Legislative auditors: Kansas economic incentives lack clear goals and reliable data, hampering oversight

Kristen Roddinghouse, deputy director of Legislative Post Audit, told the House Commerce committee that auditors have completed 25 evaluations of economic development incentives since 2015 and found recurring problems with unclear statutory purposes and unreliable data that make performance evaluation difficult.

"When incentives don't have a clear purpose or reliable data, it makes it difficult to evaluate performance and decreases transparency," Roddinghouse said during the committee's "Commerce conversations" session. She described a 2019 statute (amended in 2024) that established recurring three‑year audits of incentive programs and framed the findings LPA will present to the legislature.

Roddinghouse highlighted several audits. In the 2021 review of Star Bond attractions — projects intended to promote state economic welfare and tourism — LPA examined 2018–2019 visitation estimates for 16 active attractions and found only three met the Department of Commerce's tourism expectations (20 percent of visitors from outside Kansas and 30 percent from 100 miles away) in one or both years. LPA recommended Commerce collect usable visitation data and urged the legislature to clarify the program's statutory purpose.

On industrial revenue bond property tax exemptions (IRBX) and five major Commerce programs reviewed in 2023, LPA used econometric modeling and found that most projects generate enough economic activity to outweigh incentive costs in terms of economic effects, but tax revenues did not generally offset those costs. For the IRBX portfolio studied from 2005 to 2020, LPA estimated roughly $100 million in forgone tax revenue per year during that period.

The Rural Opportunity Zones program (RAS) review — covering roughly 2012–2022 — found about 2,400 total participants across the program's components at a cost of about $27 million. LPA concluded the program had limited statewide effects on rural depopulation but may have helped 19 counties retain or gain residents. Auditors recommended clearer statutory goals and better cross‑agency participant data between Commerce and Revenue.

Roddinghouse also reported data issues with tax credits. The alternative fuel tax credit had been claimed 612 times for just over $2 million since 1996, but fewer than five businesses had claimed it since 2014 because electricity and individuals were excluded as eligible recipients. The community service tax credit has provided about $130 million to 811 projects since the 1990s; LPA found aspects of Commerce's selection process for recent award cycles were not documented and recommended improved documentation and transparency.

A limited‑scope 2024 review of Commerce's online transparency database found 13 of 60 expected programs missing from the database and key program data elements absent for sampled programs. Roddinghouse said roughly half of 11 statutorily required program‑level data fields were missing for a sample of five programs, and she recommended the legislature clarify where some required information should be stored and that Commerce post the missing data.

LPA also said it could not reliably report how much High Performance Incentive Program (HPIP) credit businesses earned and used over a five‑year span because the Department of Revenue provided three datasets that differed by tens to hundreds of millions of dollars in single years; auditors cited credit complexity, pass‑through entities, 16‑year carryforwards and manual accounting processes that led to double counting. KDOR is working on corrections and expects to present updated numbers to legislative committees.

On affordable housing tax credits, auditors reported the Kansas Housing Resources Corporation had awarded about $73 million in credits to 67 projects and estimated it could award an additional $34 million before the program sunsets in 2028; LPA projected those credits could result in roughly $1 billion in foregone state income tax revenue over 15 years and recommended improved data reliability similar to HPIP.

Roddinghouse closed with three consistent recommendations for the legislature and agencies: define clear statutory purposes and measurable benchmarks for each incentive, identify the data required to measure those benchmarks before passing new incentives, and consider realistic time horizons and reporting burdens for different program types. She said LPA follows up on recommendations every six months for two years and can undertake focused follow‑up audits if the post audit committee requests additional work.

Committee members asked the Department of Commerce to appear at a future meeting to answer questions about Star Bonds and other program design changes. The committee did not take any formal votes during the session; members were reminded of a pending room change for the next meeting and adjourned.

Ending: The committee scheduled follow‑up appearances by Commerce and KDOR; no legislative action was taken at the meeting itself.