As of September 30, 2017, we consider Kansas Department of Laborís OSCAR IT project to be in satisfactory status. The projectís purpose is to modernize the stateís workersí compensation system. It started with a separate planning project called DigiComp, which specified requirements for the new system. DigiComp started in early 2014 and was completed by the end of 2016 for a total cost of $580,000. The OSCAR project builds and implements the new system from those requirements. We selected the OSCAR project for continuous monitoring due to its estimated cost, criticality, and the failure of another agency projectóthe unemployment insurance modernization projectówhich was ultimately cancelled in 2011.
Through the end of this reporting period, we found the project scope to be in satisfactory status because it remains unchanged. We also found the project schedule to be in satisfactory status because performance statistics for the project show work appeared to be on track as of the end of the third quarter. We found the project cost to be in satisfactory status because performance statistics for the project show spending appeared to be on track as of the end of the third quarter. However, we did note the agency did not have a documented process to manage internal project cost changes. Finally, we found quality to be in satisfactory status because officials proactively planned for the project to have necessary IT security elements.
Sales Tax and Revenue Bonds: Evaluating the Heartland Park STAR Bond Project
In 2014, the City of Topeka developed a proposal to expand an existing STAR bond redevelopment district and issue new bonds to purchase the Heartland Park racetrack. We evaluated eight areas of the cityís proposal and found all eight areas appeared to meet the requirements of the STAR Bond Financing Act. However, we also identified several issues based on that review. For example, we noted concerns about whether the current Heartland Park STAR bond proposal is the type of project the Kansas Legislature envisioned for STAR bonds and about the independence and reliability of the studies that demonstrate Heartland Parkís statewide economic impact. Additionally, we identified several areas where current statutes could be strengthened or made clearer.
Economic Development: Determining Which Economic Development Tools are Most Important and Effective in Promoting Job Creation and Economic Growth in Kansas, Part 3
The implementation of major Kansas economic development programs appears to have been successful based on our evaluation of the returns generated from 42 economic development projects. According to our analysis, all six major programs appeared to create significant returns on investment with regard to business activities and tax revenue for state and local governments. However, return on investment is an indicator of program success and should not be interpreted as an absolute value. Additionally, a couple of factors significantly influenced the return on investment of the 42 projects we evaluated such as the jobs the project created and the likelihood the project occurred in Kansas because of the state and local incentives provided.
We also found that the High Performance Incentive Program (HPIP) is fundamentally different than the other major economic development programs because of its entitlement nature, structure, and lack of documentation.
Economic Development: Determining Which Economic Development Tools are Most Important and Effective in Promoting Job Creation and Economic Growth in Kansas, Part 2
Studies suggest many economic development initiatives are difficult to evaluate or have not been successful, yet states must offer them to remain competitive. Our analysis showed that Kansas has the appropriate programs for enhancing the stateís economic development. That is because overall Kansas generally has the same types of economic development programs as five other states we reviewed. Kansasí programs also generally provide the incentives that stakeholders indicated are useful. Business officials and other respondents disagreed about how lowered income tax rates would affect economic development in Kansas. Lastly, stakeholders offered a number of suggestions for improving the stateís existing programs.
Economic Development: Determining Which Economic Development Tools are Most Important and Effective in Promoting Job Creation and Economic Growth in Kansas, Part 1
REGARDING THE ECONOMIC BENEFITS OF PEAK AND HPIP
The Promoting Employment Across Kansas (PEAK) program and the High Performance Incentive Program (HPIP) use different forms of tax incentives to promote job creation and capital investment. Assessing the benefits of the PEAK program is difficult because the Department of Commerce has not compiled meaningful program-level information. However, based on the best information we could compile, companies participating in PEAK have generated an estimated 5,200 jobs in exchange for $21 million in forgone withholding taxes through December 2012. Most of the jobs associated with the PEAK program are relatively high paying, are located in metropolitan counties, and represent several different industries. However, a similar program in Missouri and a recent reduction of Kansas income tax rates could undermine the benefits of the PEAK program in the future. With regard to HPIP, the Department of Revenue reported companies made $310 million in capital investments and created or retained 6,900 jobs in exchange for $21 million in tax credits in tax year 2010. However, the departmentís tax credit data may not be completely reliable. We also identified a number of problems related to the Department of Commerceís management of the PEAK and HPIP programs. Problems with the PEAK program include the department exceeding the statutory cap on authorized incentives, not thoroughly and timely reviewing companiesí applications and periodic reports, and not having a systematic process for managing the program.
