A new audit of a Kansas economic development fund reveals 18% of available dollars were used as intended, underscoring legislative failings and a lack of accountability for how the money is handled after it is dispersed.
The report by the Kansas Legislative Division of Post Audit shows lawmakers failed to follow state law in appropriating $42.3 million dollars from the Economic Development Initiatives Fund in fiscal year 2018. Legislators who were briefed on the report during a Wednesday hearing voiced concerns about whether state law should be revised or if the initiative should be abandoned.
Sen. Julia Lynn, a Republican from Olathe and chairwoman of the Senate Commerce Committee, said she was "appalled" by the findings in the report. She said the work of auditors provides an opportunity to re-focus economic development programs.
"They need to be restructured," Lynn said. "Their purpose needs to be fully defined and measured. Maybe they don't even need to exist."
Under a state law passed in 1986, the EDIF is supported by revenue from the state lottery. The Legislature is supposed to direct money into three accounts, each with a specific focus. Those accounts would fund programs for innovative products, research and development or community infrastructure.
Instead, the Legislature swept $20.1 million into the state's general fund and allocated the rest directly to state agencies.
The state failed to follow best practices in determining how the money was spent, the audit determined. The state made no effort to track the performance of programs receiving economic development funds or to evaluate whether the funding was effective.
Programs should have clear and measurable objectives, the audit said, and there should be an application process to establish clear expectations.
Auditors traced the $42.3 million in spending and found $7.8 million went toward programs that align with the three areas specified in the 1986 law.
"This statute needs to be reworked, redone, revisited, re-something," said Rep. Jim Gartner, D-Topeka. "It is out of date. We're not following the statute."
The Legislature allocated EDIF funds for fiscal year 2018 to Kansas State University, the Kansas Board of Regents and departments of agriculture, commerce, and wildlife, parks and tourism. Officials at three of the five agencies told auditors they managed the funds like state general funds, rather than money earmarked for economic development.
Auditors recommend the Legislature use the three accounts established by state law, or amend the law. Additionally, the audit says, the Legislature should create an oversight board to monitor the use of economic development funds.
David Toland, commerce secretary, said the language in the 1986 law is obsolete and should be eliminated.
"It is very clear the economic development needs of 2019 do not match the same needs as when this statute was written," Toland said.
In 2018, the department received $9.5 million in EDIF funds. The agency uses the money to administer programs and for operating costs, Toland said.
Rep. John Toplikar, R-Olathe, took issue with a $600,000 public broadcasting grant paid for with the economic development dollars.
He said it was difficult to see how the four TV stations and five radio stations that receive funding through the grant met the statutory intent of supporting new and existing business.
"I wonder how does public broadcasting do that with their half million?" Toplikar said. "And how do they foster new industry growth? We either need to change the law or hold their feet to the fire."
Sen. Rob Olson, R-Olathe, said the audit shows a need to overhaul the use of funds.
"This whole thing needs to be gone over with a fine-tooth comb," Olson said. "We need to put some real controls over it."