2022 was the biggest year for multi-billion dollar megasubsidies in states across the country, including Kansas’s own $1 billion investment in Panasonic. The roughly $100 billion spent on state and local economic development subsidies across the country was more than the 11 smallest state budgets combined. Yet, these subsidies in Kansas and across the country have horrendous track records when it comes to stimulating growth.
According to a recent report by the Center for Economic Accountability, the decision to make big investments is more out of electoral gain than a financial one. Governors running for reelection – as Laura Kelly was in 2022 – are more than twice as likely to rely on subsidy spending than those who are not. Similarly, elected officials who make subsidy deals receive more in political donations and have larger margins of victory on Election Day compared to those who don’t. The wave of federal COVID-19 relief has imparted a big-spend mentality in legislators across the country.
The academic consensus is that subsidies create far fewer jobs than what they’re originally sold on. For instance, 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.
Raw job creation from subsidies is also underwhelming. Nationwide, subsidies claimed to have created less than 625,000 jobs in recent years. By comparison, the U.S. economy had 132.2 million jobs in December 2022, a gain of 4.5 million jobs compared to December 2021. 625,000 doesn’t seem like that many when compared with a bit of context. The story’s the same in Kansas: the Panasonic megaproject advertised 4,000 jobs. That’s 0.33% of the total private-sector jobs Kansas had in February 2023. Similarly, Kansas had a net gain of 34,700 jobs between February 2022 and 2023. This is indicative of both Kansas’s lackluster job growth and the fact that a massive incentive produces less than 12% of the job growth Kansas had over a year.
A January 2023 report by the Kansas Legislative Division of Post Audit analyzed five of the Department of Commerce’s incentive programs and found that none of them generated enough tax effects to cover their costs. A separate 2021 study by Post Audit also found that only three of the state’s 16 STAR bond attractions met the Commerce Department’s tourism-related goals and that it would take decades to recoup the tax investments in the other three.
And then there are the transparency issues: the Panasonic deal had no wage or hiring requirements, indefinite nondisclosure agreements, and confidential investment details. AFPF-Kansas filed a Kansas Open Records Act complaint against the Department of Commerce for not providing records on Commerce studies of STAR bond effectiveness and even delaying the release date by 11 times.
Whereas other states are growing from comprehensive tax reform, it gets mired in vetoes and petty politics in Kansas. Gov. Kelly implicitly understands that lower taxes matter—since the deal Panasonic got was a huge tax cut—she just doesn’t trust individual Kansans to make their own decisions. Her administration, like countless others across the country, wants to be the ones using other people’s money to hand out goodies. It’s just the cold-eyed truth that the current system of tax-and-spend subsidies isn’t working.