REGARDING THE ENFORCEMENT OF PERFORMANCE CLAUSES
The Department of Commerce included clawback terms in the agreements of the six economic development programs we reviewed. Our work showed the Department of Commerce generally enforced clawback terms when it became aware that companies had not met performance requirements. However, it did little to enforce reporting requirements, which limited its ability to identify underperforming companies. We also identified additional problems with the departmentís management of the four programs we reviewed in depth, including inconsistent enforcement of some agreements and poorly worded agreements in three programs. Further, all four economic programs we reviewed lacked adequate written policies, and the department had not developed annual reports to allow it to better manage those programs.
Affordable Airfares: Reviewing the Benefits Claimed As a Result of State Funding to Lower Airfares
Overall, the Affordable Airfare program appears to have had the desired effect. Since Wichitaís original affordable airfare program (FairFares) began in 2002, fares have decreased, while the number of passengers and the number of available flights have increased. However, the Regional Economic Area Partnershipís (REAP) annual reports on the program contain numerous inconsistencies and inaccuracies. For example, REAP officials donít report on everything as required Ė flight data was only included in one annual report. Further, the economic impact of the program has been significantly overstated because of key methodological errors, such as incorrectly accounting for indirect job creation, and the use of inaccurate data in the base year. These and other errors resulted in the economic impact being significantly overstated. We also found that overall accountability for the State funds is lacking.
Economic Development: Determining the Amounts the State Has Spent on Economic Development Programs and the Economic Impacts on Kansas Counties
The estimated cost of economic development in Kansas for the preceding five years has been at least $1.3 billion, which includes both spending by State agencies, and State and local forgone tax revenues. Of the $453 million State agencies reported spending, most related to the Department of Commerce. Of the estimated $860 million in forgone tax revenues, most has been local property tax revenues related to industrial revenue bond exemptions. Assessing the effectiveness of economic development programs can be hampered because of the lack of data, and when data are available, most traditional economic development programs or incentives show negative or inconclusive results. Nonetheless, there are some success stories, both traditional and technology-based. The literature suggests that states now must offer economic development assistance to remain competitive, regardless of its cost-effectiveness.We took several approaches to try to assess the results of spending for economic development--from the global to the specific. First, we asked State agencies to report their accomplishment data to us, which showed that more than 130,000 jobs had been created or retained over five years. However, thereís likely to be double-counting in those figures between some programs and tax credits. Second, using historical county-level data, we found there has been a small but measurable statistical relationship between economic development spending in a county and the growth in jobs and businesses in that county between 2003 and 2007. However, all other things being equal, factors like population and employment levels that existed before the assistance was provided had a much greater impact on job and business growth in a county. Third, we analyzed the impact Nebraska Furniture Mart has had Statewide and on individual counties. Statewide, furniture sales increased by 88% from 2002 to 2007, but since 2002 the number of furniture stores and the amount of furniture store sales in nearby counties have declined--sometimes significantly. Finally, we followed up on the findings of an earlier audit, which showed that about one-third of the companies or individuals assisted by several State economic development programs in 1998 were operating a business in Kansas in 2008.
Thomas County Economic Development Alliance: Reviewing Its Procedures for Recording and Depositing Loan Payments
This audit looked at the way the Thomas County Economic Development Alliance records and deposits loan payments received. Given its size, the Alliance generally has adequate procedures except that it doesnít send periodic statements to borrowers. The Alliance did make several errors in recording loan transactions, but those errors seemed to be isolated to one account. Some of those errors might have been detected and corrected sooner if statements showing payments and loan balances had been sent to the borrowers. All errors noted by the audit had been corrected.
