legislative audit of Kansas’s $1.3 billion in state and local economic development spending finds only a small contribution to state job growth from 2003 through 2007. The audit estimated that the $1.3 billion accounted for just four percent of the state’s job growth, with pre-existing population and employment having a “far larger impact.” It also found no connection between business incentive spending and per capita wage growth.
Like most state performance audits that Good Jobs First once summarized, the Kansas auditors found “junk in” at the Commerce Department, making it hard to avoid “junk out” in the audit. The auditors reported that data was often “unavailable, unreliable, or potentially biased.” For example, they had to rework five years of state commerce agency data that mixed up state, federal, and other sources of money.
As usual, job claims were particularly suspect: combining data from the state’s five development agencies showed 130,000 jobs being created or retained —yet only 43,000 new jobs were reported by the Kansas Department of Labor in the same period! The report attributed this discrepancy to some programs failing to verify if new jobs survive, to double-counting of the same jobs by different programs, and to agencies passively relying on “self-reporting” by subsidized companies.
The audit also noted that subsidies are producing winners and losers within the state. For example, after the opening of the Nebraska Furniture Mart in Wyandotte County, subsidized by municipal STAR bonds, a third of existing furniture stores within a 150-mile radius closed.
Despite their damning findings, the auditors failed to recommend the elimination of any subsidies. They noted that while an extensive literature finds “incentives don’t have a significant impact on economic growth,” states are compelled to offer them since businesses “view them as an entitlement.”
In a remarkably vague defense, the state’s commerce secretary responded to the report by claiming that “The commitment and mechanisms for public and private funding would not exist if there was no perceived value in economic development by the business leaders and the elected officials in local communities. The state senate’s majority leader complained that the audit report “hadn’t resolved the issue of the best way to get the biggest return on the state’s investment.”
Despite the findings, subsidies march on: the state recently enacted a new sales tax break for business machinery that is projected to cost Kansas local governments $404 million a year.