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Minutes for SB448 - Committee on Commerce
Short Title
Creating the joint economic development incentive revieew committee and providing for regular evalutions of Kansas economic incentives and reports to the legislature.
Minutes Content for Wed, Mar 21, 2018
Chairperson Lynn opened the hearing on SB 448 and requested Revisor Chuck Reimer to provide an overview of the bill.
Chairperson Lynn recognized Mirielle Burgoyne, The Pew Charitable Trusts, who provided testimony in support of the bill. One of the most important steps a state can take is to set up a process for regular, rigorous evaluation of tax incentives. Kansas lacks a process for regularly evaluating incentives, but SB 448 would change that. Under the bill, all economic development incentive programs would be evaluated, including both tax incentives and cash incentives such as grants and loans. The resulting reports would provide Kansas lawmakers with important information on the results of a range of incentives. This scope mirrors the approach used in other states, including Florida, Oklahoma, and Virginia, all of which are national leaders in tax incentive evaluation.
Most state evaluation processes study economic development incentives on a three to six-year cycle, so the five-year cycle proposed in the bill fits well within that standard range. Research shows that a rotating cycle of this length strikes an appropriate balance of allowing both evaluators and legislators to focus in depth on a subset of incentives every year, while still ensuring that lawmakers regularly receive information on all major incentives.
Finally, the bill provides that Legislative Post Audit staff may include, to the extent practicable, an analysis of a number of factors, including: each incentive program's goals; an estimate of incentives' economic and fiscal impacts; the extent to which incentives change business behavior; an assessment of whether adequate protections are in place to ensure that the fiscal impact of the incentive does not increase substantially beyond the state's means or expectations in future years; and an assessment of whether the incentive is achieving its goals. These criteria for the evaluation strike a balance between ensuring that LPA's studies are consistently high-quality, and also offering some degree of flexibility to provide the information that is most relevant for each incentive.
Once this information is available, lawmakers in states such as Florida, Indiana, Maryland, Missouri, North Dakota, and Oklahoma, have used it to make policy decisions. They have expanded and extended incentives that are working well and reformed or ended those that are not, leading to better outcomes for businesses, workers, and the state budget. (Attachment 1)
Chairperson Lynn recognized Justin Stowe, Legislative Post Audit (LPA), who provided testimony neutral to the bill. (Attachment 2) He highlighted the following three provisions of the bill which would:
- Require LPA to perform an initial study of the state's economic development incentives by July 1, 2019.
- Require LPA to perform regular evaluations of the state's economic development incentives on a regular basis at the direction of the joint economic development incentive review committee.
- Replace about one-third of the performance audits LPA currently performs each year with tax incentive evaluations unless additional staff are added to the office.
Senator Pilcher-Cook asked Mr. Stowe whether the study would review opportunity cost and comparative advantage. He responded these could certainly be items the committee could request to be included in the LPA study.
Senator Pilcher-Cook asked Ms. Burgoyne whether other states have included opportunity costs and comparative advantage when performing their studies. Ms. Burgoyne said it ranges across the states, as sometimes the evaluators choose to select the criteria while other states have the criteria outlined in the evaluation law itself.
Chairperson Lynn asked Ms. Burgoyne to review how Kansas compares with other states in performing economic incentive evaluations. Ms. Burgoyne explained there are three categories: states that are leading; states that are making progress; and states that are trailing. Based on that assessment, Kansas is trailing. States that are leading have both passed evaluation laws and produced high quality evaluations. States that are making progress have passed an initial evaluation law, but are ramping the program up. State that are trailing are those which do not have an evaluation law in place. She commended the audits that have periodically been performed by LPA; however, the methodology is based on evaluations that are regular and recurring.
Senator Olson asked Ms. Burgoyne if any states are performing audits and bringing the results back to a standing committee rather than establishing a separate committee. She responded it ranges widely among the states with some using a standing committee and others establishing a special committee.
Senator Olson asked Mr. Stowe to review the fiscal dollars required to perform the audits and the effect on the number of audits currently being performed if additional funds are not allocated to LPA to perform the economic incentive evaluations.
Senator Bollier asked who brought the bill forward. Chairperson Lynn responded she had pursued the bill as a result of work during the interim concerning economic development incentive programs.
Senator Sykes suggested consideration be given to having a standing committee, rather than establishing a special committee, oversee the study recommendations. Chairperson Lynn responded she did not believe there was a standing committee that would be able to devote the time required to effectively evaluate and implement the study recommendations.
Senator Olson asked how many times the committee would meet during a year. Chairperson Lynn responded it would be up to the committee to determine their meeting schedule. Mr. Stowe said the fiscal note indicated the enactment of the bill would result in the committee meeting six times each fiscal year.
Senator Holland expressed his appreciation to Chairperson Lynn for bringing the bill forward. He referenced the PEAK (Promoting Employment Across Kansas) and STAR (Sales Tax and Revenue) Bond programs. He noted how the programs were initially perceived and then evolved into something else over time, and his concern about how the programs are used. If the programs are not effectively monitored, the State's income tax and sales tax base will continue to erode.
Senator Sykes suggested perhaps LPA could perform the study during the interim and the Senate Commerce Committee could meet on Mondays during the Legislative Session to review the study recommendations.
Written only testimony in support of the bill was submitted by:
- Heidi Holliday, Executive Director, Kansas Center for Economic Growth (Attachment 3)
There was no testimony in opposition to the bill.
Chairperson Lynn closed the hearing on SB 448.
