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TOPEKA — A compromise appears to be in the works on a proposal to expand tax incentives for companies that create or maintain jobs in Kansas.

Reacting to a veto threat from Gov. Mark Parkinson, backers of the bill are talking with Kansas Revenue Secretary Joan Wagnon and Commerce Department officials about ways to limit its impact on the state treasury at a time when slumping revenue collections are forcing legislators to cut budgets and consider tax increases.

Wagnon made it clear Wednesday during testimony to the Senate Commerce Committee that the bill, which has already passed the House, faces a likely veto.

“I believe that I can say with some certainty that this administration believes that we cannot afford this bill in its current form,” Wagnon said.

Asked by Sen. Karin Brownlee, R-Olathe, the committee chairwoman, if compromise was possible, Wagnon said making the bill revenue neutral “would go a long way” toward reducing the administration’s opposition.

Rep. Marvin Kleeb, R-Overland Park, main sponsor of House Bill 2538, said he met with Wagnon on Tuesday to discuss a possible compromise. They talked about repealing the business and job development tax credit that has been on the books since 1976 to make way for an expansion of the Promoting Employment Across Kansas program, which is commonly referred to as PEAK.

“The economic development folks are firmly behind that trade-off,” Kleeb said, referring to a coalition of local chamber of commerce directors who support the bill.

Currently, PEAK allows only out-of-state companies that create jobs in Kansas to retain a portion of those employees’ withholding taxes for up to five years. The bill would let Kansas businesses that create new jobs or out-of-state companies that purchase Kansas firms but don’t move the jobs to also qualify.

As originally proposed, the cost of expanding the program would grow from $6.1 million in the first year to $32.8 million in year five, according to the revenue department. Kleeb said when the economic benefits of creating thousands of new jobs are plugged into the analysis, it shows that by the fifth year the expansion would generate $18 million more in tax revenue than it would cost.

Wagnon said approximately 400 Kansas businesses of all sizes currently take advantage of the business and job development credit at a cost to the state of approximately $11.2 million. Qualifying businesses receive an income tax credit of $100 for every $100,000 they invest in a project that leads to the creation of at least two jobs and another $100 for each new job.

A comprehensive study of tax credit and refund programs released last month by the Legislative Division of Post Audit listed the business and job development credit among those the Legislature should re-evaluate. The report said, “it’s unlikely that the state receives benefits that justify the costs of this credit.”

Several members of the commerce committee said they were eager to create effective business incentive programs to help lead the state out of the recession but reluctant to fund expansion of an untested program at a time when they were being forced to cut budgets and consider tax increases.

"We will all need bodyguards if the public perception is we’re cutting budgets and doing something like this,” said Sen. Susan Wagle, R-Wichita.

At Wagle’s suggestion, the committee will attempt to schedule a briefing from Legislative Post Audit officials on Tuesday before considering possible changes to the PEAK bill on Wednesday.

Parkinson, a Democrat, put the issue of tax breaks in the spotlight last week by charging that the Legislature had been on a “tax cutting binge” since the mid-1990s. He said the tax breaks enacted since then had cost the state $9 billion in lost revenue and hampered its ability to sustain education and social service programs.