Legislative Post Audit: HPIP and two housing tax credits generate economic activity but may cost state revenue

An auditor from Legislative Post Audit told the Senate Assessment and Taxation Committee that several long-standing and recently created tax-incentive programs produce measurable economic activity but can create substantial, multi-year state revenue obligations.

Josh Luthai, an auditor with Legislative Post Audit, reviewed the High Performance Incentive Program (HPIP) and two state housing tax-credit programs. He said HPIP (created in 1993) offers three benefits: a tax credit equal to 10% of qualifying capital investment (carryforward up to 16 years), a sales-tax exemption for project-related purchases, and a training credit capped at $50,000 per year that cannot be carried forward. "We estimated the HPIP program will generate about $3 in economic activity for every dollar in tax revenues the state gives up," Luthai said, "but we also estimated the program will generate about 35¢ in tax revenues for every dollar in tax revenues the state gives up." He noted that carryforward and recent partial transferability (projects placed in service after Jan. 1, 2021, may transfer up to 50% of capital-investment credits) complicate forecasting because credits awarded are not always claimed in the same year and may be used later or transferred.

Luthai cited program usage data showing businesses were awarded more than $3 billion in HPIP tax credits for tax years 2018–2020; he gave a 2019 example in which approximately $913 million in credits were awarded but only about $88 million were used that year, with the remainder carried forward.

On the Kansas affordable housing tax credit (created in 2022 to match the federal low-income housing tax credit), Luthai described a stacking effect: a project allocated state credits in a single year can generate a stream of credits claimable each year for the next 10 years once the project is placed in service. He reported that KHRC (Kansas Housing Resources Corporation) awarded about $25 million in state credits in 2023 and another roughly $25 million in 2024; because each allocation can translate to 10 years of credits, those annual allocations can compound into very large multi‑year revenue exposures. Luthai said the federal matching requirement does not by itself limit state liability and noted several other states cap their state credits at amounts well below federal limits (he cited Oklahoma’s $4 million annual cap as an example).

Luthai also reviewed the Housing Investor Tax Credit, which targets counties with populations under 75,000 and caps allocations at $13 million per year; that credit is transferable and may be carried for up to four years. In 2022–2023, KHRC allocated about $20 million in these credits to 41 projects, Luthai said.

Committee members asked whether the programs’ mechanics and transferability increase the state’s long-term fiscal exposure and whether the legislature should consider caps or sunsets. Several senators signaled interest in exploring whether changes to HPIP or housing credits could offset other tax changes, such as corporate income tax reductions. Luthai said the legislative office will provide the committee with memos and diagrams and that the data used in the audit are dated through the time of the evaluations (primarily 2022–2023), so updated figures may be forthcoming.

The committee did not take action on any of the programs during the briefing; members asked staff to supply additional context and to coordinate follow-up briefings with the Department of Revenue and the Kansas Housing Resources Corporation.

The audit’s principal facts: HPIP offers a 10% capital-investment credit (16-year carryforward), sales-tax exemptions and a capped training credit; the affordable housing tax credit was created in 2022 and can cause a 10-year stream of credit claims; the housing investor credit is capped at $13 million per year and is transferable. Audit materials and prior memos were provided to committee members for further review.