Kansas Housing Resource Corporation: Reviewing the Section 42 Housing Tax Credit Program
From 2004-2007, 93 developments comprising 3,200 housing units and costing about $316 million were constructed with Section 42 tax credits. Developers were awarded tax credits with a 10-year value of $217 million, which they sold for approximately $184 million, to offset their development costs. About two-thirds of the housing units built were new and one-third were rehabilitated. The Kansas Housing Resources Corporation has recently taken steps to increase the number of rehabilitated developments receiving tax credits. Overall, 87% of developments approved were in one or more of the higher-need areas identified in either federal requirements or State plans used to administer the Program. However, in many smaller communities with waiting lists for public housing, developers havenít proposed any developments. Overall, the average rents charged for many of the tax-credit-financed housing units were well below federal limits, and in most regions, were below rent limits set for HUD-administered low-income housing. For 14 developments receiving tax credits, the Corporation didnít compare the proposed development to other developments as required by State regulation. Finally, compared to Kansas, several other states made more funding available to supplement their Section 42 tax credit program. The most common ways other states supplemented their Section 42 tax credit programs included general fund appropriations, state-level tax credit programs, revolving loan funds, and earmarking certain fees (such as mortgage registration fees) for housing.
Department of Commerce: Personnel Practices Related to Employees in the Divisions of Business and Workforce Development
At the time of the audit, 217 of the 300 people transferred from the Department of Labor still were working for the Department of Commerce. Of the 83 transferred employees whoíve since left the agency, most voluntarily resigned, retired, or transferred to another State agency. Most replacements for those employees came from outside the Department, had less experience related to workforce development, slightly better education levels, and were hired at the same or lower salaries. Since the transfer, at least 23 fewer direct-service positions were filled, and a number of higher-level positions had been created and filled. Although a number of current employees expressed concerns about leaving direct-service positions unfilled, Department officials said such changes were necessary to reflect different agency needs following the reorganization. For most personnel actions we reviewed, the Department followed statutes, regulations, and best practices. However, we found some problems related to conducting annual performance evaluations, retroactively paying employees, getting approval before downgrading information technology positions, and using reallocated positions to promote employees without competition. When surveyed, Department employees generally rated the Departmentís performance appraisal process and general workplace policies and practices fairly high, but they rated the fairness of the hiring and promotion process much lower. As a group, employees transferred from the Department of Labor tended to have more negative assessments of the Departmentís personnel practices.
Kansas Technology Enterprise Corporation: Reviewing Bonuses Paid to Employees of KTEC and Its Subsidiaries (limited-scope audit)
KTEC will have paid its employees more than $550,000 in additional compensation from 2004 to 2006, including nearly $333,000 in annual bonuses and up to $224,000 in supplemental payments for work done for the Kansas Bioscience Authority. All additional compensation was paid from KTEC Holdings, Inc., a wholly owned subsidiary of KTEC. Parts of the 2006 bonuses paid to three KTEC employeesĖabout $3,000 in totalĖappear to be contrary to State law because the bonuses were based on work done for a subsidiary of KTEC, which is prohibited. KTEC pays bonuses for achieving performance goals and to make compensation more competitive with the private sector. Although records arenít routinely kept, the 2006 records show that employees who received bonuses achieved 93% or more of the performance goals established for them. KTEC also provided two studies which officials said show the need for enhanced salaries to be competitive. The Mid-America Manufacturing Technology Center, a KTEC subsidiary, also paid about $437,500 in bonuses to its employees. None of those bonuses were prohibited by law. MAMTC pays bonuses to reward employees for achieving corporate and individual performance goals. Because those goals were not met, only minimal bonuses were paid to four employees.
