Kansas Governor Laura Kelly and Lieutenant Governor David Toland have used high investments in Kansas to argue for a booming economy. These claims should be taken with a grain of salt.
Much of the investment has been bought through government subsidies in the form of bonds. Schwan’s new pizza plant in Salina is financed by $600 million in industrial revenue bonds – a form of tax-exempt securities. Another $77.5 million in industrial revenue bonds has financed Medline Industries’ expansion in Bonner Springs. While these numbers may seem good on the surface, subsidies can skew decision making the free market – sometimes in a direction that doesn’t lead to growth in the future. At the end of the day, making investment decisions is a multi-billion dollar industry that often comes out wrong for the Wall Street-type professionals who do it for a living. What makes Kansas governments think they’re better at finding opportunities than professionals? Too many politicians assume they’re better at picking winners while also balancing roads, police, social services, and the like.
It should also be said at the top – subsidies come out of taxpayers’ wallets and is money that could be put towards other programs or left with the taxpayers, to begin with. In some cases, taxpayers foot the bill for a company’s expansion. A Cabela’s in Wichita which opened in a STAR Bonds district in the northeast part of the city ended up paying $2 million out of its $35 million annual sales to pay off the STAR Bond debt of nearby stores. It’s also worth pointing out that David Toland is also the Commerce Secretary “responsible” for many of the economic packages handed out by the state.
This isn’t even mentioning Kansas’ awful record with subsidies – particularly STAR bonds. In a 2020 KPI report analyzing STAR Bonds in Wichita, the subsidies “had no measurable effect on the persistent decline of business and job growth in downtown Wichita” and the STAR bond-funded Greenwich project experienced growth that “would have happened anyway” if not through them. These subsidies don’t even keep businesses in Kansas: Cerner announced earlier this year that they are leaving their STAR-bond funded campus, contradicting subsidy-advocates’ claims that those jobs and GDP will stay in the long run.
Another of Topeka’s favorite subsidies – Promoting Employment Across Kansas (PEAK) – does no such thing either. A 2017 analysis by Nathan Jensen with the Kauffman Foundation found that there was little evidence that Kansas bond recipients experienced a significant boost and employment compared to non-peak recipients. Jensen recently reported that 75% of companies awarded incentives in the Kansas City area would have made “similar investment regardless of the public subsidy.”
Subsidies have a chance to go unpaid, like the $74.8 million in outstanding bonds the state lost when the Schlitterbahn Waterpark closed in 2019 – for tragic reasons that have nothing to do with the STAR bonds or politics. However, this situation is representative of how unpredictable an investment could be and the financial risk the state takes on every time it finances a project.
Even if these subsidies were working for a positive, tangible difference, the Kansas economy isn’t booming. Kansas is still down 32,000 jobs since January 2020 and won’t return to pre-pandemic job levels until mid-to-late 2022 – especially with a continually slowing job creation rate. Compared to other states, Kansas is 20th in job recovery from the pandemic. Even before the pandemic, Kansas had the 6th worst rate of private job creation in the country.
Long-term economic growth emerges from a natural abundance of economic opportunity. These conditions can be achieved or made better through low taxation and regulatory ease. Kansas currently has some of the highest effective tax rates on mature businesses, with much of that money going to pay business subsidies. Keeping a business such as Cerner in Kansas means making the state more competitive compared to lower costs of doing business in nearby states like Missouri. Another factor is keeping the cost of living low in Kansas so that people have more money to spend on local businesses and other goods in the state.
Politicians – of both parties – routinely attempt to paper over these facts by giving taxpayer money to well-connected businesses so they could tout economic development in their districts. But, we shouldn’t applaud when governments take our money, give it to their friends, and then expect our surprise and support at a ribbon-cutting.