Big Incentives for Bayer's $200 Million Kansas City Plant Look Sound, But Still Draw Fire
It's a big facility that bagged big incentives that appear to entail small risks. Nonetheless, that hasn't stopped a sizable controversy from developing.
That seems the short-form description for the US$44.2 million in incentives awarded the $200 million pharmaceuticals plant that Pittsburgh-based Bayer Corp. (www.bayerus.com) will build in northeast Kansas City, just west of the city of Independence.
The Kansas City project is decidedly high-end. The new facility will create 140 new jobs with average annual salaries of $70,000, company officials. Most of Bayer's new positions in Kansas City will require workers who have degrees in science or engineering or have specialized technical expertise, company officials say.
Kansas City is providing an estimated $37.2 million of the $44.2 million total incentive package. The city will issue $200 million in Chapter 100 bonds to finance the facility, which Kansas City will actually own and lease back to Bayer. Bayer, in turn, will pay only about one-third of normal sales taxes and property taxes until the Chapter 100 bonds are repaid, which should be a span of 20 years, according to local economic development officials' estimates. Missouri is providing the other $7 million in incentives, which will help fund employee training and provide subsidies for low-interest loans.
To a neophyte, that $44.2 million in incentives might seem like dangerously lavish largesse. However, as Homey the Clown used to put it in the late, lamented "In Living Color," "I don't think so, boys and girls."
Not for this deal. At least ostensibly, the state and local officials who're ponying up the incentives don't seem likely to be plagued with the "real banger" headaches for which a famous Bayer product is designed. In fact, company officials say the $200 million pharmaceutical operation is only part of the $1 billion that Bayer plans to invest in the Kansas City area over the next five years.
Says Emil Lansu, Bayer executive vice president and the Agriculture Division president responsible for Bayer's Kansas City area sites, "This pharmaceutical investment further demonstrates Bayer's on-going commitment to Kansas City as one of our company's principal business and manufacturing centers."
A wholly owned subsidiary of Leverkusen, Germany-based giant Bayer AG (www.bayer.com), Bayer Corp. already has deep roots in the Kansas City era. Prior to the new pharmaceutical plant's announcement, Bayer had already made Kansas City the site of its Agriculture Division's headquarters, plus a $75 million herbicide plant and a $60 million animal health plant. All told, Bayer already had 1,500 Kansas City-area employees.
In fact, Bayer's Agriculture Division last year was tapped as the winner of the first "Missouri Industry of the Year" award, presented by the Missouri Dept. of Economic Development (www.ecodev.state.mo.us), the Missouri Dept. of Elementary and Secondary Education, Associated Industries of Missouri, and the Mid-Missouri Business Journal.
None of that, though, stanched a contretemps over Bayer's incentives.
Specifically, some observers said the Bayer deal marked a major break in the Kansas City area's two-year-old incentives truce. That pact had discouraged local governments from utilizing tax incentives to lure corporate facilities across city borders. Some area cities, however, had refused to sign the agreement and had continued to offer relocation incentives.
More fuel was added to the fire a few days later. As fate would have it, the announcement of the Bayer deal was shortly followed by a study by Washington, D.C.-based think tank Good Jobs First (email@example.com) that contends that business location tax breaks promote suburban sprawl.
That study, "Another Way Sprawl Happens," focused on business migration patterns in the Minneapolis area. According to the study, at least 29 companies and 1,600 jobs relocated from Minneapolis and other cities to set up shop in a 300-acre (120-ha.) office park in Anoka, Minn., a Minneapolis suburb that offers free land to companies that locate there.
The Good Jobs First study recommended that Minnesota adopt an anti-piracy rule that would make intrastate corporate relocation projects ineligible for economic development incentives.
That one-two punch -- the broken incentives truce plus the think thank report -- spurred comment from The Kansas City Star (www.kcstar.com). Columnist Mark Couch, for example, labeled Kansas City Mayor Kay Barnes comment on the Bayer deal, "[the] amazing comment of the week."
" 'I have no idea'?" wrote Couch, "Mayor Kay Barnes unleashed that jaw-dropper when asked how Kansas City's $44 million incentive package compared to the tax breaks offered by other cities competing for Bayer Corp.'s $200 million drug-making plant. I have no idea?"
