‘Shocking.’ Kansas secures no jobs or pay commitments in Panasonic’s $4B battery plant

Jill Toyoshiba/jtoyoshiba@kcstar.com
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There’s no question that the numbers were significant when Panasonic announced it would invest some $4 billion and create 4,000 jobs at a new battery plant in De Soto.

Kansas Gov. Laura Kelly said the investment was the largest in state history. And if Panasonic were to hire 4,000 workers, it would become one of the largest employers in the Kansas City metro area.

But that’s a big if.

The state’s agreement with Panasonic doesn’t require the company to create 4,000 jobs — or any jobs at all. Nor does it create minimum wage or salary standards for the firm — a crucial component of many economic development packages.

Experts say those are two glaring omissions in the Panasonic deal, which was shrouded in secrecy since Kelly pushed the Legislature to craft a new incentive program (APEX) specifically for Panasonic, though it may be used for other projects in the future.

The Kelly administration kept details of the project secret and required lawmakers who wanted to know specifics about the legislation — and the company behind it — to sign nondisclosure agreements. The APEX law even exempted proposed agreements and related documents from the state’s open records law, which is designed to promote government transparency.

Even with the state’s history of failed and secretive incentive programs, Kelly championed the new law, which created the largest corporate subsidy program in state history. She dismissed concerns about government secrecy as the cost of doing business.

In an agreement voted on in secret earlier this month, a panel of lawmakers and Kelly approved an $829 million incentive package for Panasonic. The Kansas Department of Commerce said the company will only receive incentives if it follows through on its plans to build the factory. And an official said the agreement will provide more benefits as Panasonic increases its payroll.

But most of the incentive package is tied to the value of the capital investment Panasonic makes in De Soto. The incentive formula calls for paying Panasonic up to 12.5% of its qualifying investment costs. That means the company could receive $500 million from Kansas taxpayers for building its $4 billion plant — even if it creates no jobs there or very low-paying jobs.

“My jaw is dropping that there aren’t wage and labor standards. That is economic development 101,” said Nathan Jensen, a government professor at the University of Texas-Austin who studies economic development incentives. “That is shocking.”

States have an interest in securing job and wage commitments in such a program: If wages are too low, the state could be subsidizing a company to depress wages across a particular area, rather than drive them up. Generally, governments also want wage or salary commitments to ensure that a particular project won’t pay so low that it becomes a drain on other government programs like food stamps or housing assistance programs.

In other incentive programs, Kansas requires employers to pay certain wages before receiving subsidies. The state’s Promoting Employment Across Kansas, for instance, requires that companies pay at or above the county median wage to qualify for refunds of payroll withholding taxes.

“If they’re going to get state money, you can push them not just to come but to do things for your community and higher wages is one of the most standard things,” Jensen said. “It’s not that hard to write into a contract. The fact that they normally do it and didn’t is a huge red flag that they might be very low paid jobs or part-time jobs or contractors.”

What’s more, Jensen said Kansas has now set a precedent that it will grant incentives without any firm commitments from employers.

“They all know this now,” he said, “so the next company that comes says why would you give us wage standards when you gave Panasonic no wage standards?”

It’s near impossible to calculate the benefits of a jobs project without knowing the number or pay of the jobs, experts said. So taxpayers don’t know what kind of return they’ll get for their $829 million investment into Panasonic.

“If the deal has no job quality requirements, then you’re really flying in the dark about your cost-benefit analysis,” said Greg LeRoy, executive director of Good Jobs First, which tracks corporate subsidies across the country. “A great deal rides upon the quality of the paychecks because they are going to determine how good the downstream ripple effects are.”

A spokeswoman for Kelly noted that some of the incentive package is tied to overall payroll for the factory. She said Panasonic wouldn’t receive the full incentive package without a large enough payroll.

But the governor’s office wouldn’t answer questions about why the state included no commitments on jobs or pay from the firm.

“Panasonic is a well-established company with a strong track record of success,” spokeswoman Brianna Johnson said. “We are confident that Panasonic will hire the workers needed to make its investment worthwhile.”

