By TIM CARPENTER
Kansas Reflector
TOPEKA — State auditors say a Kansas Department of Commerce program distributing $4 million annually in income tax credits to incentivize donations for community service projects lacks transparency because the agency doesn’t fully document its rationale when selecting recipients.
The Kansas Legislature’s auditing arm published a report indicating it was impossible to determine how projects were chosen and whether those decisions were fair. Documentation couldn’t be produced by the commerce department on the initial eligibility screening of applicants and on factors influencing recommendations by the agency’s review committee and final decisions by the commerce secretary. However, information about the department’s scoring of applicants for tax credits was available to auditors.
“What we didn’t see was documentation of the steps that happened before or after that (scoring),” said Andy Brienzo, a supervising auditor with the state. “This is really the meat of the audit.”
The goal of the program has been to amplify fundraising efforts of nonprofit and governmental organizations across the state. Applicants for the incentive have been granted $130 million in state tax credits tied to 811 community projects during the past three decades, auditors said.
Since 1994, the commerce department provided an average of $160,000 in tax credits to projects involving social services, crime prevention, health care, and youth apprenticeships or technical training. Over the past 15 years, the program delivered an average of $4,600 in income tax breaks to more than 10,000 donor individuals, corporations, banks and insurance companies.
Auditors recommended the Department of Commerce do a better job documenting each step of deliberations regarding tax-credit applicants and awards. Specifically, auditors proposed the agency “clearly and completely” document how it determined basic eligibility of proposed projects as well as why it chose each project to receive community service tax credits.
Lt. Gov. David Toland, who also serves as commerce secretary, submitted a written reply to a draft of the audit that said the agency followed protocol when evaluating requests under the Community Service Program Tax Credits or CSP program.
“While we appreciate the time and effort that went into the review, commerce has concern over the audit’s determination that the review process lacks documentation. The standard for documentation was arbitrarily defined by the auditors,” he said.
In terms of initial eligibility reviews, Toland said, the commerce department’s CSP program manager was responsible for verifying applicants met basic requirements. Each eligible proposal was assigned to two independent reviewers for scoring, and those individuals took into account objective and subjective factors.
Toland said there was no documentation requirement applicable to the agency’s committee responsible for reviewing the list of scored projects and the amount of credit proposed. There was no mandate for preservation of documents tied to the commerce secretary’s review of projects endorsed by the selection committee, he said.
He said the commerce department kept track of accepted and rejected applicants by maintaining a spreadsheet that served the administration of a “transparent, thorough and effective” process.
“It is unclear what further documentation is needed in these situations and seems to be based on the personal preference and biases of the auditors,” Toland said.
Toland said the CSP remained “wildly popular” as interest in the program exceeded available state funding by more than $6 million in 2023 and $5.6 million in 2024.
The CSP tax credit is worth 50% of a donation in communities with populations of 15,000 or more and 70% in areas with populations below 15,000. The credit is refundable if the donor owed less in Kansas taxes than they had in credits. The credit could be transferred, which means a donor could sell the credit to someone who owed Kansas taxes.
The commerce department possesses authority to award up to $4.1 million annually through the CSP. The maximum credit for each project has been set at $200,000.
During the life of the program, the Legislature permitted issuance of $134 million in community tax credits. The commerce department responded by awarding $130 million in community tax credits during that period.
In 27 of the 31 years of operation, 95% to 100% of the authorized total was awarded by the agency. Awards dipped to 61% to 88% of the total allowed from 2016 to 2019 after the state budget director “informally” asked commerce to award less due to the state’s financial challenges, the audit said.
The audit report said 12 other states had tax credit programs comparable to the program in Kansas, including Missouri, Iowa and Nebraska.