Bottom line: $4 billion facility and 4,000 jobs were leveraged with $829 million in state incentives
TOPEKA — Gov. Laura Kelly prevailed in a whirlwind economic development competition Wednesday by landing a commitment from Panasonic Corp. to build the largest electric vehicle battery plant in the world at an industrial park in eastern Kansas.
Local, state and federal representatives joined Kelly administration officials and Panasonic executives to celebrate closure of a deal for the $4 billion battery manufacturing facility near De Soto. The Panasonic deal was code named “Project Ocean” and required Kansas to assemble an economic incentive toolkit capable of placing the state in position to land its first so-called megaproject.
Kelly said the partnership with Panasonic was a “once-in-a-generation opportunity” to transform the state’s economy by delivering thousands of new jobs and billions of dollars in new business activity.
The back story of the largest private-sector development in state history included an auspicious dinner conversation in Washington, D.C., clandestine trips to Nevada and Japan, rare political bipartisanship in Topeka and a clumsy pitch by main rival Oklahoma. Behind-the-scenes work on the deal included rejection by Panasonic of Kansas’ first incentive offer and the company’s decision to embrace a substantially strengthened bid.
“There have been more twists and turns to this thing than a bag of pretzels,” said David Toland, secretary of the Kansas Department of Commerce and Kelly’s lieutenant governor.
Panasonic, a major multinational conglomerate with headquarters in Osaka, Japan, is a key business partner with Tesla Motors, the automobile manufacturer that has pushed the envelope on lithium-ion battery powered vehicles. It is expected Panasonic will manufacture a new generation of high-capacity vehicle battery in Kansas.
Tesla is constructing cars in its Austin, Texas, plant. Panasonic and Tesla operate a battery manufacturing plant known as the Gigafactory outside Reno, Nevada.
Panasonic’s rejection of Kansas’ first offer for the plant inspired the Kelly administration and the Kansas Legislature to piece together a unique portfolio of incentives labeled APEX, or Attracting Powerful Economic Expansion. It gave the state flexibility to dangle a maximum of $1.3 billion in tax and other financial incentives to major employers thinking of locating in Kansas.
Negotiations with Panasonic resulted in an $829.2 million state government incentive package featuring investment tax credits, payroll rebates, training and education aid, relocation funding, and construction sales tax exemptions. Those details were formally approved Wednesday by the State Finance Council after a closed-door briefing involving legislative leaders and the governor.
$2.5B annual impact
The Panasonic plant promises to generate 4,000 direct jobs with an average wage of $30 an hour. It would foster about 3,800 supplemental jobs in the region. At the manufacturing facility, approximately 20% of jobs would be considered white-collar positions with 80% devoted to production.
Winning the project is estimated to deliver $2.5 billion in annual economic benefit to Kansas. For each $1 invested by the state in the battery plant, Kansas officials said, the anticipated return over five years is thought to be $20.50.
The 3 million-square-foot manufacturing plant in De Soto will be tucked inside a 500-acre parcel at the former Sunflower Army Ammunition Plant, along Kansas 10 in Johnson County. There is space at the parcel to enable Panasonic to expand production operations.
Construction is due to begin this fall — some earthmoving has already occurred — with a schedule pointing to completion of the plant in 2024.
The project was made possible through APEX legislation that led to an agreement under which Kansas pays Panasonic a 12.5% investment tax credit on expenditures for the building and equipment. That means Panasonic will receive $500 million over five years in state tax credits. The length of payment period for that credit was a point of negotiation between Panasonic and the state Department of Commerce.
Another piece of APEX enabled Kansas to offer Panasonic $234 million in payroll rebates — a groundbreaking incentive tool in Kansas. Under this concept, Kansas pays Panasonic 10% of the company’s total payroll in Kansas for five years. This is a more aggressive instrument than the state’s existing PEAK incentive, which rebates state withholding taxes to economic development projects.
The company is in line for the state’s standard sales tax exemption, which could amount to $60.2 million. The state pledged $25 million for workforce education and training programs and $10 million to support relocation of workers to Kansas. The workforce training money would be available for five years, while the relocation fund is a new feature of Kansas’ economic development portfolio. Both are needed because the Kansas City metropolitan area doesn’t include enough people to fulfill Panasonic’s labor demands.
John Rolfe, president of the Wichita Regional Chamber of Commerce, said APEX made the state competitive on a national scale.
“While the impetus for APEX is an exciting opportunity that exists in the here and now, this legislation provides a tool that allows Kansas to be in the mix for future projects that will help drive our economy for a generation,” Rolfe said.
Arc of the project
In the past, Kansas didn’t have the economic development muscle — incentives were too modest — to compete with most other states seeking multibillion-dollar business expansion projects. Intel decided to invest $20 billion in a massive chip manufacturing plant near Columbus, Ohio. Meanwhile, Ford Motor Co. picked Stanton, Tennessee, for $5.6 billion electric vehicle assembly and battery manufacturing plants.
Since 2017, Kansas had a dismal 0 for 11 record in attempts to land megaprojects, ranging from aviation to food manufacturing.
