••• Tax & Spending •••

Price tag on Kansas’s Panasonic scheme ticks higher

A massive credit from the federal Inflation Reduction Act could give an additional $6.8 billion in subsidies to the Panasonic plant located in Johnson County; that’s on top of the $1.27 billion already coming their way from the state’s APEX program and other local benefits, according to a new report by Good Jobs First. In return, Panasonic is predicting a $4 billion investment, which means there’s a $4 billion gap between the initial investment and the estimated subsidies Panasonic will receive. As the only organization to testify against the original APEX subsidy, KPI’s message has stayed the same over the last two years: billion-dollar corporate handouts are highly ineffective and wasteful at the expense of taxpayers’ wallets.

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 billion of taxpayer dollars to make that happen – $2 million per job to be specific.

Kansas is embroiled in a “war of the states” over subsidies, lately driven by the electric vehicle and semiconductor industries. In 2022, a record $20.4 billion in megasubsidies – that is, deals that exceeded $50 million – were given out, such as the Panasonic plant. The recipients of these subsidies aren’t small companies needing a leg up either.  In Ohio, a $20 billion semiconductor plant for Intel has had transparency concerns as the reported amount of subsidies has varied from $2 billion to hundreds of millions of dollars more due to additional credits and subsidies tagged on. Georgia distributed a $1.8 billion subsidy to Hyundai shortly after a $1.5 billion subsidy to Rivian for fear that “the project would go elsewhere.” These are companies hardly struggling to secure their financial status – and even if they were, it’s not the role of government to pay them.

Part of the reason for the big federal push for subsidies is a “chip war” with China. In a globalized world, companies can easily threaten legislators that they’ll move elsewhere – even out of country – to find lower costs. The US and its allies such as South Korea and Japan are trying to keep these companies in the US, or at least on friendly shores, to out-compete with China both strategically and economically. But that doesn’t excuse the fact that these subsidies are highly ineffectual.

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. This doesn’t include a subsidy deal announced last week in Oklahoma where Panasonic will invest $5 billion for approximately $698 million in incentives – that’s a bigger investment than Kansas got at a lower price tag. It implies that instead of truly “bringing business” to the state, Kansas got played like a fiddle to give billions to a company already planning to move here.

But the data is still out on whether these “adrenaline shots” to the economy make a difference. 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.

The continued popularity of these programs isn’t because of their effectiveness in long-term economic growth. Perhaps the goal is growing the campaign funds of the people who support it. Or, getting your name on a plaque. Or, being frontpage news. Or, being feted by Fortune 500 CEOs.  A 2021 paper found that states with megasubsidies saw total organization campaign contributions increase by approximately $1 million – mostly coming from construction, business groups, and lobbyists. Incumbent politicians who oversaw a megasubsidy had their median margin of victory increase by 7 percentage points. According to a recent report by the Center for Economic Accountability, 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.

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 Dept. studies of STAR bond effectiveness. The release date has been delayed 11 times.

While megacorporations get to play with state finances, small businesses are the ones who face the financial costs despite being the real backbone of the economy. Over the last 25 years nationwide, the 12.9 million net new jobs from businesses account for 2/3 of the total jobs added to the economy in that time. If Kansas wants to see long-term growth, it needs to start looking at its own entrepreneurs and workers instead of companies promising the moon while asking for a handout.