Workforce Development: Reviewing the Use of Workforce Investment Act Moneys in Kansas
Overall, Kansasí administrative structure conforms to the requirements of the Workforce Investment Act. Issues we identified at the State level: the State board that is supposed to advise the Governor about workforce development programs has rarely met, program monitoring hasnít been carried out well in recent years, the Department of Commerceís administration of programs in two local areas conflicts with its State-level oversight and monitoring role, and most of the Departmentís current workforce development contracts werenít competitively awarded. At the local level: three of five local areas donít have comprehensive One-Stop centers as required, federal reviews have identified numerous instances of spending problems and weak financial controls, and performance goals havenít always been met. Most local area contracts were competitively bid, and we found no situations that appeared to financially benefit board members or employees.Statewide, 11% of the Workforce Investment Act moneys spent in fiscal years 2003 and 2004 was for administration; the rest was for programs and services for workers and employers. Total spending and the percent spent on administration varied significantly among the five local areas. Local Area 4 (Wichita) recently increased its annual building lease costs by more than $500,000 when it more than doubled the amount of space leased for its comprehensive One-Stop center.Programs and activities that fit the Joint Committee on Economic Developmentís definition of workforce development included 35 State and federally funded programs primarily operated by State agencies that received $129 million in funding for 2006, nearly 680 training partnerships between businesses and post-secondary educational institutions, and numerous specialized certifications, associate degree programs, and short courses aimed at qualifying persons for a specific type of job without having to fulfill additional general education requirements.
Wyandotte County: Reviewing the Use of STAR Bond Moneys Associated With the Kansas Speedway and the Village West Tourism District
As of December 2004, the Unified Government of Wyandotte County and Kansas City, Kansas, had authorized $305 million in STAR bonds for the Kansas Speedway and Village West redevelopment projects. The Unified Governmentís cost of issuing the STAR bonds was in line with other bond issues we looked at. We found about $1.5 million in unallowable uses of STAR bond moneys, most of which was money the Unified Government withdrew from the bond accounts to cover expenditures, but never spent. Another $28 million in actual or planned expenditures appeared to go beyond what legislators envisioned, including payments for museum exhibits, electronic dinosaurs, and payments to consultants hired by the businesses locating in the redevelopment. We also found that the Unified Government had entered into a number of questionable agreements that, among other things, essentially have resulted in the State and local governments paying the cost of building Cabelaís store. Businesses in the development provided discounts on food, merchandise, and hotel rooms to employees of the Unified Government and the Board of Public Utilities. Officials from the Unified Government also have had free use of suites and hospitality tents at the Speedway and Community America Ballpark. Finally, we noted that the proposed cost of constructing a movie theater in the development greatly exceeds typical theater construction costs, and the company that will manage the theater gets half the net income even though it has no significant financial risk.
Encouraging Entrepreneurship: Examining Ways Kansas Could Improve Its Efforts
Entrepreneurs who want to start a new business in Kansas can get technical or financial assistance through 16 State-funded programs and other government and private programs. From 1998 to 2002 the State spent an estimated $33 million on such start-up programs, about 8% of the total spent on economic development activities. In comparison, the State spent about $23 million on programs designed to recruit established out-of-State businesses. Most of the State's universities and community colleges offer at least one entrepreneurship course, although the emphasis varies among institutions. Areas where Kansas could better promote entrepreneurship include making it a higher strategic priority, increasing venture capital funding, developing business mentoring programs, and creating an inventory of existing programs. We couldn't compute an overall return on investment for moneys spent on entrepreneurial and business recruitment programs. Historical employment and payroll information we could review gave some insight into the results such programs have achieved. In general, the businesses recruited to Kansas in 1998 created more lasting jobs and more payroll than a sample of start-up businesses that received State financial assistance that year.
Job Expansion Programs: Determining Whether State Agencies Are Collecting the Information Needed To Know Whether These Programs Are Successful (limited-scope audit)
The Department of Commerce administers the State's major job expansion programs. Department officials ask companies that participate in these programs to provide the types of information they would need to assess whether the promised jobs were created, but companies don't always provide it. Our review of a sample of files showed that Department officials didn't receive 24 of the 137 reports (17%) that companies were required to file. Also, Department staff generally don't verify the accuracy of the information companies do provide; instead, they rely on participating companies to submit accurate information. Finally, the Department's annual report shows the number of jobs companies promised to create, not the number of jobs actually created, or even the number companies report they've created. The 12 companies in our sample that had submitted complete information to the Department reported that they have created only 67% of the jobs promised by the established deadline.
