Wednesday, September 11, 2013

Audit finds problems in Kansas Department of Commerce handling of economic development programs

By SCOTT ROTHSCHILD, The Lawrence Journal-World

TOPEKA, KAN — A state audit released Wednesday found numerous problems in the Kansas Department of Commerce’s handling of major economic development programs, including exceeding the statutory cap on tax incentives by $1.5 million in the past fiscal year.

The audit also found that the Department of Commerce has made commitments exceeding that legal cap by $22.5 million over the next 10 years.

Republicans on the Legislative Post Audit Committee defended the administration, saying it is doing a good job using the economic development programs to develop jobs.

Sen. Julia Lynn, R-Olathe, said that while the Commerce Department may have fallen behind on providing reports on the programs, the department was luring companies to Kansas, and that’s what is important.

“I question whether we’re looking at the right things,” Lynn said.

The audit said assessing the benefits of the program called Promoting Employment Across Kansas, or PEAK, was “difficult because the Department of Commerce has not completed meaningful information on the program.”

The audit said data for the program were incomplete and had inaccuracies.

Commerce was more than one year behind in reporting PEAK outcomes to the Legislature, and the Kansas Department of Revenue’s tax incentive information was incomplete, the audit said.

In his response, however, Commerce Secretary Pat George said that the agency “has the ability to create several types of PEAK reports and has prepared between 30 and 40 reports showing program level data.”

PEAK allows companies to retain employees’ state withholding taxes in exchange for creating new jobs or retaining existing jobs.

The audit said Commerce had exceeded the statutory cap intended to limit the growth of PEAK. The Legislature capped the program at $6 million but Commerce had authorized $7.5 million in the last fiscal year.

Rep. Marvin Kleeb, R-Overland Park, said the $6 million cap was unintended and subject to interpretation. And George said the agency would seek legislation to allow it to provide the higher spending.

The audit said PEAK “on the best information that we could compile” generated 5,200 jobs in exchange for $21 million in forgone withholding taxes through December 2012.

Participating companies projected investing $1.4 billion in capital improvements when they initially qualified “but actual information was not available,” the audit said.

The audit also looked at the High Performance Incentive Program, or HPIP, which provides sales tax exemptions and tax credits for certain companies that make capital investments and train their workforce.

Participating HPIP companies reported making $310 million in capital investments, creating 1,100 jobs and retaining 5,800 jobs in 2010. They claimed $19 million in capital investment tax credits, and $2 million in training tax credits in 2010.

But the audit said the tax credit data under that program might not be reliable.

“For example, companies do not have to report outcome data to receive the tax credit and department staff do not audit or verify self-reported outcome data,” the audit said.

And the audit said that a review of four other economic development programs found that the Department of Commerce did little to enforce reporting requirements, which limited its ability to identify under-performing companies.

Secretary George disagreed with many of the assertions in the audit.

He said the PEAK program had experienced robust growth and some internal processing functions had to be improved. He said the agency “has never done anything the Legislature would not be proud of.”