra. Let’s see that it yields the benefit that we hope it does.”
New incentives
The Attracting Powerful Economic Expansion program, or APEX, was sold to lawmakers last year as a needed tool to lure major investment to Kansas. It was passed on a short timeline and in a shroud of secrecy as state officials asked lawmakers to sign non-disclosure agreements about the $4 billion Panasonic battery plant in De Soto.
In addition to a wide range of incentives for the primary company connected to an APEX project, the program offers a smaller set of incentives to five companies who might invest in Kansas as suppliers of the company.
Speaking to the Kansas House Commerce Committee last week Paul Hughes, the deputy director for business development at the Kansas Department of Commerce, said the state had made agreements with some suppliers for Panasonic but had not yet struck deals with suppliers for the new semiconductor facility Integra Technologies will develop in Wichita.
Higher incentives were needed, he said, because the state was already behind.
“The suppliers oftentimes need to be set up and running ahead of the operations of the main mega project,” Hughes said. “There’s an early signal that they need to scrabble and be ahead of the mega project, be ahead of the main project, and we’re not seeing that.”
The agency wants to increase the amount of tax credits available to the companies. Currently, companies are eligible for between 5% and 10% tax credits on their investment depending upon how much they invest. The agency wants to guarantee 10% for any investment over $10 million.
Hughes also asked lawmakers to double the training reimbursement costs available from $250,000 to $500,000 and offer $250,000 in employee relocation reimbursements.
But economic development experts told The Star that high incentives for suppliers shouldn’t be necessary for major companies like Panasonic.
It’s rare for governments to incentivize suppliers, said Nathan Jensen, a professor of government at the University of Texas at Austin who researches economic development incentives.
“It’s weird,’‘ he said. “It’s not something you see very often, in particular in the auto industry.”
That’s because state government leaders often use suppliers as part of their justification for awarding big incentives to large factories. The argument is that projects like Panasonic will have a so-called multiplier effect. Aside from the direct jobs and investments at the plant, the project is expected to create spin-off employment among suppliers.
But that argument falls flat if the suppliers are getting incentives, too.
“There’s also an incentive multiplier,” he said. “If you start incentivizing every company that’s affiliated with the primary company it becomes incredibly expensive.”
In the world of electric vehicles, Panasonic itself is a supplier, noted Greg LeRoy, executive director of Good Jobs First, a watchdog group which tracks economic incentive programs.
Batteries are the most important component of electric vehicles, but they’re just one component. Once produced in De Soto, the batteries will be shipped to factories for Tesla and other automakers.
LeRoy said the final assembly plants – like Ford’s Claycomo plant in Kansas City – are home to the best and most jobs in the industry.
But electric vehicles are far less complex than the gas combustion ones produced at massive assembly plants now. So the electric vehicle industry, which is more automated, is expected to spur far less supply chain activity in the future.
“You don’t have engines, you don’t have transmissions, you don’t have cooling systems,” LeRoy said.
And while suppliers may not be relocating to Kansas, Jeremy Hill, director of Wichita State University’s Center for Economic Development and Business Research, said suppliers were already operating in Kansas and Missouri.
Hill was commissioned by the Kansas Department of Commerce last year to study the economic impact of the Panasonic project.
Broadly speaking, he said the APEX legislation has been valuable because it brought new industries primed for future growth to Kansas.
He pointed to the aviation industry, crucial to the Wichita and state economies, in contrast. Some aviation plants have seen little growth in new lines — while firms built new lines in states like South Carolina and Alabama. Electric vehicles, though, are just getting started.
“There’s definitely some merit to it,” he said of the legislation. “APEX did something that I don’t think people fully understand… It is shifting into industries that are going to be expanding and will change the long-term trajectory.”
Accountability and transparency
The request for more incentives sparked frustration among lawmakers who are likely to rewrite the bill to include new accountability and transparency measures for the incentive program.
“The Panasonic deal, there were a lot of local incentives that were given away that they don’t seem to want to tell us about,” said Rep. Sean Tarwater, a Stilwell Republican who chairs the House Commerce Committee.
He added that he was frustrated with the decision to give Panasonic the Kansas Bioscience Authority building free of cost. The $4.9 million Olathe building was signed over to the company last month as part of the incentive deal.
Tarwater said he would carefully consider the requested new incentives. But one of his priorities was ensuring job requirements are included in any future projects.
The Star reported last year that the state’s agreement with Panasonic for the De Soto battery plant omitted any wage or hiring requirements for the majority of the incentives offered. The state included hiring requirements in its next mega project agreement with Integra Technologies in Wichita.
“All we heard about was 4,000 jobs, high paying jobs, we have job requirements in every one of our incentive programs,” Tarwater said. “It was an oversight by the Legislature and it was an oversight by the administration not putting it in the final product.”
Rep. Stephanie Clayton, an Overland Park Democrat, said she was open to discussion of new accountability measures but believed new incentives might be the answer for recruiting suppliers and workers to Kansas despite a worsening labor shortage.
“I’m going to take an open mind when we work the bill and see what exactly these incentives look like,” Clayton said.
Lawmakers in both parties have expressed interest in revisiting open records exemptions that had been written into the legislation that would allow contracts for mega projects to stay secret forever.
Tarwater said last month he wanted to take another look at the issue. Sen. Tom Holland, a Baldwin City Democrat, said addressing the secrecy surrounding APEX projects would be his top priority. Both projects involved non-disclosure agreements signed by Kansas lawmakers and state officials.
If another project is considered, he said, everyone in the Kansas House and Senate should have access to full details without signing non-disclosure agreements.
“I think the taxpayers demand that,” Holland said, adding that a lack of transparency makes work in Topeka seem “suspect.”
“That basically special interests are at play here and they’re not getting all the picture.”
Correction: An original version of this story incorrectly stated the assessed value of the Kansas Bioscience Authority building. The building is worth $4.9 million.
This story was originally published February 21, 2023 at 6:00 AM.