Economic Development in Kansas: A K-GOAL Audit Reviewing Coordination and Effectiveness of Programs
The Department of Commerce and Housing and KTEC appeared to be fulfilling their statutory roles, but Kansas Inc. hadn't become the strong planning and evaluative agency originally envisioned, primarily due to a lack of statutory authority, lack of staff and funding, and potential conflicts in its roles. There's been almost no strategic-level coordination between the heads of the 3 economic development agencies; each agency is independent and had its own philosophy about economic development efforts, and all 3 were rivals for a share of a fixed amount of funding. Coordination among program staff was somewhat better, but no formal mechanisms existed to foster that coordination.Collectively, the Department and KTEC reported that their programs benefitted the Kansas economy by about $1.3 billion and impacted over 9,500 jobs during fiscal year 2000. Generally, there was sufficient accountability over the moneys coming back to the agencies from investments, loans, and grants, although there was some question about what type of information could be reported publicly. Since 1988, KTEC invested about $9.3 million in 66 start-up companies. The 43 companies that were still operating employed about 600 people. These investments earned about $1 million in returns and had a book value of $5.6 million.Kansas is one of only 3 states that used gaming revenues to fund economic development. Most of the 27 other states we contacted relied heavily on general fund appropriations for economic development. The cap on the Economic Development Initiatives Fund created a situation in which overall spending for economic development can't grow, and agencies were forced to compete against each other for those limited funds. This situation was aggravated by the use of EDIF moneys to fund other agencies' programs.
Reviewing the Stateís Investment in Venture Capital
The audit showed that, through the Ad Astra partnerships and the commercialization corporations, KTEC has invested about $6.7 million in high technology start-up companies. Indirectly the State has provided another $6.4 million through tax credits allowed for venture capital investments. In return, KTEC has received $363,000 in cash payments and has seen the value of the investments grow by an estimated $5.7 million. The State has seen 317 new jobs created. The basic statutory and contractual requirements for selectinginvestments were met, and we didnít find any indication of favoritism in the way investments were selected. We also didnít find other investors selling their investments in the companies while the Ad Astra partnerships were putting more money in, nor did we find a lot of common owners in the companies that received money from the Ad Astra funds. The firm of Campbell-Becker Inc. has received more than $1.7 million in total fees since the Ad Astra funds were started, and will receive 16% of any profits after all investors get back their original investments, and after $430,000 in start-up costs plus interest have been paid back to KTEC. Although somewhat higher than national averages, Campbell-Beckerís fees didnít appear out of line compared to managers of similar-sized funds. No private money was ever raised for Sunflower Technology Ventures, and the KTEC Board has returned the $3.3 million appropriated for that Fund to the State Treasury. At least nine other states have made public money available for venture capital, but most havenít mixed public and private moneys, and most donít allow investments in out of-state companies. Although there are a number of venture capital companies in Kansas, the Ad Astra funds (which have no more money to invest), the commercialization corporations, and Kansas City Equity Partners appear to be the main sources of capital for high-technology start-up firms.
Reviewing Selected Actions by the Mid-Kansas Community Action Program (Mid-Kansas CAP) in El Dorado (100-hour audit)
Management at Mid-Kansas Community Action Program has terminated several employees over the past two years without giving them proper notification and without documenting the reasons why. Some employees who were fired had a documented history of good work performance. Employee grievance procedures are being misused by both employees and management to document petty bickering and engage in retaliation against one another. Employees also have been reprimanded without proper notification, and werenít given a chance to correct performance problems. In addition, the agency doesnít have procedures in place to prevent abuse of time and mileage reimbursements. Finally, we concur with a September 1997 monitoring report by the Department of Commerce and Housing, which concluded Mid-Kansas CAPís Board has assumed a very limited role in setting policy for the agency.
