Kansas Health Institute | Information For Policy Makers. Health for Kansans.

TOPEKA — The Senate Commerce Committee this week is expected to discuss trading one tax break for another in an effort to expand a job-creation program at little or no additional cost to the state budget.

Sen. Karin Brownlee, R-Olathe, committee chairwoman, said she and Rep. Marvin Kleeb, R-Overland Park, have been working with the departments of revenue and commerce on a plan to partially repeal a business tax credit that has been on the books since 1976 to cover the costs of expanding a new program that economic development advocates believe can be more effective in creating and retaining jobs.

The plan is scheduled for discussion beginning at 8:30 a.m. Wednesday in Room 548-South at the Statehouse and could continue Thursday.

Limiting eligibility

Under the proposed compromise, eligibility for the old business and job development tax credit would be limited to rural businesses in an effort to both trim the program’s annual $12 million cost and target benefits to businesses that could put them to best use, Brownlee said.

“We want to hit that ‘but for’ test,” she said, meaning she wants to ensure that the money goes to businesses that wouldn’t have created jobs without the tax credit.

In exchange, Brownlee said, the relatively new Promoting Employment Across Kansas, or PEAK, program would be expanded. Currently, only out-of-state businesses that create jobs in Kansas are eligible. The change being proposed by Kleeb in House Bill 2538 would open the program to Kansas businesses that create new jobs and out-of-state companies that purchase but don’t move Kansas businesses out of state.

Qualifying businesses would be eligible to retain most of their employees’ state withholding taxes for up to five years.

The Kansas Department of Revenue has estimated that the cost of expanding PEAK would grow from $6.1 million in the first year to $32.8 million in year five. But Kleeb contends that by the fifth year, the additional taxes paid by those hired to fill the thousands of jobs created by the program will amount to $18 million more than its cost.

"Real jobs"

Gov. Mark Parkinson said he would likely veto the PEAK expansion bill in its original form. But Revenue Secretary Joan Wagnon said recently that the trade-off under discussion might address the governor’s concerns.

Parkinson, a Democrat, in a recent interview with KHI News Service, said his top priority is avoiding further cuts in funding for public schools and state universities, which he believes are more important to the state’s long-term economic health than many economic development programs.

“I think we need to get away from all these tax breaks and tax incentives that we’ve had in the past and really focus on what will create real jobs for the state,” Parkinson said.

The recession and dwindling state revenues have forced Parkinson and legislators to cut approximately $1.3 billion in state spending over the past two years and they are facing a projected $450 million deficit in the coming budget year.

Parkinson charged recently that the Legislature and previous governors have been on a “tax cutting binge” for the past 15 years that has eroded the state’s tax base and made it difficult to sustain core programs and services.