How effective are Kansas' economic incentives? Audit sheds light amid megaproject debate.

Andrew Bahl, Topeka Capital-Journal
3 min read
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A new report released Wednesday by the Legislature's nonpartisan auditing arm found that some of the state's most prominent economic development tools do not create enough tax revenues to pay for themselves
A new report released Wednesday by the Legislature's nonpartisan auditing arm found that some of the state's most prominent economic development tools do not create enough tax revenues to pay for themselves

A new report released Wednesday by the Kansas Legislature's nonpartisan auditing arm found that some of the state's most prominent economic development tools don't create enough tax revenues to pay for themselves, though their broader impact on the state and local economy is far higher.

The revelation comes as the Department of Commerce is set to ask lawmakers to extend legislation allowing them to offer a more expansive range of tax incentives to companies considering a multi-billion-dollar investment in the state.

Those incentives under the Attracting Powerful Economic Expansion program were offered to lure Panasonic to build an electric vehicle battery plant in the state, a move that Gov. Laura Kelly's administration has billed as the largest economic development project in the state's history.

More:In wake of Panasonic deal, Kansas targets potential microchip manufacturers for megaprojects

Audit: Tax revenues wouldn't pay for programs but create other benefits

That program was not one of the ones probed by the Division of Legislative Post Audit, which instead focused on five initiatives that are used much more widely.

That includes the Promoting Employment Across Kansas program, which allows companies to be refunded 95% of payroll taxes for new jobs created in the state, as well as High Performance Incentive Program, which lets certain companies claim a 10% tax credit for capital investment over $50,000.

The report from the Division of Legislative Post Audit looked at 28 economic development projects that received incentives from one or more of the programs.

Auditor Josh Luthi said the tax revenue directly taken in as a result of the projects would not have paid for the incentives given to any of the 28 projects.

When broader impacts are considered, however, such as the economic impact a new company or investment might generate, all but five of the projects generated more in activity than the state incentives that were paid out.

"We estimate each program generates more in programs in total benefits than it costs the state," Luthi said. "This indicates the programs are broadly successful."

Of the 28 projects, 11 of the companies said they would have undertaken the project even if they didn't receive tax incentives.

An additional 13 projects said the incentives led them to launch bigger projects or move at a faster pace than they otherwise would have, and another three firms said they would not have invested in Kansas at all without the inducement.

Department of Commerce pushes back on report findings

Past audits have had a range of findings on the merits of the incentive programs.

A 2013 review, for instance, said the Department of Commerce under then-Gov. Sam Brownback was doling out more money in PEAK incentives than allowed under statute.

A report a year later, however, found that PEAK and a range of other programs "created significant returns on investment for Kansas with regard to business activities" and were more productive than an across-the-board tax cut.

The Department of Commerce criticized the methodology used in the most recent study, arguing its calculations for return-on-investment are skewed and that the audit is too limited in scope for observers to draw meaningful conclusions.

"We believe this Legislature needs better studies," Robert North, the agency's chief counsel, told legislators. "You can’t extrapolate from that nominal number of projects that were studied in order to have results that you can make legislative decisions based upon."

Commerce officials have told lawmakers in recent days that they are aiming to use the megaproject incentives, used to entice Panasonic, for a range of other potential deals, including several projects in the semiconductor sector.

APEX remains too new to be audited, though it will eventually be reviewed as part of state law requiring a regular audit of most Department of Commerce incentive programs.

"The problem with APEX is its brand new," said Sen. Rob Olson, R-Olathe. "The newer ones, we need to give it at least a cycle or two so we have something to audit."

This article originally appeared on Topeka Capital-Journal: Amid Panasonic debate, report questions Kansas incentive programs

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