Reviewing the Compensation of Executives of the Stateís Economic Development Agencies
The compensation for economic development executives is set by the boards or officials they report to, and their compensation usually is based on studies of salaries for similar positions. Most economic development executives in Kansas receive compensation thatís comparable to what officials in other states receive. We identified relationships between economic development agency staff and 13 of the 61 technology-based companies we reviewed. Some of those relationships appeared to represent a conflict of interest. State law is unclear about whether some employees are subject to the Stateís ethics laws. Also, most economic development agencies donít have written policies and procedures in this area, and university conflict-of-interest forms donít require full disclosure. Unlike in some other states, Kansasí economic development employees arenít prohibited from having an interest in companies that receive assistance from the agencies they work for.
Examining the Use of Economic Development Initiatives Fund Moneys
During fiscal years 1994 and 1995, four companies that relocated within Kansas received a total of about $1.2 million in Economic Development Initiatives Fund moneys (about 1.2% of the total Fund). All four received job training money, for which they were eligible regardless of whether they moved, and two received additional money for capital expenses directly related to their moves. We noted two problem areas. One company received $54,000 in training money for 50 new positions, but those positions were never created. Another company was given money intended for a ďmajor expansionĒ that added only 16 new jobs. The Department of Commerce and Housing correctly accounted for the jobs tied to the companies that moved, but didnít have an accurate overall system for counting new and retained jobs. Groups and businesses reported spending their economic development money for authorized purposes such as brochures, supplies, construction, and training materials, but the documentation they submitted generally wasnít adequate to ensure that the money was spent as reported. Finally, Kansas Technology Enterprise Corporation didnít always have good documentation to show why it funded some projects that its approval committee initially didnít think were worthwhile.
Reviewing International Trade Activities Within The Department of Commerce and Housing (100-hour audit)
The Department of Commerce and Housing spent more on international travel during 1993 and 1994 than the Governor originally recommended each year. The Division of Industrial Developmentís National Marketing Program encompasses most of the activities aimed at attracting out-of-State businesses to Kansas. Although the Division spent more than it budgeted on its National Marketing program during fiscal years 1993 and 1994, there was a slight decrease in actual expenditures for the program during between 1993 and 1994. We could not determine whether increases in expenditures for international travel had any impact on the small decrease in expenditures in this area. The Department has established controls to ensure that trade representatives comply with their contracts, but those controls could be strengthened.
Reviewing the Department of Revenueís Enforcement of Kansas Motor Fuels Tax
The Department of Revenueís procedures do not ensure that all motor fuels taxes due the State are paid. The Department also is not enforcing statutory reporting requirements for transporters of motor fuels, and cannot uncover fraud with the information and reports currently received from taxpayers and other involved parties. Staff resources committed to auditing and investigating compliance with motor fuels tax laws are not adequate to meet the statutory mandates placed on the department. The Highway Patrol and the Board of Agriculture provide periodic assistance in enforcing motor fuels tax laws, but these resources are not available to the Department on a consistent basis. The Department could improve its tax collection procedures by adopting some of the methods used by the federal government or other states.
Reviewing Economic Development Activities: A K-GOAL Audit of the Kansas Department of Commerce and Housing
The Department of Commerce and Housing has established programs in line with its mission, and it can demonstrate economic results in accord with that mission. However, in many cases the Department has not established specific criteria or gathered the kinds of data it needs to determine whether specific programs are achieving the intended results. Creating the Division of Housing has had little effect on the economic development activities of other divisions. In one case we reviewed, Department officials legally reallocated State General Fund money from the Division of Housing to another division. For the most part, Kansasí organizational structure for housing programs was similar to the structure in other nearby states. Finally, we found the Department did not give proper notice of a public hearing held to consider possible amendment of the State Community Development Block Grant plan.
