Larger companies are primary beneficiaries of Kansas program, watchdog group finds

Large businesses have been the primary beneficiaries from a state economic development program, according to a report from a watchdog group released this week.

Good Jobs First, a Washington-based accountability group, found that 95 percent of the dollars spent on an economic incentive program run by the Kansas Department of Commerce went to companies with more than 100 employees or at least 10 locations.

The Promoting Employment Across Kansas program – better known as PEAK – was established by the Kansas Legislature as a way to provide incentives for companies to move to Kansas. Good Jobs First notes that the program, which allows companies to retain 95 percent of their state payroll withholding tax for up to seven years, has contributed to “the ‘economic border war’ within the Kansas City metro region.”

Between 2010 and 2014, Kansas struck PEAK deals with 203 companies at a cost of nearly $44 million to the state, according to the report released Tuesday. Good Jobs First defined 164 of those companies as large companies and found that they accounted for $41.7 million of the program’s total cost.

“State economic development spending is profoundly biased against small, local and entrepreneurial businesses,” said Greg LeRoy, executive director of Good Jobs First and the study’s lead author, in an e-mail. “Our findings definitively confirm what many small businesspeople have long believed.”

Firms must create 10 new jobs in one of the state’s metropolitan counties – Sedgwick, Johnson, Douglas, Shawnee and Wyandotte – or five new jobs in rural counties over a two-year period to qualify for the program, according to the Department of Commerce’s website. Companies must also offer employees “ ‘adequate’ health insurance coverage” by paying at least 50 percent of employees’ premiums.

Commerce officials took issue with the group’s findings and its definition of what makes a small business.

“Good Jobs First’s methodology labeling any firm with more than 100 employees as a ‘large firm’ is not really practical,” said Dan Lara, deputy secretary of public affairs for Commerce, in an e-mail.

Lara noted that the federal Small Business Administration uses 500 employees as the threshold for what constitutes a small business.

“That might be debatable, but an independent, 250 person manufacturing operation is not a large business by any widely used definition,” Lara said.

“Larger firms tend to create more jobs at once. They’re more likely to have PEAK eligible projects and those projects are going to create more jobs by virtue of their larger scale, which will give them higher benefits due to the structure of the program,” he continued.

Lara said a state audit of the program found that the PEAK program adds $57 to the economy for every $1 spent by the state.

Sen. Jeff Melcher, R-Leawood, said the state has other policies designed to help small businesses – such as a tax break for limited liability companies and S corporations – that many large businesses would not be eligible for if they file as C corporations.

Melcher called PEAK “a tool that we can use to tell people, ‘Hey, do business in Kansas – not another state.’ ”

This story was originally published October 21, 2015 at 6:17 AM with the headline "Larger companies are primary beneficiaries of Kansas program, watchdog group finds."