Bayer's Lansu told Couch, "We have shared our data quite openly with the state and the city." Couch, however, added that "Bayer wouldn't share it with reporters . . . The city's economic development crowd wouldn't share it. And the mayor? Well, I have no idea."
Couch can obviously wield a wicked keyboard and knows a meaty subject when he meets one. A few facts, though, didn't make his column. While those facts wouldn't answer all of Couch's questions, they do certainly suggest a scenario that's quite different from the informational stonewalling the column seems to suggest.
For example, several days before Couch's column, Lansu told Kansas City Star reporters that Kansas City "was not the best [incentives] offer in North America."
Lansu also said that the other finalist sites for the project were in Baytown Texas; Busby Park, S.C.; New Martinsville, W.Va.; and Sarnia, Ontario. If one of those sites had been chosen, Bayer would've expanded its existing operations there, he said. Each of those areas offered tax breaks and incentives, Lansu added.
In short, the facts suggest that this location decision was about more than just the Benjamins. Whatever the facts, though, debates over location incentives are a surefire perennial. And to be sure, some incentive packages seem to have been devised by the United Brotherhood of Boneheads.
The Kansas City incentives, though, certainly don't seem to fit that mindless-giveaway category. As Brandeis University professor and former U.S. Labor Secretary Robert Reich has noted, "The only two advantages left in the global economy are human capital and infrastructure." And human capital and infrastructure are what the Kansas City incentives are designed to promote. Even in the highly unlikely event that human illness ends, which would close Bayer's Kansas City pharmaceutical plant, still remaining would be the human capital - trained labor - and the infrastructure - the $200 million plant.
The new facility will be built on a 17-acre (6.8-ha.) tract that Bayer is buying from its current owner, Kansas City Power and Light. But with the Chapter 100 program, the city will actually be the titleholder for the $200 million invested in the site and the facility. Bayer will then lease the property from the city and make payments in lieu of taxes.
As Bayer Chief Financial Office Jim McNair describes the arrangement, "This will ensure that the city gets something, the schools get something, and the county gets something, but Bayer still gets a tax break. We get the tax abatement, but there's no financial issue for the city, which will technically own the title to our $200 million investment."
From this corner, at least, that looks like a pretty smart strategy for everyone involved. The facility won't materialize overnight, though. The pharmaceuticals business entails government oversight that's on a scale that matches the substantial investment ante required to be a major industry player. Though preliminary site work is under way, the expansion work won't begin until 2001, company officials say. The plant will take two years to build, and then it must secure facility approval from the U.S. Food and Drug Administration. The whole process should be complete in time for production to begin in 2004, Bayer officials say.
The billion-dollar plans for the Kansas City area are only part of Bayer's ambitious expansion designs for the United States, which Bayer Pharmaceuticals Business Group General Manager David Ebsworth calls "the biggest and fastest-growing pharmaceuticals market in the world."
Added Attila Molnar, spokesman on Bayer's management board for North America and Mexico, "This planned expansion [in Kansas City] is another important milestone in our investment strategy for the United States. In the next five years, Bayer will be investing more than $9 billion in capital projects and research and development in the United States, thereby strengthening our base for further expansion in the American market."
That $9 billion in U.S. investment that Bayer projects for the next five years continues the expansion program the company began in 1995. From 1995 through 2004, Bayer's U.S. capital investment will total $15 billion, company officials project.
Two other major U.S. deals, in fact, bracketed the announcement of the $200 million Kansas City deal.
Previously, Bayer announced that it was muscling up its U.S. pharmaceuticals R&D with an $80 million expansion at its operations in West Haven, Conn. That investment includes $53 million targeted to create a new chemical research facility to develop new drugs for faster, more effective treatment of cancer, osteoporosis, diabetes and obesity.
And in late April, Bayer AG announced that it's transferring the global headquarters of its Consumer Care unit to Morristown, N.J., from Leverkusen, Germany. The Consumer Care operation will be the second Bayer division to be based in the United States, joining the Diagnostics Division, which is headquartered in Tarrytown, N.Y.