Reviewing the Process for Issuing Bonds in Wyandotte County and Kansas City, Kansas
Both the City and the County have followed State law regarding the selection of bond professionals, but they have not consistently followed a number of good business practices suggested in the bond literature we reviewed. Our review of bond issuance costs was hampered by incomplete data and proved inconclusive--issuance costs were lower about as often as they were higher. For a sample of negotiated bonds we reviewed, the City appeared to have paid an estimated $2 million in additional interest because the interest rates were set high relative to the market. The City saved about $6.6 million and the County $1 million for the sample of bond refundings we reviewed, but the City has postponed large amounts of debt into the future. Over the past decade the municipalities have spent more than $6 million on bond insurance. The City more than recovered the amount of the insurance premium through lower interest rates on one of the bonds it insured. For the other bonds, information was not available to determine whether the premiums were recovered through lower interest rates. However, the premiums generally were not recovered through other means available to the municipalities. We found that it was fairly commonplace for bond professionals to make political contributions to elected officials. Although we did not find any interrelationships between the bond professionals and the elected officials, we noted that three former City employees work for firms that have served in a lead role on many of the Cityís negotiated bond deals.
Examining Selected Activities of the Board of Agricultureís Marketing Division (100-hour audit)
No specific statute authorizes the Division to conduct international marketing, but such activities are not prohibited under the broad authority given the Division. The Divisionís travel expenditures generally conformed to State travel regulations, and travel appeared to be done in a reasonable manner. Hospitality expenses also generally conformed to State policies, and given the type of work the Division does, none of these expenditures appeared to be inappropriate. The Division estimates that since the beginning of fiscal year 1990, its international marketing activities have benefited Kansas companies and producers by a total of $14.7 million or about 67 times the amount the Division spent on international marketing. But the Division has not systematically documented those benefits, and we were unable to verify all the amounts claimed as benefits.
Mortgage Assistance Programs of the Department of Commerce
Low- and moderate-income homebuyers in the State would benefit from greater State involvement with both the mortgage revenue bond program and the mortgage credit certificate program. The State could administer the mortgage revenue bond program, but would need to contract with bond underwriters, bond counsel, and loan servicers. It could operate the mortgage credit certificate program in its entirety. In both cases, there is the potential to achieve greater Statewide distribution of loans and certificates, reduce homebuyer fees, and increase oversight of the programs.
The Community Development Block Grant program and the Rental Rehabilitation program have been adequately supported by the Department of Commerce. The two programs together have awarded Kansas cities and counties an average of about $1.4 million annually for housing rehabilitation and other housing-related activities.
Examining Issues Relating to Selected Housing Programs at the Department of Commerce
Although the number of housing assistance programs in Kansas gradually has increased, the programs reportedly have received limited support, and the Department of Commerce's Office of Housing has not carried out all the activities authorized or mandated by the 1990 Legislature. Because several aspects of the Low Income Housing Tax Credit Program have not been well-managed, the Department cannot always show how tax credits are awarded, or whether the people who got them should have. The Department's failure to comply with federal requirements also may have resulted in some developers receiving excessive tax credits. Finally, Department staff kept checks totaling as much as $84,000 before depositing those fees in the State Treasury.
Reviewing the Department of Commerceís 1991 Bond Allocations
The Department's process for authorizing localities to issue tax-exempt bonds is inadequate. Some informal policies, procedures, and criteria for processing and evaluating applications exist, but they are not written and do not cover all aspects of the allocation process. The Department's process for allocating bonds in 1991 appeared to comply with applicable laws, but the allocation for mortgage revenue bonds was made much earlier than in previous years. Certain aspects of the allocation process were not adequately documented, but it appeared that decisions for allocating mortgage revenue bonds were, in essence, delegated to the bond underwriters on the Department's advisory committee.
Examining Whether the Department of Commerce Followed Its Procedures in Contracting For Services from Lane Marketing (100-hour audit)
The Department complied with State laws in contracting with Lane Marketing, but its contracting procedures were inadequate in several areas. For example, the contract with Lane Marketing called for payment upon receipt of an invoice. Lane often billed the Department for media advertisements--and the Department often paid those bills--before the advertisements were run. This prepayment practice is not standard for governmental agencies.
An Update of Tax Incentives or Reductions Available to Kansas Businesses
Between 1987 and 1990, the State granted or significantly changed 42 business tax incentives or reductions. These 42 items included changes to incentives for various types of taxes, such as property, retailers' sales, income, and privilege, and severance taxes. Fiscal impact information was available for 34 of the 42 tax incentives or reductions identified, and the estimated annual cost to the State for those 34 items was approximately $70 million.
