On Monday, the Kansas Senate fell short of overturning Governor Kelly’s veto on HB 2306, a tax reform bill that initially passed unanimously in the House. Gov. Kelly has cited a $30 million difference between her plan and HB2306 as a reason for her veto, once again climbing the soapbox that any tax reform (that isn’t hers) is “irresponsible.” Yet, Gov. Kelly and a bipartisan group of legislators are more than willing to throw billions of dollars of taxpayer cash toward megacorporations and billionaire sports owners. There is apparently a strong consensus to the select few instead of providing tax relief to the majority of Kansans.
Subsidies thrive while relief for all Kansans fail
The same day that the tax bill failed, the legislature signed into law HB 2097, a bill that didn’t even get hearing this year, and which established upwards of $10 million in film subsidies. Across the 40 states that offered film incentives by 2012, none of them have seen more than 30 cents returned for every dollar invested – Connecticut saw only 7 cents of return from every taxpayer dollar put in. The benefit reaped from these programs in Georgia—a flagship state for this sort of subsidy–largely went to out-of-state studios instead of “local filmmakers” as bill proponents claimed. 88% of the film tax credits went to non-Georgia companies and 53% of the labor income went to workers from out of state. In a study of 29 TV production subsidy programs totaling $2.5 billion across the country, 14 provided no recipient disclosure at all.
Similarly, legislators were looking at HB 2663 as an opportunity to create a subsidy package to attract the Kansas City Chiefs and/or Royals to new stadium(s) on the Kansas side of State Line. The bill would create a new STAR bond district, new TIF districts, and allow for 100% financing of the project for 30 years. The bill comes almost a month after Jackson County, Missouri voters rejected $2 billion in subsidies via a sales tax to build a new Royals stadium in downtown Kansas City and have renovations at Arrowhead; Jackson County currently houses the Truman Sports Complex.
Stadium subsidies have a track record worse than the Chicago White Sox. The Brookings Institution found no examples of a new, subsidized sports facility increasing higher local tax revenues or having a significant, positive effect on local employment. A separate study from the Journal of Urban Affairs found no effect of subsidized basketball stadiums on regional personal income. Between 1995 and 2015, 29 of the NFL’s 31 stadiums received a total of $7 billion in public subsidies, only to have practically nonexistent income or job growth in the long run.
Gov. Kelly has shot down tax reform over a $30 million difference, yet is happy to sign away $829.2 million to Panasonic in the form of her APEX program. Panasonic has promised 4,000 jobs from their DeSoto plant, paying an average of $50,000 each annually. That’s $200 million, but still pales in comparison to the millions of taxpayer dollars to make that happen – $207,250 per job to be specific. Combined with a credit from the Inflation Reduction Act, the Panasonic plant has an additional $6.8 billion from the federal government. In return, Panasonic predicts a $4 billion investment, meaning that it is receiving subsidies worth twice as much its own investment. Throw in no wage or hiring requirements, indefinite nondisclosure agreements, and confidential investment details and the mess is even more apparent.
Despite skepticism, Kansas still can’t shake subsidies
A 2018 paper from the Upjohn Institute for Employment Research estimated that at least 75% of companies receiving an incentive would have made the same business decisions even if they didn’t receive subsidies. These same results have been found in Kansas. 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. Dr. Arthur Hall of the University of Kansas reached a similar conclusion in a study of STAR bond projects in Wichita.
There is a growing skepticism towards STAR Bonds and other business subsidies like it. Just this year, there was a hearing on SB 546, which would have discontinued two similar business subsidies (PEAK and H-PIP) in favor of reducing the corporate tax rate. During the hearing, some committee members pointed out how the subsidies were even picking winners and losers, with most recipients centered in urban counties while rural counties had little. The hearing took place months after the Prairefire development in Overland Park missed a maturity date for its $65 million in STAR Bond debt and is at risk of defaulting.
According to a Division of Post-Audit report, by November 2020, $873 million in state sales tax revenue had gone to paying off $1.1 billion statewide in STAR bond project debt since the program’s origin in 1993. That’s $32.3 million a year, so assuming that the state hasn’t issued more STAR Bonds since then (which hasn’t happened outside of the sake of this example), then the state won’t even be “profitable” until 2027. At the time, some speculated it would be decades until it would be fully paid off. STAR Bonds may appear to be bringing in revenues…when one doesn’t look at the profound debt they incur.
However, the legislature is still moving in the wrong direction with some bills. Outside of one Senator, the Kansas Legislature unanimously approved HB 2483 this year, a bill that eliminated mandatory reviews of all economic incentive programs every three years. Representative Sean Tarwater, the Chair of the House Committee on Commerce, argued that the “automatic audits” were “somewhat boring” and that legislators could instead focus audits on specific programs. However, mandatory audits help catch issues or programs that legislators may miss without media attention or direct feedback. Kansas’s widely inefficient programs need more oversight, not less.
If Kansas fails to enact some form of tax relief this year, the state will have the highest marginal individual income tax rates not just of our neighbors, but of all of our neighbors’ neighboring states with the exception of New Mexico. The messaging around subsidies is largely “We need to give out money to be competitive with our neighbors.” Yet instead of removing the existing costs that people and businesses face when they move to Kansas in the form of taxes, subsidies take money from individual families (the losers) and to give it to corporations (the winners) to pave the way for ribbon-cutting ceremonies and headlines.
