••• Tax & Spending •••

Integra’s $2.9 billion facility and its taxpayer subsidies

Last year, the state of Kansas announced its next major project in the APEX program after Panasonic’s new facility in De Soto: a new facility for the Wichita-based semiconductor producer Integra Technologies, located just outside the city in the town of Bel Aire. As the project continues to unfold, there’s more funding details, nondisclosure agreements, and other paperwork to wade through.

A few weeks ago, KPI sent separate Kansas Open Records Act (KORA) Requests to the City of Bel Aire, Sedgwick County, and the Kansas Department of Commerce. Each request asked what government incentives were being given to Integra, the estimated financial impact of the Integra facility, current legal agreements like non-disclosures or zoning laws, and then guarantees of what Integra must do to keep their end of the bargain. This article will cover the response that Bel Aire sent, with an analysis of Sedgwick County’s response here. The Department of Commerce has yet to fulfill the request.

APEX and the CHIPS Act

Currently, the project hinges on securing funding by April 1st from the CHIPS Act, a federal bill that provides funding to domestic semiconductor production, largely to compete with Chinese production and investment. Integra was required to submit proof that they were awarded CHIP funds by December 31st, 2023 for the APEX project to continue, but the company was given an extension by the state.

The $52.7 billion available in CHIPS funds was passed by federal legislation in 2022, the same year that APEX was quickly rushed through the Kansas legislature. In order to receive funding, sites are evaluated based on their “reliable cash flows to get the project up and running,” “clean project execution plans” including things like construction and zoning conditions, and local “workforce development.” In return, the federal government gets a portion of “any cash flows or returns that significantly exceed the applicant’s projects above an agreed-upon threshold.” The company receiving CHIPS Act funding gets millions of dollars from the federal and state governments, and legislators can point at investment numbers when election season comes around.

Bel Aire’s Records with Integra

The cost of the facility includes $211 million for the building, $713 million for semiconductor manufacturing equipment, and an additional $2 billion investment. In total, that’s $2.924 billion. Integra is committed to investing at least $1.5 billion of that $2.924 billion in the first five years of the agreement. It’s important to note that these are costs that Integra will face and be the entity responsible for handling.

The State of Kansas has awarded $300 million already to Integra.  This money is part of an agreement effective until April 1st, which is Integra’s next deadline for CHIPS Act funding. It isn’t clear how much of this money Integra has received thus far. The true amount of APEX funding is something that the Department of Commerce will have but has thus far not released to the public.

Going off the minimum employment numbers of 1,600 of the project and financial investment of $1.5 billion, that’s a maximum of $937,500 per job being footed by Kansas taxpayers. By comparison, in Kansas’s last month of job growth in November 2023, the state gained 1,100 jobs. $1.5 billion is a massive price tag for job creation that is small compared to Kansas’s 1,194,800 private-sector workers.

An interesting note in Article 5, Section F of Bel Aire’s agreement with Integra is that Bel Aire staff can have “reasonable access” to the facility, but there are strict conditions around it. The Integra facility is defined as needing a “high-level federal security clearance” and that “such access may take several days to obtain.” Perhaps this is a reason for the nondisclosure agreements and confidential investment details that created transparency issues around the similar Panasonic deal. A Confidentiality Agreement signed January 25th, 2023 between Integra and Bel Aire is set to last until 2025. The two year span on this nondisclosure agreement could mean that the Panasonic nondisclosure agreements signed in 2022 with De Soto or even the state could expire soon.

Bel Aire, with Sedgwick County, is providing a total of $250,000 of workforce training through local organizations like WSU, a maximum of $4 billion in Industrial Revenue Bonds over 10 years, a sales tax exemption on construction materials, a 100% property tax abatement for 10 years, and a new tax increment financing (TIF) district to provide things like roads, sewer systems, water mains, lighting, and more around the facility. Bel Aire also already rezoned the land for the facility from agricultural to planned industrial unit development.

Transparency requirements from Integra including identifying owners and beneficiaries of the company and their equity, providing financial records, and strictly upholding their Industrial Revenue Bonds.

According to Bel Aire’s estimate of government incentives, the Integra facility with have $202.9 million in property taxes to pay in its first 35 years. Yet, incentives will be paying for over half of that – $109.6 million to be exact – mostly in its first 19 years.

Kansas’s exhausting history with wasteful subsidies

There’s good reason to be cynical towards the APEX program: Kansas’s track record with subsidies has been consistently subpar. A study of the state’s PEAK program (Promoting Employment Across Kansas) by Professor Nathan Jensen found that PEAK recipients were no more likely to create jobs than non-PEAK recipients.  These inconclusive findings were supported by the Kauffman Foundation’s analysis of PEAK funds, which was an initiative in which companies were refunded or could keep 95% of their payroll withholding tax. While PEAK funds are different from STAR Bonds in that they allow businesses to keep some of their money rather than give them more, still they failed to have a solid effect on increasing employment. Dr. Arthur Hall of the University of Kansas reached a similar conclusion in a study of STAR bond projects in Wichita. All the while, the people footing the bill for corporate expansion are taxpayers or even the business’s competitors!

Since 1999, Panasonic has received $1.38 billion in state subsidies across the country, with $1.27 billion of that number coming from Kansas’s megadeal. The next largest subsidy was $102 million from the state of New Jersey in 2011. Until December 2023, Panasonic was offered a deal in Oklahoma to invest $5 billion for approximately $698 million in incentives – that’s a bigger investment than Kansas got at a lower taxpayer-funded price tag. However, Panasonic is no longer moving forward with that plant. Still: it implies that instead of truly “bringing business” to the state, companies apparently shop around and take advantage of state politics to “sweeten the deal” and get millions in extra subsidies.

When there are billions of dollars at stake, it’s even more important to be attentive to incentives to prevent waste.