Image credit: Michael Curi / Flickr
I didn’t want to revisit the Panasonic deal in Kansas so soon after writing quite a bit about it, but sometimes the news cycle takes over and produces a headline like this, which can’t be ignored.
According to the Kansas City Star, the recently announced deal between Panasonic and Kansas includes no concrete job creation promises or wage levels. The bulk of the more than $800 million Kansas will be handing to Panasonic in subsidies will be based on investment totals, with a tranche of $200 million tied to total payroll spending, but not to any particular number of jobs or any particular compensation package.
“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,” Nate Jensen, a professor at UT Austin and one of the nation’s foremost economic development subsidy experts, told the Star. “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.”
The process that culminated in this shoddy agreement involved Panasonic negotiating with lawmakers in both Kansas and Oklahoma, prolifically using nondisclosure agreements to ensure its identity couldn’t be confirmed. Kansas lawmakers passed a bill, known as the APEX law, authorizing the state to craft a massive incentive package with, well, some corporation. The specific deal with Panasonic was then approved by a smaller circle of statehouse members and Democratic Gov. Laura Kelly, a big proponent of bringing Panasonic to town.
Kelly’s office responded to the Star’s report by saying, “We are confident that Panasonic will hire the workers needed to make its investment worthwhile,” and alluding to (probably?) the total payroll requirement as “the only way the company will gain the agreed-upon incentives.”
But in any deal, and particularly one of this size, at a bare minimum lawmakers should demand concrete promises on jobs and pay, not vague totals and hopes and prayers that a corporation will hire workers rather than automate its processes. Panasonic could absolutely hit its payroll total with a bunch of low-pay, no-benefit jobs that not only don’t serve the workers in them, but also drag down standards across the local economy.
So why does this happen? I’m, of course, not a mind-reader, but here’s my guess: Kelly is up for re-election this year in a “red state,” for lack of a better term, in a year in which it’s likely going to be a slog for candidates with a D after their name. She likely wants big, splashy wins ahead of November, since the research shows that engaging in corporate subsidy dealmaking can be very good for an incumbent lawmaker.
In fact, one of the best ways to predict if a state is going to increase its subsidy spending in any given year is to simply see if the incumbent governor is up for re-election. As researchers Cailin Slattery and Owen Zidar wrote in a 2020 study:
The interaction between an incumbent governor and an election year is highly correlated with increases in incentive spending, suggesting a strong role for political determinants of incentive provision. In the raw data, per capita incentive spending increases by more than 20 percent in half of the cases in which it is an election year and the governor is up for reelection versus one-fifth of the cases otherwise.
An impending election is almost certainly not the only reason Kansas got swindled: The big myth of corporate subsidy spending being a net positive for states has a grip that goes beyond any one election cycle, and Kelly had lots of help from both sides of the aisle in crafting this dud.
But you can’t discount the political dynamics either, with Politico labeling Kelly the “Democrats’ most vulnerable incumbent on the ballot this year.” Now she gets to tout a bipartisan “win” in a rough cycle.
The shame of this is that Kelly is partially responsible for one of the better developments in subsidy policy in recent years: The subsidy cease-fire between Kansas and Missouri in the greater Kansas City metro area.
For years, corporations were hoping back and forth across that metro area, which straddles the state line, and playing the two states off against each other to win more and bigger handouts. A truce was finally called in 2019, but while Missouri passed its end through the statehouse, Kansas’ is based only on an executive order from Kelly’s office. Her successor could junk it and start the vicious cycle all over again.
So it’s too bad to see her join the legislature to push forward one of the more egregiously bad deals in recent memory. And that’s not even getting into the deeply problematic secret process that led to it, and the secrecy provisions embedded in the law that authorized the deal, which will keep information about it under wraps for years.
This post initially appeared in a slightly different form on the author’s Substack, Boondoggle, on July 28, 2022.
Pat Garofalo is the author of The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs, the Boondoggle Newsletter, and the director of state and local policy at the American Economic Liberties Project.