FRANKFORT, Ky. (WDRB) -- The biggest economic development deal in Kentucky history also comes with what is likely the most generous corporate subsidy the state has ever offered.
Officials on Thursday gave final approval to a $250 million contribution of public money to BlueOval SK, the joint venture of Ford Motor Co. and South Korea's SK Group. BlueOval is building a $5.8 billion pair of plants near Elizabethtown that will employ 5,000 people making batteries for electric vehicles.
Kentucky has previously offered subsidies in the hundreds of millions to big manufacturers such as Toyota and Ford, which also operates auto plants in Louisville.
This time, however, the $250 million awarded to the Elizabethtown-area battery park will be paid upfront.
Typically, corporate incentives in Kentucky and other states are doled out over long periods, such as a decade, to reduce the risk that companies pocket the money without providing the promised economic benefits.
Kentucky officials say they have the legal wherewithal to claw back the state's money from Ford and SK should the battery park — already under construction — not materialize as planned.
"Yes, we are doing this package a little differently; we provide dollars upfront. But it is all secured through an agreement … that is going to ensure that we can get those dollars back," Gov. Andy Beshear told reporters on Monday.
Standing before dozens of cranes and the bare steel frame of the first BlueOval battery plant, Beshear said Kentuckians should be assured their dollars are "safe" and "well spent."
Kentucky officials on Thursday approved a similar award of $116 million to Envision AESC, the Japanese company that plans a $2 billion EV battery factory in Bowling Green.
The upfront funding of the EV battery makers comes as loans whose balances will be forgiven over time as the companies hit targets for job creation and average total compensation.
For the Ford-SK project, the companies must create 2,500 jobs by the end of 2026 paying average hourly compensation of $26.41 -- a figure that includes the value of employee benefits in addition to wages. The target grows to 5,000 jobs with average pay of $30.04 per hour by the end of 2031.
A Ford spokeswoman declined to disclose what wages the plants will provide.
"We will have more to share about wages and benefits packages in the future," Hannah Ooms said.
For Envision, the company must create 772 jobs by 2029, growing to 2,000 by 2031, with average hourly compensation of $39.88 per hour, according to state documents.
If the companies fail to meet those targets, they could be forced to make prorated repayments of the loans or to repay the full balance, depending on how far short they fall. The targets are measured annually for 10 years, after which the companies won't face the possibility of repayment demands.
EV plant bonanza
Automakers in the last few years have plowed billions of dollars into an electrified future, leading to a bonanza of new vehicle and battery plants in the Midwest and Southeast, with states like Kentucky, Michigan, Ohio and Georgia vying for each announcement.
The result has been a "megadeal spending spree" whereby states and localities have promised EV-related companies nearly $14 billion in subsidies, according to an October report by Good Jobs First, a nonpartisan Washington, D.C. organization that researches economic development subsidies.
Though subsidies are just one consideration, company managers have a responsibility to shop states for the best deal for their projects, said Jeff Noel, secretary of Beshear's economic development cabinet.
"When you talk about incentives, these are the kind of things that need to be done because companies have that fiduciary obligation," Noel said.
But most of the taxpayer money is likely "wasted" because auto companies would have built the plants even without the help, said Greg LeRoy, executive director of Good Jobs First.
"We think it's really like taking credit for a parade that's already marching down the street," LeRoy said. "You know, there's been 30 years of federal and state policies and incentives to promote electrification of transportation. And it's playing out; it's working. We don't need to goldplate individual facilities."
Kentucky's $250 million for BlueOval SK is far from the largest EV deal. Georgia has promised more than $1 billion to each of Hyundai and upstart EV-maker Rivian, according to Good Jobs First research.
But Kentucky's willingness to hand out money upfront is more generous to the companies — money now is always more valuable than money later — and also riskier for the state, LeRoy said.
Kentucky also departed from normal practice in 2017, when it invested $15 million in a startup called Braidy Industries, which failed to build an aluminum plant near Ashland. The state managed to get the $15 million back earlier this year even as other investors in Braidy Industries realized large losses.
Beshear, a Democrat, said his predecessor, former Republican Gov. Matt Bevin, failed to secure Kentucky's money in the Braidy deal. Meanwhile, Ford and SK Group are well-established companies with long track records, Beshear said.
Kentucky's collateral for the battery plant loans is not a claim on any specific company assets, but guarantee agreements given by the corporate parents of Ford, SK and Envision, according to state documents made public Thursday.
The agreements put Kentucky's debt in a secure position and amount to "the kind of loan that any banker would love to have and be a participant in," Noel said.
"We're dealing with two very sophisticated, very well-known companies that have a long history of doing what they say they're going to do," Noel added, speaking about Ford and SK.
Kentucky's mega-deals for the battery plants required the consent of the Republican-controlled legislature, which approved the upfront funding during a special session in September 2021 before the projects were publicly known.
The bill was approved with wide, bipartisan support.
Sen. Chris McDaniel, a northern Kentucky Republican who chairs the Senate budget committee, said he believes taxpayers are adequately protected in BlueOval SK deal.
"I maintain my disdain for economic development incentives, but knowing that they are part of healthy competition (between states), I think the structure that we found is workable," McDaniel said. "… It's quite the shot in the arm for the project, and I think they'll be successful with it."
For Ford and SK, the $250 million is only part of Kentucky's subsidy package. It also includes 1,500 acres of land that Hardin County transferred to BlueOval at no cost in October. The land was valued at $27 million, according to the deed. Kentucky is also spending $25 million to establish a workforce training center run by Elizabethtown Community & Technical College.