A commerce department official said the legislation authorizing the new incentive program didn’t include any job numbers or wage standards. Still, that official said the state is confident that Panasonic will bring thousands of jobs to Kansas and pay competitive wages. The state also believes that the program incentivizes the company to build out a high-paid workforce.

That’s because a portion of the incentive package is tied to Panasonic’s overall payroll: If the company creates an annual payroll of $234 million, it’s eligible for $234 million in state rebates over a 10-year period.

But the lion’s share of the incentives are based on the capital expense of the project. Kansas estimates it will give Panasonic $500 million for spending $4 billion on its factory.

“That has nothing to do with jobs,” LeRoy said. “In fact, it’s actually an incentive for companies to have a greater amount of automation. Because you’re subsidizing the capital investment.

So actually it’s a disincentive to hire in some respects.”

A ‘big mistake?’

Kelly convinced a majority of the Republican-led legislature to approve the special incentive program for Panasonic. But House Speaker Ron Ryckman, one of the bill’s backers, said the details were crafted by the governor’s commerce department.

“The department of commerce can speak to the specifics,” he said. “These are among the parameters the administration indicated they needed in order to land the project.”

Rep. Sean Tarwater, a Stillwell Republican, echoed that sentiment.

“That is out of our control. That’s up to the people making the deal on our side. I don’t see Lt. Gov. Toland deliberately leaving that out.”

Tarwater, chairman of the House commerce committee, was among lawmakers who toured Panasonic’s joint battery factory with Tesla outside of Reno, Nevada. He said he was “very confident” that Panasonic would pay above the median income in Johnson County, which the U.S. Census Bureau calculated at about $48,000 per person.

Still, he said he was under the impression that the commerce department would include wage provisions in the final agreement with Panasonic — as the department has done with other incentive projects.

“I don’t know if that made it into the final agreement that the administration made with Panasonic,” Tarwater said, “but that would be a big mistake if it didn’t.”

The contract does hold Panasonic to some requirements.

Those include spending at least $1 billion and opening the factory within the first five years, maintaining operations for 15 years and providing the state with requests for information.

Rep. Rui Xu, a Westwood Democrat, said the state has included important protections. There are clawback provisions in the agreement if Panasonic were to leave the state before 15 years and the company’s payroll rebate is based on the actual amount of its payroll.

“I’m confident that the jobs will come,” Xu said. “I’m confident that Panasonic more than anything else would protect its reputation. That would be a pretty egregious breach of trust.”

‘Those are OK jobs’

While trying to build support for the special legislation for Panasonic, state officials said the jobs would pay an average of $50,000 per year. And shortly after announcing the news in Topeka, Kelly said the average would be a bit above $50,000.

That figure was significantly different from another number used by a Wichita State University researcher who was commissioned by the state to estimate the economic impact of the project.

Jeremy Hill, director of the university’s Center for Economic Development and Business Research, was told the jobs at Panasonic would pay an average of $30 per hour — more than $62,000 per year at 40 hours per week.

But that figure is imprecise.

“We only know the overall $30 an hour concept,” Hill said. “We don’t know how it’s distributed from production workers to executive positions, management, engineering, etc.”

Averages aren’t always meaningful figures, particularly when they include those high-paying roles. A more telling figure is the median wage or salary, experts said, because it gives a clear picture of what rank-and-file employees earn.

Panasonic’s news release said the firm planned to create “up to 4,000 jobs” in Kansas. But the company refused to answer specific questions about the number of jobs it intends to create or what they would pay.

“As is currently the case at our facility in Sparks, NV, future employees should expect highly competitive compensation and benefits,” Panasonic said in a statement.

Jensen, from the University of Texas, said companies will oftentimes promise a great number of jobs when announcing new headquarters or factories. But when they actually sign contracts with economic development agencies, their commitments on paper are far more conservative.

And Panasonic has made no formal commitment on hiring.

“To be perfectly honest I don’t believe 4,000 jobs if it’s not in the contract,” he said. “That is PR.”

In Nevada, Panasonic has partnered with Tesla to produce cylindrical lithium-ion cells for batteries. That plant, called the Gigafactoy, is expected to be the biggest building in the world once it’s fully built out.

