It's the oldest rule in the financial playbook: It takes money to make money.

Kansas spent a lot of money. State agencies spent $453 million, and state and local governments sacrificed $860 million in tax revenue between 2002 and 2007. That's more than $1.3 billion, all for the sake of economic development.

Was it worth it?

A study released Tuesday during a meeting of the Legislative Post Audit Committee tried to come up with a simple answer to a yes-or-no question.

No such luck.

The study’s conclusion, in a nutshell, was that economic development incentives haven’t been particularly effective, but that state and local governments should continue offering them if they want to remain competitive with other states.

Blake Schreck, president of the Lenexa Chamber of Commerce and a veteran economic development official, agreed that the availability of economic development incentives was crucial for communities to stay competitive.

“You just can’t go to the table empty-handed when everyone else has something to offer,” he said.

The study’s authors took pains to emphasize the difficulty of measuring the success of economic development programs.

“It’s very difficult to assess the effectiveness of economic development programs and activities because data often are unavailable, unreliable, or potentially biased,” the study states. “Further, unless pilot projects or other ‘controlled’ experiments are used for comparison purposes, it’s extremely difficult to know what would have happened if governmental assistance had not been provided.”

Economic development agencies claimed many purported benefits of economic development incentives bestowed between 2002 and 2007, including:

• More than 80,000 jobs created
• More than 51,000 jobs saved
• More than 1,600 companies created
• More than $5 billion in capital expenditures by private companies, and about $147 million in matching expenditures by local governments
• More than $967 million in increased sales by client companies, more than $11 billion in estimated payroll for client companies and about $800 million in funding for companies from the federal government and private sources.

 The study, however questioned those claims.

“While these numbers suggest Kansas’ programs have had a significant impact on the State’s economy, the jobs created and saved figures likely include significant double counting…To put the agencies’ reported accomplishments in perspective we compared the reported jobs figures with job data from the Kansas Department of Labor. Between 2003 and 2007, Department of Labor statistics show that the number of net new jobs in Kansas grew by about 47,000. That figure is significantly smaller than the figures agencies reported.”

The study's other findings:

• On average, $27,000 in economic development spending in a county led to one additional job being created or retained in that county beyond what had been projected.

• $1 in economic development spending was related to a $2.46 increase in commercial property values
  

• Of the 115 companies that received assistance since 1998, just 34 percent survived. The average survival rate among small businesses is 44%.

• Only 4 percent of the job growth in Kansas was attributed to economic development spending.

Schreck said there had been instances in Johnson County in which businesses that benefited from tax incentives ended operations, moved, or were absorbed by other companies.

But, he pointed out, even when that happens, “the building is still there so you don’t lose that capital investment.”

He pointed to a real-world example – Applebee’s International – which moved from Overland Park to Lenexa.

“Applebee’s did leave its building in Overland Park to move to Lenexa, but that building is still there, it’s fully occupied and they’re paying the full (property) tax rate.”

The study also pointed out that some projects that have received state and local assistance have benefited one community at the expense of others. For example, since Nebraska Furniture Mart opened in Wyandotte County, furniture sales there have spiked, while neighboring Johnson County has seen furniture sales plummet.

“Johnson County has experienced significant declines in furniture store sales (from 42% of the State total to 19%), while Wyandotte County has experienced significant increases (from 1.5% of the State total to 49%).”

That’s one aspect of economic development assistance that bothers Rep. Lance Kinzer, an Olathe Republican.

“Government should not be in the business of picking winners and losers by making incentives available to one company but not to another,” Kinzer said.

Kinzer, who said he’s not a knee-jerk opponent to the careful use of economic development incentives, said he believed underlying economic fundamentals – infrastructure, education, tax climate and regulatory environment – were the most important factors in attracting new businesses, not economic development assistance.

“The bang we get for the buck from economic development incentives is more speculative than the bang for the buck we’d get if we were focusing on fundamentals,” he said.
 

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