When a Kansas agency used a jobs fund to give a rural school district $90,000 to start a Future Farmers of America chapter and agricultural education program, officials called it a "unique economic development" opportunity.
State employees objected to the award, but were overruled.
Auditors now are questioning that award and others from the Kansas Job Creation Program Fund. They found the state Department of Commerce, which controls the fund, sometimes provided money without requiring an application and had no written policies guiding who should get funding and how much.
The agency required some companies to produce jobs and other measurable activity to receive an award but not others, an audit report released Monday shows.
Commerce has provided 71 awards totaling $25.6 million from the program over the past five years. The program receives about $3.5 million a year from income taxes paid by all workers in the state.
The agency says it needs flexibility in how it uses what it calls a "deal-closing fund." But it acknowledged that transparency over how the money is spent needs to improve.
The secretary of commerce along with the governor wield ultimate control over the program.
"This is why there's a lack of trust in government right now. Because we have $25 million of taxpayer money that is in the hands of two people and it's been that way for a long time," said Sen. Julia Lynn, an Olathe Republican who chairs the Senate Commerce Committee.
Auditors reviewed five awards in detail, including some that appeared to be typical and others that were unusual.
That included the $90,000 for Renwick USD 267 in Sedgwick County, as well as $80,000 given to the Kansas Business Hall of Fame in Emporia in 2018. The hall of fame used the funding as matching dollars to help build a new facility.
Other awards appear more typical. In 2015, $70,000 was given to New York-based Genesis Corporation, a technology firm, for construction costs and to help create 200 new jobs. In 2014, Wyandotte County received $400,000 to help build a public safety building and commercial development.
Auditors found that while some awards closely matched the purpose of the Job Creation Program Fund, others were not as clearly related to economic development. Specifically, they questioned whether the FFA funding for Renwick schools was what lawmakers had in mind when they created the program in 2011.
Auditors said decisions on how to use the Job Creation Program Fund are largely left to the knowledge and expertise of Commerce staff. The agency doesn't have a formula or written guidance on how to determine how much money to give a company.
Some companies were not required to submit an application for an award. The audit report says requiring an application is a best practice "that helps ensure similar information is gathered and considered for each award." Commerce said only about 4 percent of the projects didn't have an application on file.
In three of five awards reviewed by auditors, the agency provided money without any requirement that the organizations receiving the cash produce jobs or other economic activity.
"The lack of written policies to guide the department's decisions reduces consistency in how awards are made and reduces the program's transparency," the audit report says.
Commerce Secretary David Toland, appointed by Democratic Gov. Laura Kelly, defended the Job Creation Program Fund in a letter to auditors. He called the selection of the five awards for review "arbitrary." All projects that were reviewed complied with the requirements of Kansas law, he said.
"This program helps attract new business to our state, retain and grow existing business and foster economic development. The program is structured to be flexible which allows us to meet the needs of the businesses we serve," Toland said.
But Commerce revealed Monday that some agency employees had problems with the awards to Renwick schools and the Kansas Business Hall of Fame.
"These were projects that were done under previous secretaries. The reason I mention that is that they were done against the objection of multiple staff members who feel it did not meet the required provisions or intended goal of what JCF was for. They were carried out regardless," David Soffer, the public service executive at Commerce, told lawmakers Monday.
Both Toland and Soffer said Commerce wants to improve the transparency of the fund. In his letter, Toland said the fund has helped create 12,916 jobs and retained 20,196 jobs between 2014 and 2018.
Commerce is a frequent target of legislative scrutiny over its business incentive programs. Toland said dollars from the Job Creation Program Fund are given to only 2-4 percent of all major economic development projects the agency funds each year.
Kelly told reporters on Monday afternoon that she had not seen the audit, but said Kansas is reviewing all incentive programs.
"There just hasn't been an evaluation process for each of them to make sure we're getting our bang for our buck," Kelly said. "And so the job creation fund is just one more we'll take a good, close look at."
Senate Minority Leader Anthony Hensley, a Topeka Democrat, said the audit demonstrates the need for tighter standards on how the Job Creation Program Fund is used. Hensley said he trusts Toland to make good decisions, but added that Toland will not always head the Department of Commerce.
"In the past, we've had some secretaries I think have been pretty fast and loose with the decisions they've made using a great deal of money that's provided by the taxpayer," Hensley said.
(c)2019 The Wichita Eagle (Wichita, Kan.)
