The project is "a critical part of Kansas' new transportation plan, which will invest billions of dollars in the Kansas economy over the next 10 years while putting tens of thousands of our fellow Kansans back to work," Gov. Mark Parkinson, a Democrat, said in a statement.
The railroad gets the money in exchange for agreeing to start the project this year, officials said.
BNSF officials could not be reached for comment, but state officials said the company had signaled that the project will move ahead.
The incentive will come from state sales taxes paid on utilities serving the entire 1,000-acre project, which includes the nearly 500-acre freight yard plus a warehousing complex being developed separately. State officials note that the freight yard and warehouses will pay taxes that they could have potentially avoided in the long run.
"The reality is we're getting them to agree to pay those (taxes) when they probably would have been granted an exemption," said Joe Erskine, a deputy state transportation secretary.
State and local officials had hoped to secure $50 million in stimulus money for BNSF but lost out in February, when the federal government doled out $1.5 billion.
The state incentive was in the tax plan and the transportation bill that the Legislature approved as its session ended.
The project has been in the works since at least 2005, when the idea first surfaced of building the rail hub in the Gardner area. The property, about 30 miles southwest of Kansas City, is now part of Edgerton. At one point, BNSF had considered starting construction in 2007, but getting a required federal environmental permit took much longer than expected. The company said last year that it was indefinitely delaying the project because of the recession and shrinking freight volumes.
One local economic development expert was optimistic about the project's future.
"My hope is with this incentive that was created by the Kansas Legislature, we may see this project move ahead sooner than it otherwise would have," said Bob Marcusse, the president of the Kansas City Area Development Council.
The proposed rail hub would be one of the area's biggest development projects, with the potential of pouring hundreds of millions of dollars into the local economy and creating thousands of jobs.
BNSF said it needs a new freight center because of increasing demand and space limitations at its yard in the Argentine district of Kansas City, Kan.
Some people who live near the site of the proposed hub have argued vehemently against the project, saying it poses environmental risks for their community and the entire Kansas City area. A national environmental group has gone to court, trying to force BNSF to conduct a more extensive review of the project's potential effect on the environment.
Eric Kirkendall, who once lived near Gardner, has fought the project for several years. Now a Lawrence resident, Kirkendall blasted the plan Monday.
"This was stealth legislation to help the richest man in America, Warren Buffett, his BNSF railroad company, and their developers," he said.
"The warehousing and trucking this mega-facility generates will impose traffic congestion, diesel exhaust pollution and illnesses on the citizens of Johnson County. This is a lose-lose proposition for all Kansans."
The Natural Resources Defense Council and several residents have asked a judge to block the permit issued for the rail yard by the Army Corps of Engineers, which concluded that the project would not significantly affect the environment.
The plaintiffs claim that the Corps of Engineers failed to adequately evaluate the environmental effects. Their lawsuit contends that the hub, along with a warehouse complex next door, would generate substantial air pollution.
Kansas Sen. Karin Brownlee, an Olathe Republican, did not support the tax bill that contained the incentive, but the money "does jump-start a very important project that's going to be a true economic boost in the region," she said.
Kansas Rep. Mike Kiegerl, also an Olathe Republican, voted against the tax bill. While Kiegerl said he thought the rail project would be positive for the community, he opposed giving any financial incentive to a wealthy company like BNSF.
"I do not believe in corporate welfare," Kiegerl said, adding: "This is a very profitable corporation. Thirty-five million is a drop in the bucket for them. I know they would like to have it. I would like to have more money. Everybody would."