By Gene Meyer
March 3, 2010

(KansasReporter) TOPEKA, Kan. - A controversial business tax credit once flagged as a drain on Kansas' budget needs more money to help create jobs in Kansas, backers told a Kansas House Taxation committee Wednesday.

Opponents, however, argued that removing a state lid on Kansas Historical Preservation tax credits, which last year were lopped by more than half their previous levels, would perpetuate the inefficient use of taxpayer money and give the recipients an unfair advantage over competitors who aren't similarly subsidized.

The historical preservation credit program, first implemented nine years ago, offers qualifying developers or others a tax refund equal to between 25 percent and 30 percent of expenses they incur restoring or rehabilitating historically significant Kansas buildings for commercial use.

The credit also is one of 12 identified last month by the Kansas Legislative Divsion of Post Audit as measures state legislators may want to re-evaluate because of cost, questionable effectiveness or fairness. Auditors calculated the plan originally projected to cost Kansas $1 million annually was running to almost $8.5 million by 2007, the latest full year available during the audit.

Legislators last year already altered the program sigificantly when, during a last minute round of budget cutting, they included the preservation credit in a longer list of measures and programs to which they intended to apply an-across-the-board 10 percent funding haircut, said Speaker Pro Tem Arlen Siegfreid, an Olathe Republican.

Instead, the cuts went much deeper - between 50 percent and 70 percent, according to differing estimates - because lawmakers miscaluculated the program's size when they capped the plan at $3.75 million, Siegfreid said.

Slashing the fund so suddenly and so deeply simply stopped some development projects and snarled many others, Siegfreid said. He has proposed legislation to remove the ceiling and allow more developers to resume using the plan.

Proponents argued Wednesday that the credits are vital for both large and small communities across the state, both for jobs and construction money created during the renovation and the increased employment opportunities and enhanced tax bases that remain afterward.

"This is a job creation program for the whole state," said Jennie Chinn, executive director of the Kansas Historical Society, which along with the Department of Revenue oversees the plans.

Without such incentives, "attracting businesses to small towns such as Peabody is like trying to win the Powerball," said Shane Marler, of the Peabody Economic Development Council, another of more than 18 proponents supporting full restoration of the credit.

But opponents such as Wichita restaurant owner Craig Gabel, say the credits too often seem to be awarded arbitrarily or go to big developers already using major tax and business breaks.

"My hometown of Ness City, in Western Kansas, applied for credits to help their Ness County Historical Bank Building remain a centerpiece of the town, and they were unable to qualify," Gabel said.

"But the Broadview Hotel in downtown Wichita was able to qualify," Gabel continued.

"This is property that has been subsidized for remodeling and purchase at least four times in the last 25 years, been in bankruptcy a couple of time, just had $2 million worth of STAR bond funds lavished on it, and was awarded a free parking garage with an estimated replacement value of $9 million," he said.

Restoring the credits also would perpetuate a very inefficient system for appropriating state money for developers, said Bob Weeks, a Wichita commentator who publishes Voice for Liberty in Wichita.

The same legislative audit that flagged the unexpectedly high cost historic preservation credits for legislative review also reported that the specific credits examined by auditors on average were generating only 85 cents for each dollar of potential tax revenue Kansas gave up.

"We must recognize that a tax credit is an appropriation of Kansans' money made through the tax system," Weeks said. "If the legislature is not comfortable with writing a developer a check for over $1 million, it should not make a roundabout contribution through the tax system that has the same effect."