House Republicans add heavy oversight to megaproject incentive package amid budget concerns

Commerce panel approves amended measure despite pushback

By: - February 7, 2022 2:24 pm

Rep. Sean Tarwater hopes the House panel he oversees can work through some uncertainty surrounding an incentive package for corporations looking to invest billions of dollars into the state, but he said the process must not be rushed. (Noah Taborda/Kansas Reflector)

TOPEKA — A Kansas House panel approved Monday a bill designed to woo an unnamed company that promises to invest billions of dollars into the state, adding guardrails and increased oversight to assuage budgetary concerns stemming from a lack of details.

The Attracting Powerful Economic Expansion Act, or APEX, requested by Gov. Laura Kelly, looks to put Kansas ahead of its competition in Oklahoma for the site of a company expected to invest $4 billion in a production plant. Her proposal included a refundable tax credit for the company of up to 15%— in this case, the state would have had to pay the company $600 million over three years — and would cost approximately 1.2 billion, according to estimates from nonpartisan legislative staff.

In response to the estimates, which indicate the megaproject would turn the state surplus into a deficit by 2026 when coupled with the governor’s proposed food tax exemption and a one-time tax rebate, members of the House Commerce, Labor and Economic Development Committee chose to add additional oversight from the State Finance Council.

“We are being told we have this great opportunity to bring a company here that will create a lot of jobs and hopefully a lot of income for individuals, but at what cost?” said Rep. Sean Tarwater, a Stilwell Republican and chairman of the House Commerce, Labor and Economic Development Committee. “How much damage can we sustain in order to get this $4 billion investment that will eventually pay off?”

Senate version of the bill removes the tax credit and includes a corporate income tax cut that would leave the state in only a $300 million budget deficit, but the Kansas Department of Commerce indicated the tax credit is key to securing the deal. To soften the blow to the budget while restoring the refundable capital investment tax credit, the House panel extended the payout from three to 10 years and capped payroll reimbursement for qualified companies at 7.5%.

Last week, the committee discussed an amendment requiring State Finance Council approval if the secretary of commerce should desire to lessen the payout duration or increase the payroll reimbursement. However, an amendment proposed and later approved by Tarwater would remove any wiggle room for the payout duration and require approval even before any megaproject deal is reached.

While most members of the panel agreed the State Finance Council should have some oversight of the secretary of commerce in these instances, the amendment raised some eyebrows.

“I think what this committee and hopefully the House floor will do is provide the parameters within which we believe this deal could appropriately be done,” said Rep. Brad Ralph, R-Dodge City. “The idea of making all of that negotiation then contingent upon another review of another group of folks is not a good strategic idea.”

Rep. Francis Awerkamp, a St. Marys Republican who has previously expressed displeasure with the bill, countered by saying the price tag on the bill necessitated this degree of oversight.

“Given that this is essentially close to a billion-dollar tax on the people of Kansas, it does seem reasonable that at least a few of the legislators should have some oversight on that,” Awerkamp said. “I think it’s a good amendment to a bill that can’t use the same adjective.”

The amendment passed 12 to 8.

To encourage growth in Kansas and ensure the state was not paying out-of-state employees, the panel inserted a $10 million matching incentive fund for the corporation to provide relocation incentives for employees moving to Kansas from another state. In addition, the House committee proposal lowers the state’s corporate income tax rate of 4% by 0.5% only once for each project.

The Senate proposed a reduction of 0.5% until the tax was fully exempted.

In addition, the committee approved an amendment proposed by Rep. Ron Highland, R-Wamego, inserted a mechanism for the state to recoup some funds if the company leaves the state between the 10th and 15 years.

 

Operating under assumptions

Many of the changes Monday were prompted by budgetary concerns, but also by a lack of details surrounding the project.

Legislators are working under the assumption the production plant would bring in 4,000 direct jobs averaging $50,000 in annual pay. An analysis by the Wichita Business Journal estimated it would take those 4,000 employees almost 40 years to pay the equivalent in taxes for what the company is getting in subsidies.

While legislators acknowledged some of the uncertainty surrounding the bill as part of the process, concerns about the absence of a fiscal note attached to the bill and the uncertain return on investment have many lawmakers wary about saying yes.

“I mean, we’ve got assumptions in here about what aspects of the governor’s proposed budget are actually going to pass and in what form they pass,” said Rep. Shannon Francis, R-Liberal.

The Department of Commerce has argued the state needs the program after whiffing in the past on 11 megaprojects.

Meanwhile, the governor and Lt. Gov. David Toland, who also serves as commerce secretary, continue to urge swift action to pass the economic development bill. In a release from the governor’s office, Joann Knight, economic development director for Dodge City, touted the APEX bill’s key role in leveling the national playing field for Kansas.

“Not only will this opportunity create thousands of new jobs for Kansans, but it will also make us an economic powerhouse that will draw in national attention and make Kansas a top-level workforce competitor,” Knight said. “I support the movement to pass the APEX bill and bring Kansas to a level that we can compete.”

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Noah Taborda
Noah Taborda

Noah Taborda started his journalism career in public radio at KBIA in Columbia, Missouri, covering local government and producing an episode of the podcast Show Me The State while earning his bachelor’s degree in radio broadcasting at the University of Missouri School of Journalism. Noah then made a short move to Kansas City, Missouri, to work at KCUR as an intern on the talk show Central Standard and then in the newsroom, reporting on daily news and feature stories.

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