Kansas Democrats and many Republicans finally agree on something–but is it a good deal? The so-called APEX deal raises more questions than answers.
With Governor Kelly’s support, Republican leaders in the Kansas Legislature rushed through the most generous tax package in the state’s history, offering a previously unheard-of $1 billion in tax incentives to an unnamed company, along with a cut in the state’s corporate tax rate. Supporters insist that the name of the company and the type of business must be kept secret to protect the deal, and that such protocols are standard with deals like this. One other state–possibly Oklahoma–remains as the other finalist. One unverified rumor suggests that the mystery company may be manufacturing batteries for electric vehicles. Some Republican legislators did vote no, but it still passed easily. Four thousand jobs are promised, along with additional jobs created by suppliers.
Tax-incentive-driven development projects seem too good to be true. Consider the approach known as tax increment financing, or TIF. State and local governments issue bonds to pay for the public works improvements required to lure in new economic development, such as roads, traffic signals, land excavation, and water drainage. The project is built, and the tax revenue generated at the site pays off the bonds. Once they are paid, revenues can be redirected into general revenues to fund public works, schools, police, fire protection, and so forth. The revenue used to pay these debts appears to be free money, generated by the development itself, which in turn was built because of the incentive package.
If something seems too good to be true, it probably is. TIF is not the only tax incentive scheme used in these deals, but it is a good example of the problems that occur. First, many of these projects would have been built anyway. The hunger of state and local governments for big-ticket projects means that they get locked in an arms race to outbid each other: a race to the bottom. If they instead agreed not to outbid each other, then the projects would still be built, but the businesses building them would pay full tax revenue from day one, just like other, more-established businesses.
Next comes the confusion between creating and relocating jobs. Even when economic benefits are reported, they are often due to jobs being relocated from one state or locality to another. The absurd “border war” luring KC-area businesses back and forth across the state line is a particularly ridiculous example of this dysfunction. Sometimes, they move only a few blocks. In the case of the APEX project, it has already been decided that it will be built, the only question is where. Is it worth $1 billion to insure that it is in Kansas instead of another, possibly neighboring state?
Finally, taxpayers should ask who is on the hook if the project fails. In TIF and many other tax-incentive packages, the issuance of bonds or other government debt is involved. The debts must still be paid if the project is unsuccessful. In such an instance, who pays for it?
This deal is certainly the apex of Kansas tax packages–but many questions remain for the state’s taxpayers.
Michael Smith is a professor at Emporia State University.