Archive for Thursday, October 4, 2007

Failure of tax credit program alarms state’s lawmakers

October 4, 2007

Topeka -- Lawmakers looked stunned at what Kansas Revenue Secretary Joan Wagnon was telling them.

Four hundred million dollars?

That's right. Last week, Wagnon told a legislative committee that businesses in Kansas were holding $400 million in state tax credits that lawmakers had given them.

And she said the economic development credits, aimed at encouraging companies to expand their investments in Kansas, will probably expire before they are redeemed.

Presumably, the tax credits won't be redeemed because the businesses have not made enough to owe any taxes, Wagnon said.

"It's not a very good job," Wagnon said of the so-called High Performance Incentive Program, "because we've given them something they can't use."

But if they do cash in the credits?

"This makes me a little nervous," said state Rep. Kenny Wilk, R-Lansing, who is chairman of the House tax committee.

Eco-devo evolution

Tax credits, such as the HPIP that Wagnon described, tax diversions, grants, you name it, Kansas officials have thrown it at businesses in the name of economic development.

Now a growing number of lawmakers want to know if it's paying off.

"We want to be on target," said state Sen. Nick Jordan, R-Shawnee. "The whole world is changing ... the way to do economic development now is kind of changing."

Last week, a legislative committee ordered a state audit to find out how much the state spends on economic development, where the money goes and whether it is doing any good.

"There are so many dollars involved," said state Rep. Peggy Mast, R-Emporia.

But no one at this point knows how many dollars. That will be one of the tasks of the audit, which is expected to take at least four months.

High-dollar programs

Still, lawmakers have adopted some big-ticket items in recent years.

One is the Kansas Lottery. About $42.5 million per year of lottery funds are transferred to state agencies dealing with economic development, such as the Kansas Department of Commerce and Kansas Technology Enterprise Corp.

In 2004, the state formed the Kansas Bioscience Authority and charged it with making Kansas a national leader in the biosciences, creating jobs and development.

The authority is financed about $25 million per year from withholding taxes on the wages of certain employees in bioscience industries.

The state also issues STAR bonds, where under certain circumstances, a city or entity is allowed to use new sales tax revenue to pay off the development loans. The financing tool has been responsible for the development of the NASCAR track and other attractions in Wyandotte County.

And there are numerous other pots of money in the state budget that go to economic development.

Government's role

But Kirk McClure, associate professor of urban planning at Kansas University, said the government usually goes overboard in trying to stimulate economic development.

Research shows that the best thing government can do for the economy is provide good schools and infrastructure, McClure said.

"Beyond that, the overwhelming majority of investments in economic development are a waste of money," he said.

But business interests combined with political ambition usually result in overselling government's role and use of tax dollars in the pursuit of economic development, he said.

"If you're an elected official and you're in for a four-year term, you want to be able to stand up and cut a ribbon and say that my actions brought this to our community," he said.

Economic efficiency

Lawmakers say they hope the audit will tell them whether they are hitting the mark.

Looking forward to the audit findings, state Sen. Jordan said, "It will help us understand where we could be most effective in our programs."

On the more specific question surrounding the HPIP tax credits, Wagnon said the state would face a tough task if businesses used those tax credits.

A $400 million hit to the state treasury would do severe damage to the state budget.

"The question remains: where would we get it?" she said. "What good does it do to incent business if we bankrupt the state?"

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