Kansas’s PEAK Subsidy Fails Performance Audit

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bummer for the sunflower stateA Kansas state legislative audit of the controversial Promoting Employment Across Kansas (PEAK) subsidy program found that it is inadequately managed and that previously approved deals exceed the program’s spending cap.

Clawback readers may recall that PEAK is no stranger to controversy – it is Kansas’s most used subsidy in the bitter jobs war with Missouri that continues to ravage the Kansas City metropolitan economy. PEAK diverts the state personal income tax withholdings of employees as a subsidy to those workers’ employers.  It was enacted in 2009 to compete with Missouri’s similarly structured Quality Jobs tax credit, and has unfortunately inspired copycat programs in other states.  (For more information, see Good Jobs First’s 2012 report on personal income tax diversion subsidies, Paying Taxes to the Boss.)

Despite its poor program disclosure, in 2012 the Kansas City Business Journal was able to determine that PEAK was subsidizing short border-hopping company moves primarily in the counties around Kansas City.  At that time, 44 of 55 participating businesses were located in either Johnson or Wyandotte Counties. The list of subsidized businesses included the headquarters of movie theater company AMC Entertainment, which was sold by Bain Capital to a Chinese company shortly after its PEAK award was approved.

The audit provides clear confirmation of PEAK fueling the border war.  Legislative auditors found that all but a handful of PEAK awards were given to companies relocating into JohnsonCounty.  Of the 1,550 jobs represented by companies in JohnsonCounty, all but 110 came directly from Missouri.

More disturbingly, the audit revealed that in general, “officials have prioritized getting companies into the program rather than monitoring and measuring program results.”  Specifically, auditors found that:

  • Assessing the benefits of the PEAK program is difficult because the Department of Commerce has not compiled meaningful information on the program.
  • The department’s data were incomplete because many companies had not submitted the required quarterly and annual reports.
  • The data were also incomplete because the department had not processed companies’ quarterly reports that were filed.
  • The department had not sufficiently verified the self-reported data it compiled in its information system.

The state revenue loss due to the PEAK program has grown from $2.7 million in 2010 to an estimated $12.5 million in 2012.  Among the most damning findings of the audit is the fact that the Department of Commerce has exceeded the statutory financial cap that limits awards made through the program to $6 million annually.  Commerce authorized $7.5 million in PEAK credits for fiscal year 2013.  This has ignited an embarrassingly amateur debate between the department and the legislative audit office over whether the cap is cumulative or annual.

Although disappointing, these findings shouldn’t come as a surprise to those who beat the jobs war drums in Kansas.  Their rush to engage with Missouri’s equally irresponsible fiscal behavior has produced an all too familiar result.

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