As lawmakers approve bill to lure $4B megadeal, Kansas officials set to make pitch to mystery company

A sweeping set of tax incentives, designed to lure an unnamed company purported to be considering a $4 billion investment in Kansas, headed to Gov. Laura Kelly's desk Thursday, with the Department of Commerce set to make their final pitch in the coming days.

Projections show the package costing at least $1.2 billion and it will allow the company to claim a 15% credit on its total investment, as well as getting a property tax break and a certain percentage of their payroll reimbursed, among other items. The bill will also lower the corporate income tax by 1%, a cost of $100 million.

The Department of Commerce is set to make their final pitch to the company later this week, with a decision expected by the end of February. Lawmakers briefed on the company appear confident in Kansas' ability to close the deal but stress the new program is designed for other high-dollar investments in the years to come.

More:Boon or boondoggle? Experts sound alarm as lawmakers attempt to lure mystery megaproject to Kansas

"This isn't just about one project," Sen. Renee Erickson, R-Wichita, chair of the Senate Commerce Committee, said on the Senate floor Wednesday. "This is a tool that will help us be competitive with other states in drawing companies we need to grow and thrive here in our state."

Commerce Secretary David Toland noted the state had been a finalist for 11 other projects, including a $17 billion Samsung facility destined for Texas and a multibillion dollar Ford campus to build electric vehicles, a project destined for Tennessee.

"I believe this company wants to choose Kansas," Toland told House Democrats before the vote in that chamber Tuesday. "We have worked this relationship, we have an advantage when it comes to workforce, we have an advantage when it comes to infrastructure. And I believe, at the end of the day, this is ours to lose."

Legislation clears Kansas House, Senate easily

Lawmakers in the House and Senate voted with room to spare to send the package to the governor. About 40 members from both parties opposed the proposal in the House and another nine members voted no in the Senate.

While the viability of the deal initially seemed in doubt initially, an amendment on the House floor would allow a panel of top Republican legislators and Gov. Laura Kelly to allow the Department of Commerce more flexibility in the deal offered.

That includes alterations to the centerpiece of the deal: a 15% tax credit on the investment a company makes in the state. In this case, a Wichita State University study estimates that investment will total over $4 billion, meaning a $600 million tax credit.

Initially, that would be paid out over three years, but that timeframe was later changed to 10 years — something termed by Toland to be a "deal-breaker." Lawmakers could now sanction Toland to reach a middle ground in a bid to satisfy the company and see the state recoup more tax revenue sooner.

"I think we have reached a reasonable compromise," Rep. Stephanie Clayton, D-Overland Park, said.

But members of both parties said the deal remained too risky and could threaten the state's budget future.

"I would like to support this legislation, but I don't have a full understanding of it," Sen. Virgil Peck, R-Havana, said on the Senate floor.

While some lawmakers have signed a non-disclosure agreement to learn the identity of the company, the firm, as well as where it would locate and what type of project is at issue, have not been disclosed publicly.

Rep. John Carmichael, D-Wichita, noted he trusted Toland. But he argued the opacity could allow for corruption or for an objectionable industry to expand in Kansas, such as an adult film studio.

"If I was betting my own money I might even buy into the deal," he said. "But I am not betting my own money. I am betting my constituents’ money and their own futures."

Lawmakers at odds over budget impact

Projections released Monday by the Kansas Legislative Research Department showed the structure could plunge the state into budget uncertainty, as it would mean money going out to pay off the incentive without tax revenues coming back.

When the dust settles, the state would pay $320,000 per direct job created, with the median wage for those positions coming out to $50,000 each.

The Department of Commerce took issue with the figures, calling them a "misleading depiction" of the situation for not taking into account new economic activity the project might generate.

"Failing to take into account $2.5 billion annually in new economic activity, along with presenting projections that are only based on worst-case scenarios paints a picture that shows none of the benefits to Kansas," Toland's office said in a statement.

Research indicates economic incentives don't play a major role in the site selection process. At most, scholars say, the tax breaks can tip the playing field in 25% of all cases — but some estimate they almost rarely come into play.

And while the legislation includes mechanisms to recoup credits paid out if the company does not hit its benchmarks, lawmakers have acknowledged the considerable risk involved in the deal.

Ultimately, House Speaker Ron Ryckman, R-Olathe, told members of his caucus he believed the governor would need to make budget concessions to see the State Finance Council ultimately sign off on the deal.

"We're going to need to see an offset," he said.

House Minority Leader Tom Sawyer, D-Wichita, said he believed the move would ultimately be worth it — but he opposed the notion of continuing to use the incentive structure for future deals, arguing it should be a one-time arrangement.

"I'm not really that fond of these kinds of things," Sawyer told reporters. "But this is a special, one-time thing to get a whole industry to come to Kansas that we don't have."

Andrew Bahl is a senior statehouse reporter for the Topeka Capital-Journal. He can be reached at abahl@gannett.com or by phone at 443-979-6100.