At that factory, Panasonic advertises material handler and entry-level operator jobs beginning at $18.15 per hour — $37,752 in annual earnings when working 40-hour weeks. Openings for machine operators are listed between $19.24 and $24 per hour.

“Those are OK jobs. They’re not necessarily better paying jobs than we have currently in manufacturing industries,” said Frank Lenk, an economist at the Mid-America Regional Council. “But it’s still better than maybe retail jobs or delivery truck driving jobs.”

At those wages, Lenk expects Panasonic to recruit workers from other industries to fill its openings. If Panasonic’s wages aren’t competitive enough to compete with other manufacturing and warehousing jobs, they’ll simply have to pay more, he said. Many employers have had to raise wages in the current era of historically low unemployment that has made it difficult to retain and hire workers.

With no wage commitment, it’s hard to tell whether Panasonic’s plant will increase wages in the Kansas City area. But Lenk noted that the company’s job postings in Nevada aren’t far off the $19.40 median wage that the Bureau of Labor Statistics reports for all production occupations in the Kansas City metro area.

“If it really is at $20-an-hour, they’re paying the prevailing wage essentially,” he said.

Still, Lenk said the factory will be a boon to the overall regional economy. It’s in an industry that is likely to grow in coming years as more consumers move to electric vehicles. And if Panasonic spends $4 billion on a new plant, Lenk said it’s not likely to go anywhere soon.

“This is a pretty big win for a manufacturing plant. It’s going to stick around for a while,” he said. “I think it’s always a surprise when you win something like this because the odds are great and you know the company is playing states off one another. And it does become kind of like a lottery. We compete on a lot of them and the wins are rare.”

‘There wasn’t a competitive need’

The nation’s best incentive programs are built upon broader economic development strategies, said Chris Steele, a principal at EBP, a Boston firm specializing in economic analysis and research.

For instance, Kansas leaders have previously targeted employers in the biosciences, aerospace and logistics industries. It would make sense to build an economic development strategy — and incentive programs — around those existing strengths, he said.

In the case of Panasonic, Kansas reacted to an opportunity with state leaders urging fast-tracked legislation to create a new program specifically for the Japanese electronics maker.

“The challenge in trying to assemble a policy in the face of an eminent project is that you never have the ability to kind of step back or think about the broader picture,” Steele said. “And it also does tend to suggest the question, if you did have an economic development strategy, why was the policy not in place already?”

Steele previously worked for site selection firms, the companies that often act as intermediaries between businesses and governments when working on incentive packages. He said incentives programs should be predictable, transparent and accountable.

“Incentives are very, very powerful tools,” he said. “They need to be backed in legislation. And the legislation really should be based in a strong understanding of the location’s strategic strengths, weaknesses and what it wants to achieve. To try and do that within a moment because of a particular opportunity that’s on the table, really does not allow for the fullness of thought of trying to understand what one is trying to achieve, why and how.”

Kansas competed with neighboring Oklahoma for the site. Governors of both states pushed lawmakers to approve new incentive programs for the project. The Kansas commerce secretary said the state wouldn’t be competitive without the new law.

But in retrospect, experts say, it seems that the company had already selected this part of the country.

“If the only two competitors in the situation were both told that they didn’t have incentives that would meet the need, then that’s kind of the end of the story,” Steele said. “Unless there is a third competitor that actually does have them. Otherwise you’ve got a company that’s basically stating terms and people are just basically saying, OK, we’ll go do it.

“That story tells itself. There wasn’t a competitive need to do it but for the fact that two people decided to play the game.”

That’s the same conclusion drawn by Peter Fisher, professor emeritus at the University of Iowa who studied incentive deals for years.

“It’s clear where in the country they wanted to locate. So once they narrow it down to two locations that aren’t very far apart then they can play the two states off each other to get the incentives,” Fisher said. “It puts state officials in a dilemma so they go all out and give them money without any strings attached.”

Fisher said these sorts of contrived competitions occur “all too often” between states or cities.

“Who knows,” Fisher said, “they may have already picked Kansas to begin with and thought, hmm, let’s pretend we’re also considering Oklahoma.”