TOPEKA — Auditors working for the Kansas Legislature estimated five of the state’s major business development incentive programs would generate positive total returns for the private-sector economy but not produce enough growth in tax revenue to cover public investments.
The evaluation was ordered in June by a joint committee of the House and Senate due to skepticism among some legislators with the state government’s use of tax credits or exemptions, or direct expenditure of state funds, to convince businesses to make capital investments or create jobs in Kansas. Gov. Laura Kelly, who won reelection in November, invited scrutiny by pointing to her first-term success in pursuing new jobs, including a $4 billion Panasonic battery plant for De Soto.
Legislative auditor Josh Luthi said during a briefing with lawmakers all five programs were viewed as “generally successful” despite projections the programs wouldn’t deliver enough new state and local income, sales or property taxes to cover every dollar in direct costs or foregone revenue devoted to economic development.
Ranking the five programs in terms of proficiency would be folly, Luthi said, because they were of different size, targeted different needs and were funded differently.
The audit focused on an alphabet soup of incentives: High Performance Incentive Program (HPIP), Job Creation Fund (JCF), Kansas Industrial Training (KIT), Kansas Industrial Retraining (KIR) and Promoting Employment Across Kansas (PEAK). At least $400 million has been awarded to businesses by the Kansas Department of Commerce through these programs from 2017 to 2021.
Luthi said auditors sent surveys to nearly 300 businesses that received benefits from the five programs to determine whether executives would have made the same business decisions if they hadn’t received state incentives. In response, 11 said they would have created a new business facility in Kansas and hired people to work there without the state’s generosity. Thirteen businesses said incentives convinced them to do bigger projects or to speed development timelines. Three businesses said they would have canceled the projects or moved to another state if denied tax dollars.
“Incentives do not always make 100% of the difference,” Luthi said. “Sometimes they don’t make any difference.”
The audit didn’t delve into details of how the Kansas Department of Commerce administered these programs. For example, auditors didn’t examine how the department negotiated incentive awards with businesses.
Frustration bubbles over
Sen. Mike Thompson, R-Shawnee, said cost recovery was the bottom-line issue related to incentives paid by Kansas taxpayers.
“If we’re putting more money into the program that we’re recovering, then it’s not doing its job. The taxpayers need to receive some kind of return,” he said.
Democratic Sen. Mary Ware of Wichita said she was frustrated by the audit’s lack of reform recommendations and absence of an apples-to-apples assessment of economic incentives. She said the Legislature could dig deeper into complex topics with the addition of personnel to the overloaded auditing division or by shrinking the number of audits assigned to them.
“I honestly am not sure what to do with this report,” she said. “Throughout this there’s the words estimate, assumption, not a projectable sample, survey results can’t be considered representative. My conclusion is that this is a 40-page report with limited utility.”
Rep. Sean Tarwater, a Republican from Stilwell and chairman of the House Commerce, Labor and Economic Development Committee, said legislators would welcome information about the experience of companies competing with business rivals that got state incentives.
Augusta Rep. Kristey Williams, a Republican, suggested the Department of Commerce’s reliance on economic development incentives could fail to address the state’s labor shortage. She said there was an estimated 2.5 unfilled jobs for every unemployed Kansan seeking a job.
