The Kansas Legislature has approved a bill that would ban foreign interests from adversarial countries from owning or acquiring land within 100 miles of a military base in Kansas or an adjacent state.
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 86-39 on Monday.
Supporters of the bill said it’s about protecting national security interests against adversarial countries that include China, Cuba, Iran, North Korea, Russia and Venezuela.
“Kansas is an agricultural state and one of the potential threats to Kansas is some foreign adversary acquiring control of our farmland and what they could do to the supply chain and the food supply,” said Republican state Sen. Mike Thompson of Shawnee.
“This is an important bill,” he said. “We need to step up and do what we can to protect our military, our secure installations in the state of Kansas.”
He said there are “tens of thousands” of military-age Chinese men crossing the country’s southern border. “Do we ignore that?”
Critics of the bill said it is 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,” said Democratic state Sen. Ethan Corson of Fairway.
“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 stands 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.
