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Kansas incentives murky as Kelly touts record business growth

Kansas Gov. Laura Kelly announced the details of a plan to build $4 billion Panasonic EV battery plant near DeSoto at the Townsite Tower in Topeka Wednesday, July 12, 2022.

Kansas Gov. Laura Kelly announced the details of a plan to build $4 billion Panasonic EV battery plant near DeSoto at the Townsite Tower in Topeka Wednesday, July 12, 2022.

It’s a familiar scene for Kansas Gov. Laura Kelly: TV cameras, a podium and a pair of giant scissors to cut the ribbon.

Much of the governor’s first term – and her reelection campaign – has centered around these kinds of events: announcements of new businesses coming to Kansas or current ones expanding.

Last week, her administration held a grand opening celebration inside a vast distribution center for Urban Outfitters, though the Kansas City, Kansas facility won’t be operational until some time next year.

Projects like Urban Outfitters have been heavily subsidized by Kansas taxpayers. But they’ve also been key to Kelly’s reelection argument. At the event, she said Kansas has created more investment per capita than any other state and counted back to back years of record capital investment.

“We are number one,” she said standing in front of miles of automated conveyor belts designed to move products around the warehouse near Village West.

A similar scene will likely play out Wednesday when Panasonic holds a ceremonial ground breaking on its $4 billion electric vehicle plant, the crown jewel of Kelly’s business recruitment accolades.

Kelly has touted an ever increasing number of jobs created and retained by her administration. By late October, it had climbed to more than 52,000 with more than $14 billion in investments. But, like other economic stats her administration has released, that figure is difficult to pin down and details on how it was achieved are sparse – particularly since the state has actually seen its total number of jobs decline over her first term.

Despite new laws mandating transparency, detailed information on what is being spent and what jobs are being created remains hard to come by.

Kelly’s office couldn’t say how much the state had spent in incentives to recruit the companies and asserted the amount awarded to individual companies under one of the state’s largest programs should always remain secret.

“This is about democracy in economic development,” said Greg LeRoy, executive director of incentive watchdog group Good Jobs First.

Collectively, LeRoy said Kansas incentive programs are not living up to democratic ideals. Deals are negotiated behind closed doors without any opportunity for the public to participate or even know what’s on the table. And then once deals are finalized, information about the incentives can lag for months – if it’s disclosed at all.

“Those are inherently anti-democratic structures,” he said. “That’s the problem.”

In the past four years the Kelly administration has repeatedly prioritized business interests over public transparency.

  • In an unprecedented move, the administration asked lawmakers to sign indefinite nondisclosure agreements while passing the largest incentive program in state history to lure Panasonic to build a battery factory in DeSoto.

  • Last year KCUR found Kansas had allowed a private company, CVS, to redact a document before it was provided to reporters in a KORA request.

The posture flies in the face of Kelly’s previous statements.

When Kelly’s administration in 2020 rolled out a transparency database for economic development she promised it would provide a “comprehensive look” at the state’s efforts to recruit and retain business.

“Kansans deserve to know what’s happening in our state agencies and how their tax dollars are being spent,” Kelly said in a press release at the time that appeared to indirectly distinguish her administration from former Gov. Sam Brownback, whose administration came under fire for hiding details of tax incentives.

In recent months, the governor has downplayed the importance of transparency and adopted an ends-justify-the-means rhetoric when it comes to boosting private businesses.

Her administration asked the Legislature this year to develop new incentives to lure Panasonic but only disclosed the company’s identity if lawmakers signed nondisclosure agreements, which remain in effect indefinitely.

The administration said public disclosure of the company would kill the deal – a claim that was disproven when Panasonic chose Kansas even after The Star and Oklahoma media identified the Japanese company as the likely target of the incentives.

In early July, as Kelly publicly identified Panasonic for the first time, she brushed off questions of whether secrecy was the new status quo.

