Audit: Kansas can’t manage its chief tax-incentive program

The Promoting Employment Across Kansas program is a tax-incentive scheme favored by bureaucrats in Topeka for luring Kansas City, Missouri, companies across the state line into Johnson County.

PEAK, which allows companies to keep 95 percent of employee withholding taxes, helped grease the rails for AMC Entertainment’s departure from downtown Kansas City to Leawood earlier this year. Several other companies have followed that beaten path.

Journalists and researchers who have tried to make sense of the PEAK program have difficulty doing so, finding that the Kansas Commerce Department (which administers PEAK) throws layers of obfuscation in the path of clear information about the state’s use of the powerful tax incentive. Common tactics are unreasonable prices for open-records requests related to the PEAK program, or the department offering dubious explanations for why it can’t release information. One example is its long-standing refusal to confirm how much in PEAK incentives AMC was offered to make the move to Leawood’s Park Place, insisting that neither party has signed off on official documents despite AMC committing to the move almost exactly two years ago.

A recently released audit of the PEAK program may confirm many misgivings about the state’s use of the incentive. The Kansas Legislative Division of Post Audit found that the Kansas Commerce Department isn’t minding the store when it comes to PEAK, including not tracking information about its own program, not making sure companies receiving the benefit live up to their end of the bargain, and awarding more of the incentive than state law allows.

Kansas Commerce Department officials disagree with most of the audit’s findings.

One of its more troubling findings was that one unidentified company was allowed to hang on to $700,000 in development incentives despite not creating a single job because the Kansas Commerce Department’s oversight missed the mark.

The audit was supposed to find out how effective incentive programs are but found that task difficult because the Kansas Commerce Department’s bureaucrats often didn’t have information from companies receiving the benefit (which they’re required to submit) or did have the information but hadn’t taken the time to read it.

Even still, the audit took its best stab at trying to pin down PEAK’s performance, saying the incentive generated 5,200 jobs since it was created in 2009 in exchange for $21 million in foregone tax revenue. But those numbers represent a best guess because the Kansas Commerce Department was missing so much information.

In addition to the information shortage, the Kansas Commerce Department appeared to ignore state law governing how much in PEAK incentives it can give out in a single year, according to the audit. State law is clear in that the Kansas Commerce Department cannot dole out more than $6 million in benefits in a year. But the audit found that $7.5 million was authorized in fiscal year 2013, $1.5 million more than allowed.

Kansas Commerce Department officials offered an explanation for this, saying their interpretation of the law meant that it could increase how much tax incentives it could offer by $6 million each year. For example, they thought that if they could offer $4 million one year, the law allowed them to offer $10 million the next and $16 million the year after. State auditors took a dim view of this explanation, saying the law on the $6 million cap is clear. 

Missouri officials complain about PEAK, claiming that it’s a job-poaching tool targeted at Missouri companies along the state line with Kansas, even though Missouri has a nearly identical program called Missouri Quality Jobs. The audit said that of the 2,756 jobs which have relocated to Kansas from outside the state thanks to PEAK, 53 percent of those came from Missouri.

Kansas Commerce Secretary Pat George disagreed with almost all of the audit’s findings, but was short on specifics other than to say PEAK will lead to 16,000 jobs at some unspecified point in the future.