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Minutes for HB2006 - Committee on Commerce
Short Title
Requiring the department of commerce to create a database of economic development incentive program information.
Minutes Content for Wed, Mar 13, 2019
Chairperson Lynn continued the hearing on HB 2006.
Chairperson Lynn recognized Elizabeth Patton, Americans for Prosperity-Kansas, who provided testimony in support of the bill. Americans for Prosperity has been committed to promoting fairness in public policy by standing up against taxpayer-funded corporate handouts. One important first step for positive reform is increasing government transparency. HB 2006 does this by requiring the Department of Commerce (DOC) to publicly disclose economic development incentive program data. This bill will help empower Kansas citizens to hold our elected officials accountable with their tax dollars.
Targeted economic development incentives are costly and generally ineffective. According to the Mercatus Center, states spend somewhere between $48 billion and $70 billion annually on targeted incentives. Yet neither economic theory nor empirical evidence suggests that these targeted incentives work. Research indicates those states that hand out more targeted incentives tend to have lower levels of measured economic freedom. In other words, the states that pursue targeted approaches more vigorously seem to be less likely to pursue the growth strategy that actually works.
By requiring the state to publish information about program costs, returns on investment, benchmarks for continued funding, and qualification criteria, HB 2006 will help shed much needed light on spending programs that currently lack transparency. This information will allow taxpayers and lawmakers to learn more about exactly where the dollars are going and to push for reforms and elimination of programs that are not paying off. The next step will be for lawmakers to follow through with reforms that seek to eliminate all of these expenditures in favor of lower tax rates across the board. Prosperity comes when government gets out of the way. (Attachment 2)
Chairperson Lynn recognized Eric Stafford, Kansas Chamber of Commerce (Chamber), who provided testimony in support of the bill. The Chamber was opposed to this legislation on the House side as it was initially introduced. As introduced, HB 2006 only required a transparency website to list recipients of economic incentive programs with no follow through for recommendations on evaluating these programs. The Chamber suggested the House Committee look at information from both the Pew organization, as well as the State of Indiana who has been a leader in review of economic incentives.
Pew recommends states take these three steps:
- Make a plan. Lawmakers need to put processes in place to regularly evaluate the results of major tax incentives. Well-designed evaluation plans ensure that the state's full portfolio of incentives is examined, that nonpartisan staff with relevant expertise are tasked with the analyses, and that the reviews take place on a strategic schedule.
- Measure the impact. High-quality evaluations assess the results of incentives for the state's budget and economy. Evaluators must estimate the extent to which incentives successfully changed business behavior, as opposed to rewarding what companies would have done anyway.
- Inform policy choices. Lawmakers and executive branch officials should use the findings of evaluations to improve the effectiveness of tax incentives. Policy improvements are more likely when states have a formal process that ensures lawmakers will consider the results, for example, by holding legislative hearings on evaluations.
HB 2006 is starting down the right path to effectively measure economic incentives. The bill does not include guidance for recommendations if incentive programs are not working as intended. Indiana's statutes grant their auditing agency the authority to make recommendations on their incentive programs. The testimony included sample language from Indiana's statute and referenced several Pew and Indiana websites concerning tax incentive evaluation documents. (Attachment 3)
Senator Sykes asked Mr. Stafford if he would be in support of claw backs for tax incentive programs when expected results are not achieved. He answered affirmatively.
Chairperson Lynn asked whether any members of the Chamber had performed independent evaluations on incentives that have been in place to determine what the return on investment had been. Mr. Stafford said he was not familiar with specific evaluations but recognized the importance of accountability to fulfill obligations.
Chairperson Lynn noted management of the deal-closing fund is up to the discretion of the Secretary of Commerce with no oversight from the Legislature. Mr. Stafford replied additional transparency on this issue could be included as a reporting requirement from the Department of Commerce.
Senator Sykes asked Mr. Stafford if he had had conversations with the Acting Secretary of Commerce. He replied the DOC has requested monthly meetings with the Chamber to maintain communications and work together to promote Kansas.
Senator Givens asked if the bill would reach into private activity bonds. Mr. Stafford responded he did not know but suggested the bill could be made more clear concerning what programs are to be evaluated, measured and reported on.
Chairperson Lynn said the intent of the bill is to identify, measure and report on all of the tax incentive programs available in Kansas. It is the fiduciary responsibility of the Legislature to provide the policy direction and to oversee the activities of the agency that is dealing with taxpayer funds.
Senator Alley questioned whether the database should go as far as the city and county level. Mr. Stafford responded that was a decision for the Committee. He said the Chamber prefers the review aspect of the bill over the transparency website. The first goal should be a review of the accountability and effectiveness of the programs.
Senator Alley asked if the incentive program reviews found programs that are no longer being used, whether Mr. Stafford would be in favor of sunsetting the programs. Mr. Stafford responded affirmatively and noted the language of the statute needs to give the Legislature the authority to take such actions.
Senator Baumgardner commented there is a cultural shift, not just in Kansas but across the nation, for more transparency and for taxpayers to be informed about what is happening in their state and how state resources are being utilized. It is up to each legislator to determine how deeply he or she wants to explore any issue. There are so many exemptions and incentives on a national, statewide and local level, that it is not until we put all the information together that we see how significant those incentives play a role in what happens in our local community. The bill is needed because the information has not been available for analysis and action by the Legislature and local authorities.
Chairman Lynn noted the layering effect of multiple incentive programs.
Written only testimony was provided by:
Kevin Walker, Vice President of Public Policy and Advocacy, Overland Park Chamber of Commerce (Attachment 4)
Michael Austin, Director, Center for Entrepreneurial Government, Kansas Policy Institute (Attachment 5)
Tim McKee, CEO, Olathe Chamber of Commerce (Attachment 6)
Steve Kelly, Kansas Economic Development Alliance (Attachment 7)
There was no testimony in opposition to the bill.
Chairperson Lynn closed the hearing on HB 2006.
The meeting adjourned at 9:20 a.m. The next meeting is scheduled for March 14, 2019.