“This is a day to celebrate,” she said. “We just landed the largest economic development project in the history of our state.”

How many jobs came to Kansas?

In December, when The Star asked for documentation of businesses investing in Kansas, the administration provided a list within eight days.

Nearly a year later, after The Star had spent two months seeking an updated copy of the document, the administration claimed to have made the document from scratch in response to The Star’s request. The document, Kelly’s administration said, was no longer maintained.

The administration said it was working to create a new copy but that it would take several weeks. Days after the Star requested an interview about transparency with Lieutenant Gov. and Commerce Secretary David Toland the administration finally produced an updated copy last week. Toland did not agree to an interview.

It includes hundreds of projects big and small that add up to a total of 41,101 jobs created and 11,292 jobs retained and $14.6 billion in investments since 2019. 51 of those projects are marked confidential.

Crucially, the document includes only those jobs companies at one time intended to create. There’s no way to tell how many of the jobs were actually created, state officials said.

“Reporting these numbers in this way is standard practice among economic development agencies nationally,” Johnson said

Hilmar Cheese in Dodge City, for example, was credited with creating 247 new jobs last year. That new cheese plant, though, only broke ground a few weeks ago.

Likewise, the Urban Outfitters distribution center in Kansas City accounts for 1,970 jobs, though officials last week said only about a dozen people have been hired so far to work inside the sweeping facility near the Kansas Speedway.

It’s possible the spreadsheet includes failed or stalled projects. Equally possible is the potential for companies to over promise the number of jobs they intend to create.

The state includes Panasonic on the list and credits it as creating 4,000 jobs. But, as previously reported by The Star, Kansas did not require any minimum commitment on jobs from the Japanese electronics giant so it’s unclear how many people the plant will ultimately employ.

“Based on the Star’s coverage, we now know the deal the Kelly administration negotiated with Panasonic failed to guarantee a single job,” House Speaker Ron Ryckman, an Olathe Republican, said in a statement. “That raises a lot of red flags.”

“There has to be a balance so that businesses feel welcome in Kansas and taxpayers get the transparency and the results they deserve.”

Donna Ginther, a University of Kansas economist who served on Kelly’s Council on Tax Reform, said it’s difficult to determine what jobs are the result of incentives and which aren’t. Legislative audits that are set to be performed on each program, she said, will help develop that understanding.

“It’s hard to draw a causal relationship because the economy is dynamic,” Ginther said.

Ginther said incentive programs are a powerful tool to alleviate Kansas’ workforce shortage.

The total number of jobs in Kansas has actually shrunk under Kelly’s watch.

The federal Bureau of Labor Statistics reported that Kansas had 1,402 million seasonally adjusted nonfarm jobs in September of this year. That’s 16,200 fewer jobs than the state had when Kelly took office in January 2019.

Much of that can be explained by the coronavirus pandemic, which sent the number of jobs plummeting in the spring of 2020 and set off a wave of retirements.

Economists generally use the metric of seasonally adjusted nonfarm jobs as a leading indicator of a state or national economy. Those figures help policymakers view the overall trend of an economy without the seasonal fluctuations inherent in fields like agriculture.

But Kelly’s office has downplayed that widely accepted metric because it doesn’t include farm jobs.

The Kansas Department of Labor pointed The Star to federal data collected by the Bureau of Economic Analysis. It shows farm jobs have increased from 13,086 in 2019 to 15,140 in 2021 – an uptick of just over 2,000.

Kansas gets an ‘F’ on transparency

The state’s transparency database was rolled out in 2020 and was aimed at giving Kansans visibility into how the state administers its incentives.

Kelly and Toland championed the database as a new transparency measure, though its creation was mandated in legislation approved by Republicans in the Legislature.

When asked for details about incentives provided to companies, the administration pointed to the transparency database.

The website contains rudimentary information on jobs projects across the state. But many are missing crucial information – like how many jobs were supposed to be created, whether those jobs were created and at times how much the state awarded those firms in incentives.

