Kansas Senate brings focus to $50M low-interest loan to Wichita aviation company

Kansas Senate Vice President Tim Shallenburger, R-Baxter Springs, failed to convince Senate colleagues to block a proposal to use state tax dollars to make a $50 million low-interest loan to Yingling Aviation, a Wichita company controlled by a Florida venture capital firm. (Photo by Sherman Smith/Kansas Reflector)

TOPEKA — The Kansas Senate engaged in protracted debate on a budget provision using state tax dollars for a $50 million low-interest loan to owners of Yingling Aviation to finance expansion of the Wichita company’s aircraft painting business.

The Senate narrowly defeated Tuesday a motion to block the deal with Yingling, an aviation maintenance, repair and overhaul company formerly known as Cessna Aviation. Owners of Yingling sold a majority interest three years ago to the private equity firm AE Industrial Partners of Boca Raton, Florida.

Under the deal buried by the Senate Ways and Means Committee in a 364-page budget bill, Yingling would receive the 10-year loan at an interest rate two percentage points below market.

Sen. Tim Shallenburger, R-Baxter Springs, said the proposal was a misuse of the state’s cash reserves because it would deliver a lower return on investment than the state-controlled Pooled Money Investment Board could routinely earn. The $50 million would be handed by the PMIB, which has a fiduciary duty to earn the best return for taxpayers, to an unnamed Kansas bank. That lending institution would transfer funds to Yingling for development of enormous hangar facilities to paint large private aircraft.

“I don’t have a problem with people investing in Wichita. I think it’s good economic development,” said Shallenburger, who made a motion to delete the earmark. “I just don’t think the PMIB should be used as a piggy bank for people who are very wealthy to get sweetheart deals from the state.”

Shallenburger said there was no doubt other businesses in Kansas would appreciate a state-backed loan with an interest rate as low as 0.25%.

The budget proviso didn’t require Yingling to hire a certain number of employees at a specific salary level, he said.

“I have nothing against this company,” Shallenburger said. “I can’t blame them for wanting free money or cheap money.”

His motion was rejected 18-22, but the Kansas House would need to concur with the Senate budget provision before Yingling could claim its prize.

‘Winners and losers’

Sen. Virgil Peck, R-Havana, echoed concerns laid out by Shallenburger. Peck said Kansans wanted to welcome new or expanding businesses in Kansas, but he didn’t believe it was the “responsibility of government to pick winners and losers.”

“Should a private bank use taxpayer money that we give them to loan to a private business?” Peck said. “If the body thinks that’s our business, we should start loaning out more taxpayer money at really low interest rates and bring a lot of businesses into our state.”

Senate President Ty Masterson, R-Andover, was among a half-dozen Republican senators who denounced the bid to kill the deal embedded in Senate Bill 315. The bill didn’t list Yingling as the beneficiary, but eligibility requirements for the loan would leave Yingling as the only firm capable of landing the cash.

Masterson, who seeks the GOP nomination for governor, said the state routinely gave away all sorts of tax breaks and incentives to businesses while the arrangement with Yingling would provide the state a return on the $50 million investment.

“It is the role of this body to make decisions like that. That’s what we do,” Masterson said.

‘Good for Kansas’

Sen. Jeff Klemp, R-Lansing, said Yingling was a rapidly expanding company that had boosted employment from 125 to more than 400. The hangar project at Wichita’s Eisenhower International Airport would allow hiring of 120 more workers, he said.

“Are you aware of additional jobs and what it’s going to do for the state of Kansas?” Klemp asked Shallenburger. “We should be open to something that is good for Kansas.”

The cut-rate loan would mean the state missed out on no more than $1 million in revenue each year, said Sen. Larry Alley, R-Winfield.

He said the proposal should be evaluated based on potential job growth and taxes paid along with implications of expanding a Kansas aircraft business into the international marketplace.

“This is obviously down in my district area and it’s very important,” said Sen. Joe Claeys, R-Wichita.

Sen. Rick Billinger, the Republican chairman of the Senate Ways and Means Committee, said the state had in the past offered comparable low-interest loans to businesses. Without listing examples, he said the state had “done many of them.”