Project Ocean surfaced on the state Department of Commerce’s radar in 2021. It was of special significance to Kansas because Panasonic was examining the potential of Midwest sites, including the Sunflower property in De Soto.
The Department of Commerce received a call from a prominent site-selection consultant in November. The central question from the consultant was whether Kansas was interested in taking the next step in terms of job creation. Could the state build upon its economic development foundation and put together a significant enough bid to join the conversation with other states?
About that time, Kansas officials were scheduled to participate in an economic development dinner in Washington, D.C. The event was designed to share the merits of working with Kansas on business opportunities with site consultants and business advisers.
“I saw on the guest list that somebody from Panasonic Corp. was going to be at that dinner,” Toland said. “I had it arranged so that I could sit next to that person. We had a conversation.”
In December, Panasonic representatives met with Kelly. The conversation was direct. Panasonic said Kansas’ incentive offer, while interesting, wasn’t competitive. Panasonic outlined what kind of investment the state would need to be considered as a potential location for the battery plant.
Kelly administration officials began shaping legislation on economic incentives that would need to be adopted by the 2022 Legislature, the sooner the better. The governor’s staff shared all they knew about the Panasonic business opportunity with House Speaker Ron Ryckman and Senate President Ty Masterson, including the economic scope of the project and the need for Kansas to revamp its incentive programs. The governor moved incentive reform to the top of her priority list, and legislative leaders swiftly advanced the complex bill.
“The brain drain problem in our state is real,” said Sen. Dinah Sykes, a Johnson County Democrat. “This legislation takes proactive steps to attract emerging industries that will make our young people want to stay in Kansas.”
Considerations shaping Kansas’ bid ranged from the financial, political and technical to include highways and roads, education and training, child care, housing and escalation of industrial demand for utility services. Local, state and federal government agencies were involved in those conversations.
In January, Toland took a group of university and community college leaders, staff from the Kansas Department of Health and Environment, as well as representatives of Evergy and De Soto to the Gigafactory in Nevada. A couple of weeks later, Kelly went there with U.S. Sen. Jerry Moran, U.S. Rep. Sharice Davids, four key members of the state House and Senate, the University of Kansas chancellor and officials from the Kansas Department of Transportation. Toland also visited Japan as negotiations came to a head.
Moran, a Kansas Republican, was an important advocate for the project within the federal government and in solidifying the partnership with Panasonic executives.
The proposal wasn’t shelved due to rising international inflation, but that did contribute to delaying the deal.
“Gov. Kelly is this steady, consistent, low-key, thoughtful leader and that style fit well with a company that was 100 years old and a global brand,” Toland said. “I’m really pleased with what we negotiated.”
Oklahoma falls short
Kansas managed to outmaneuver Oklahoma, which submitted a bid of about $700 million for a proposed Panasonic plant in Tulsa.
Oklahoma Gov. Kevin Stitt raised eyebrows in the spring by declaring that state was on the “one-yard line” in terms of securing the Panasonic battery plant. His claim was an exaggeration of Oklahoma’s status in negotiations.
“Let’s work together to push this thing across the goal line and get it done,” Stitt said.
The Oklahoma Legislature adopted a bill that required that state’s incentive program for the Panasonic project to be a direct legislative appropriation. Lack of financial certainty for Oklahoma’s offer made Panasonic leery of placing the facility there.
Rep. Collin Walke, a Democrat from Oklahoma City, said it was folly to think his constituents would revel in use of incentives that “gave away three-quarters of a billion dollars.”
The project, cloaked in secrecy but subject to leaks from Oklahoma officials, generated dissent in Kansas before adoption by legislators in Topeka of the muscular incentive plan. It received bipartisan majorities of 80-41 in the House and 31-9 in the Senate.
Rep. Henry Helgerson, a conservative Democrat from Wichita who voted “no,” said the Legislature was “betting the bank” on landing a manufacturing giant. The risk, he said, was evaporation of available funding for K-12 public schools, upgrading the state’s social safety net or for other needs familiar to Kansans.
“We’re voting blind,” said Sen. Caryn Tyson, a Parker Republican who didn’t get on the economic growth bandwagon. “Even the talking heads on PBS are mocking us.”
Despite early criticism, there was little doubt the GOP-led House and Senate would approve a bill overhauling the state’s economic incentive options for the purpose of chasing megaprojects. Kelly signed the legislation in early February, allowing Kansas to formally extend a revised proposal to Panasonic.
Attorney General Derek Schmidt, a Republican candidate for governor, has criticized Kelly’s ability to grow the state’s economy. She is running for reelection in the fall.
The state Department of Commerce has reported the $4 billion Panasonic deal, combined with $1.7 billion in other private investment in the Kansas economy, made 2022 the most significant of the Kelly administration. Private-sector investment in Kansas during Kelly’s term as governor has grown from $1.3 billion in 2019 to $2.5 billion in 2020, despite the COVID-19 pandemic, and $3.8 billion in 2021.
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