New projects are added to the database as deals are closed, but that could be months after a project is announced.

When Kansas announced 155 new jobs from Pinnacle Aerospace’s decision to relocate to Wellington, Kansas, a department spokesman said incentive details would land on the transparency portal. He didn’t give a timeline.

It’s not transparency,” LeRoy said, “To put a website up and then not post the data when the deals are awarded, that’s outrageous. Justice delayed is justice denied. Disclosure delayed is disclosure denied.”

The scant information from the database is one reason Good Jobs First gave Kansas a score of 28.8 out of 100 on a rating of transparency in state economic development programs.

“If it was a report card it would be an F,” LeRoy said. “Only a couple states would even get Ds by our count.”

The database raises as many questions as it answers.

In the cases where it does disclose incentive awards, it’s often unclear whether those incentives were actually handed out to each firm. It doesn’t clearly tell the public whether projects are in compliance with the terms of their incentive agreements and it doesn’t show the full cost of incentive packages, which can span multiple programs and years.

Kelly’s office told The Star it could not provide figures on how much the state had committed in incentives over her first term. Her spokeswoman said many companies are awarded incentives but never cash them in. And when they do, that process is handled by the revenue department, not the commerce department, which awards incentives on the front end.

LeRoy said there’s no excuse for state leaders to not know how much tax revenue they have forgone and handed out to private companies.

“How are you minding the store?” LeRoy said. “How do you even know anything about your programs: how much future revenue are you committing to forgo? How many grants are you going to pay out?”

Rep. Kristey Williams, an Augusta Republican who authored the bill establishing the database, said the website was a start – but it wasn’t what she had in mind when she championed the bill.

It looked, to her, like the bare minimum.

“If I want to pull up a particular incentive or a particular company, right now I see a project number, I see very limited information to help me understand as a taxpayer, as a business person, as a lawmaker, as a community member what that means,” Williams said.

“I would have to dig much further and I don’t even know if I could get the information through open records.”

Things are even murkier for the state’s High Performance Incentive Program.

That program awards firms that pay above average wages a 10 percent income tax credit for eligible capital investments.

The database includes beneficiaries of the tax credit program, but doesn’t disclose how much they were awarded.

It includes major firms like BNSF, one of the nation’s largest railroads, Russell Stover chocolates and Cerner Corp., the global healthcare IT firm.

While the state generally discloses incentives it awards from other programs, Kelly’s office said doing so with this specific tax credit program would jeopardize the competitiveness of Kansas firms.

The total cost of the program is shielded from public view. A 2020 report from the Kansas Department of Revenue showed that the program cost the state more than $77 million in foregone tax collections in 2020. But that’s an incomplete picture, as the department has marked the amount that banks, trust companies and banking associations receive in these tax credits as confidential.

“We do not reveal information that would put Kansas companies or the state at a disadvantage in business negotiations, which would ultimately cause Kansas to lose out on job opportunities – or make those opportunities more expensive – thereby harming taxpayers,” Johnson said.

State Sen. Tom Holland, a Baldwin City Democrat, said he trusted the Kelly administration would only shield information that truly couldn’t be revealed. Toland and Kelly, he said, built a track record of being more transparent with lawmakers than their predecessors despite an inherent conflict between transparency and business confidentiality.

“I feel very confident in the mechanisms and the framework they’ve set up to report out information,” Holland said.

In an interview over the summer with the Star’ editorial board Kelly acknowledged the frustrations with transparency. She said she’d worked hard to reverse the non-transparent policies of her predecessor.

But some secrecy, she said, was necessary.

“That’s just the way the business world works.”

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Katie Bernard covers the Kansas Legislature and state government for the Kansas City Star. She joined the Star as a breaking news reporter in May of 2019 before moving to the politics team in December 2020. Katie studied journalism and political science at the University of Kansas.

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