A Big, Bad NDA Mystery Mess

Massive deal, no details.

Photo credit: el toro

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I’ve had the title of Thomas Frank’s 2004 book “What’s the Matter With Kansas?” in my head this week, not due to any particular argument contained therein — which centered on why, in Frank’s view, Kansas residents voted against their own economic interest — but because the legislature there is embarrassing itself in an effort to throw more than $1 billion at, as local headlines keep proclaiming it, a “mystery” corporation.

I keep asking myself: Seriously, what is the matter with Kansas?

I’m not mocking, and honestly, I know the answer: Its legislature is as enthralled by the big myth of economic development as any other, and is supersizing the sort of mistake that other officials make all the time. For the second time recently, in fact, a massive corporate subsidy deal to benefit a giant corporation is flying through a state legislature with no details available to the public, or even to the officials voting to approve it. It’s a disturbing trend.

Here’s what’s happened: Kansas Democratic Gov. Laura Kelly proposed and the Republican legislature approved what they’ve dubbed "the attracting powerful economic expansion act,” which provides up to $1.3 billion in public incentives to some corporation that has promised to make a $4 billion investment in the state, as well as providing tax kickbacks to up to five suppliers of that corporation.

Though many details are still up in the air, the headline numbers suggest the package would cost some $320,000 per job created, and those jobs would pay below average wages for the Kansas City metro area, according to the Kansas City Star.

The “mystery” part is that only some lawmakers, who are bound by non-disclosure agreements, know which corporation would be receiving all that cash. The rest not only don’t know which corporation they’re voting to give a ton of public resources to, they don’t even know where in the state it plans to locate. The only clue is that four lawmakers from Johnson County, which consists of the suburbs of Kansas City, signed NDAs, indicating perhaps that’s where the project is headed.

(Kansas City straddles the Missouri/Kansas state line and was the site of what was dubbed “The Border War,” in which each state would use corporate subsidies to entice businesses to move back and forth across the metro area. A tenuous peace was put in place in 2019, as you can read about here.)

Nothing about the mystery corporation’s plan other than an investment promise and vague numbers about job creation are publicly available. I watched a Kansas House committee debate the legislation. It was completely absurd: Everyone on the committee kept referring to “the firm” because most members don’t know which corporation it is and those who do know can’t say, leading everyone to speak in generalities.

This is one of the most egregious abuses of NDAs in an economic development deal I’ve seen, and I’ve seen some bad ones!

That’s just where the chaos began, though: The Kansas Senate, which debated the bill for all of 30 minutes, may have (accidentally?) proposed eliminating the state’s corporate income tax in its version of the bill, phasing it out yearly until it disappears. The House described the Senate’s version as a “train wreck.”

But the House version, which was debated on the floor for all of an hour, stretched subsidy payments out over far more years, which is an age-old budget trick to make bleak fiscal projections look less so; some ugly analysis had Kansas running a nearly half a million dollar deficit under the original version of the bill.

The state Senate is going to bang through the House version today, because the mystery corporation is supposedly planning to make an announcement soon regarding where to locate, and the governor’s office has demanded the bill be finished, warts and all, before tomorrow.

This is what happens when you legislate without knowing what on Earth you are actually legislating about, and on a timeline demanded by a corporate overlord. The whole thing gets turned into embarrassing hash.

Something similar happened in Michigan recently: Legislators there signed NDAs in order to access details about projects proposed under a $1 billion fund known as SOAR, the Strategic Outreach and Attraction Reserve. After legislators approved the fund, the state gave about two-thirds of the money to General Motors, even though GM made $14.3 billion in pretax profits last year. And now Michigan Democratic Gov. Gretchen Whitmer is asking for another $500 million to be plowed into the fund, with the state considering more incentives on top of that program.

In both cases, the use of NDAs sparked some opposition, but wasn’t ultimately enough to scuttle either deal. But we should be clear about what is happening here: Large, profitable corporations are demanding secrecy while they negotiate for billions of public dollars that are being granted by explicit statute to them individually.

“Did somebody buy this deal? We don’t know,” Kansas State Democratic Rep. John Carmichael said. “You’re going to go spend your constituents’ money on the hope and the prayer that people who’ve signed nondisclosure agreements are representing you, as a legislator and your constituents, because you can’t represent them yourself.”

Indeed, as I’ve said before, NDAs in economic development are bad for both the economy and democracy: There’s little reason to think these mega-deals pay off for the states that make them, and by swathing them in secrecy, democratic feedback is prevented.

NDAs also prevent small businesses that might be harmed by a new, dominant competitor from voicing any specific opposition. One small business owner told a Kansas senator that the bill being considered should be renamed “crony capitalism kicks existing Kansas businesses in the face.” As Kansas State Sen. Mike Thompson wrote, “A massive new company in our area would put the state and this unknown corporation in direct competition with existing businesses in Kansas who do not have access to these types of advantages handed out by the state.”

That’s all true, but small businesses can’t get into the details of how they’d be harmed by a particular competitor, since they don’t know which corporation is coming to town, thereby blunting their opposition and preventing them from organizing into a true constituency that has specific grievances.

All of which is the point! Corporations have admitted that they use NDAs in economic development deals to prevent public input that might scuttle the arrangement.

Why does this sort of NDA abuse keep happening? Because it’s been normalized, by corporations, by economic development officials, and by the press. It’s “required,” they say. The head of business development at the Kansas Department of Commerce said it’s just part of the process, “like it or not.”

But that’s just the myth that’s been sold by corporate powers and their pliant officials for decades, and it doesn’t have to be this way. I don’t believe there’s a world in which economic development policy that is more responsive to local needs and more democratic, with input from local businesses and community members, winds up worse than the current situation, with massive corporations constantly receiving huge subsidy packages just to break all their promises later.

Three states — Illinois, New York, and Florida — currently have proposals in their legislatures to ban NDAs in economic development deals, and I’m hoping more join in soon or in future legislative sessions. Pass them and we can sweep these nonsensical legislative debates into the dustbin of history, and stop asking what’s the matter with Kansas or any other state — on this topic at least.

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ONE MORE THING: I can’t recommend highly enough Jason Garcia’s new newsletter, Seeking Rents, which is all about the ways in which big corporations influence policy in Florida. Read the latest issue on how a bill there could slash property taxes for the likes of Amazon, Jet Blue, and Jeff Bezos’ private space company.

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— Pat Garofalo