Criteria for Awarding Venture Capital Moneys Through Kansas Venture Capital, Inc.
Federal and State laws, and Kansas Venture Capital, Inc., Board policies place certain limits on the types and amounts of investments the firm can make. In addition, the firm's staff have numerous unwritten guidelines they consider in evaluating potential investments. In general, Kansas Venture Capital, Inc., appeared to follow the specific federal, State, and Board requirements. We were unable to fully assess whether the firm adhered to all its unwritten guidelines; in many instances, the firm did not keep documentation showing the kinds of analyses and determinations called for by those guidelines. Many of the basic criteria other state programs used in making investment decisions were similar to the criteria used in Kansas.
The Pooled Money Investment Boardsí Loan Program for Farmers and Small Businesses
The Pooled Money Investment Board has offered the low-interest loan Program six times since September 1985, in amounts that ranged from $6 million to $31.5 million and totaled $106.5 million. The Program has cost the State between $1.4 million and $4.9 million in forgone interest, and some of the investments the Board made to fund the Program appear to conflict with the law governing investment of the Freeway Fund. Banks generally used the money to make low interest loans to customers, but four of 17 banks we reviewed did not loan out all the money they received. Most of the loans went to existing customers who refinanced existing debts at lower interest rates. The Program needs well-defined eligibiltiy criteria and effective oversight. Finally, this report presents self-reported data for a sample of economic development programs in Kansas.
Tax Incentives or Reductions Available to Kansas Businesses
The audit provides an inventory of major taxes levied on businesses in Kansas and summarizes statutory exemptions, exclusions, deductions, and other provisions that can allow businesses to reduce their taxes. When available, an estimate of the fiscal impact of each of the statutory provisions is provided.
Economic Development in Kansas, Part I: Overview of Economic Development Activities
Direct State expenditures for economic development are generally lower than in surrounding states. Some nearby states also have dedicated specific revenue sources to economic development. Cities, counties, and local development organizations spend much more than the State on economic development. Local governmentsí activities are funded through general tax revenues, industrial development taxes, and transient guest taxes.
Economic Development in Kansas, Part II: Reviewing Coordination of Economic Developments Groups in Kansas
The auditors visited seven cities across the State and talked with representatives of the major economic development groups for each city. Cooperation among the various groups is perceived to be good. Coordination is mostly informal. The State may be able to improve cooperation and coordination by establishing more contact with various regions and communities through the Department of Commerce.
The legislature authorized the enterprise zone program in 1982 as a means to encourage economic development in distressed areas of Kansas cities. The Department of Economic Developmentís interpretations of the Enterprise Zone Act, especially since its amendment in 1983, have allowed some areas to receive enterprise zone designations which may not meet the spirit of the statutory requirements.
Administrative Office Procedures at the Department of Economic Development
The department is not fully in compliance with affirmative action requirements or with State regulation relating to posting position vacancies, completing performance evaluations and reviewing position descriptions. The audit recommends changes to address these issues.
Administration of the Small Cities Community Development Block Grant Program
Significant errors, miscalculations, and problems in the Departmentís computations affected all community improvement grants reviewed. As a result, the outcome of the first yearís grant awards may have been substantially affected. Corrective action is needed to assure continued federal funding and to restore the Departmentís credibility with local communities. Recommendations are made to correct these problems.
Developing Recreational Facilities at Hillsdale Reservoir
More information is needed from the Park and Resources Authority and the private developer from Spring Hill about their specific proposals for developing public-use recreastional facilities at Hillsdale. Whether that development is provided with State or private funds, options now being considered envision a $3 million initial development, with half being supplied by federal cost-share funds.
State Subsidy of State Agency Affiliated Employee Credit Unions
During recent audit engagements, it was observed that certain state agencies were most likely subsidizing affiliated employee credit unions. To determine the magnitude of the subsidy, if any, and to be able to express an audit opinion on authorized expenditure of state funds, all credit unions chartered to do business in the state should be reviewed.