(Updated to include comment from House majority leader)
Gov. Laura Kelly on Friday vetoed a bill banning foreign interests from adversarial countries from owning or acquiring land within 100 miles of a military base in Kansas, saying it was too broad and was likely unconstitutional.
The Senate voted 24-14 to approve the bill that bans foreign principals from “countries of concern” from acquiring any interest in nonresidential real property located close to a military base. The bill passed the House on an 86-39 vote.
“While I agree that it is important for our state to implement stronger protections against foreign adversaries, this legislation contains multiple provisions that are likely unconstitutional and cause unintended consequences,” Kelly said in a statement.
The governor said many parts of the bill were too broad and not narrowly tailored to protect the state’s security while limiting the disruption of legitimate investment and business relationships.
“Additionally, the retroactive nature of this legislation raises further serious constitutional concerns. I am not willing to sign a bill that has the potential to hurt the state’s future prosperity and economic development,” Kelly said.
“If the Legislature is serious about protecting Kansans from foreign adversaries, it should consider more narrow, forward-looking proposals that are focused on bad actors while ensuring legitimate business relationships with potential trading partners and small businesses are not impacted,” the governor said.
Since the Legislature has already adjourned its regular session, it cannot override the veto.
Lawmakers could conceivably take up the bill at a special session the governor plans to call on taxes, but the legislation would have to start from the beginning of the process.
House Majority Leader Chris Croft, who led efforts in the Legislature to pass the bill, called the governor’s veto “beyond disappointing.”
He said the veto would “leave Kansas, its military bases, and critical resources wide open for adversarial foreign governments.
“The assets of this state are too important for us to sit on our hands and wait until it’s too late,” he said.
“This bill was carefully designed with input from everyone who wanted a say on how we should move forward. We will continue our fight to strengthen the security of our home.”
Supporters of the bill said it was about protecting national security interests against adversarial countries that include China, Cuba, Iran, North Korea, Russia and Venezuela.
“This is an important bill,” Republican state Sen. Mike Thompson of Shawnee.
“We need to step up and do what we can to protect our military, our secure installations in the state of Kansas.”
Critics of the bill said it was discriminatory and could affect small businesses owned by anyone from those countries in Kansas.
They said it could open the door to litigation and force the state to purchase property that was otherwise acquired legally before the legislation was enacted into law.
They raised the prospect that the state could be on the hook financially if a company suffers a loss in the purchase of real estate that it bought legally but was forced to divest from under a new law that the state enacts.
“With this bill, we’re buying not one lawsuit, we are buying probably dozens of lawsuits that are ultimately going to put our taxpayers on the hook in terms of legal fees,” Democratic state Sen. Ethan Corson of Fairway said on the Senate floor.
“You look at the forced divestiture component to this, all of those cases are going to be legally actionable,” Corson said. “I don’t want to pass another bill where Kansas is going to be on the hook for dozens and dozens of lawsuits.”
The bill stood to immediately affect Cnano Technology, a company whose parent is based in China and is now building a $95 million facility in Johnson County at New Century Commerce Center with the help of tax incentives.
The company makes nanotubes, which are used to make a paste that can be used in electric vehicle batteries to help them charge faster and last longer.
Shawn Montgomery, president of Cnano Technology USA, appeared before the House commerce committee in early March.
He told lawmakers that claims that the company presented a security risk were “completely incorrect.”
“Contrary to what’s being portrayed, Cnano poses absolutely no threat,” Montgomery told the committee.
“The notion that Cnano USA could be used as a conduit to steal America’s military and intellectual secrets is completely incorrect.”
The law firm representing the company sent a letter to the Kansas Senate on April 5 explaining what it says are shortcomings in the bill.
The company’s lawyer, J. Pieratt, said the bill is unconstitutional on “several fronts.”
He pointed to a provision that requires retroactive divestiture, which he said violates rights to due process, infringes on existing contractual obligations and runs into federal preemption issues.
Pieratt predicted the bill would cost the state tens of millions of dollars in court costs, something that supporters of the bill said was worthwhile to protect state and national security.
He predicted that owners of small restaurants, grocery stores and other businesses that have operated in Kansas for years but fall under the purview of the bill would be forced to divest and sell their business under this bill.
The company, Pieratt said, has spent $50 million so far to build out its facility in Johnson County, hiring more 150 local contractors from more than two dozen companies.
“With a forced divestiture under this bill, Cnano would have to stop work, send these workers home, and be forced to sell a partially constructed factory at a significant loss – likely leaving Kansas taxpayers on the hook for the difference,” Pieratt wrote.
Supporters of the bill suggested that national security was worth the cost.
“What price do we pay for security of this country?” Thompson asked.
Republican state Sen. Virgil Peck agreed that national security has a cost.
“Freedom isn’t free,” the Havana lawmaker said.
“National security is worth paying a little bit of price. There may be some economic loss temporarily by standing up and protecting our state from adversaries of the United States.
“Is the legislation that’s before us perfect and what I want? No. But it is certainly a good, big step in the right direction for protecting our national security.”
In a recent interview with the Sunflower State Journal, the company’s outside legal counsel raised the prospect that the Kansas bill could constitute a “taking” if the company was forced to divest from property where it’s already committed about $50 million.
“With the forced divestiture, we believe there is a very real chance that amounts to a regulatory taking,” said Carlton Davis, outside counsel for Cnano who specializes in regulatory and government affairs for the Washington, D.C., law firm DLA Piper.
“The company would have to sell on a very expedited time frame to a marketplace. There’s no marketplace to sell that to,” Davis said.
“The question is, will the state be on the hook for providing fair market value to Cnano if there’s a forced divestiture? You could be talking about $20 million to $30 million that the state would be forced to pay Cnano,” he said.
While the government isn’t necessarily taking the land outright, Davis said the state would be imposing regulations that restrict the company’s ability to use the property.
He said if the company is forced to divest, it would be impossible, based on its buildout so far, to get fair market value for what it has invested given that it will face a deadline.
Officials say the new building is designed for a specific process to make a specific product and the structure might not be in high demand on the open market.
For example, the 330-square-foot building includes a lot of fire proofing because a solvent is used in making the paste.
“You would have to find someone who really would have a similar process and would also need that amount of space,” said Cnano’s Montgomery.
The bill passed by the Legislature is retroactive.
It stipulates that any foreign principal from a “country of concern” that owns or acquires an interest in nonresidential property within the 100-mile radius of a base would have to register with the attorney general no later than 90 days after July 1, or the date the interest is acquired, whichever is later.
The bill would permit a foreign principal to enter into an agreement with the attorney general to divest from their property no later than 360 days from entering the agreement.
The attorney general would be required to investigate any suspected violation of the law.
He would be allowed to go to court to enforce the law in which he could seek civil forfeiture of the property or a court order directing divestiture of the property.
The bill would require the company to divest within no more than 180 days from the date that court find a violation of the law.
The property owner would be permitted to file a claim against the state for any reduction in sales price of the real property caused by a court-ordered divestiture.
The bill would include exemptions for foreign principals who have received federal national security clearances.
