Yesterday the Kansas Legislative Post Audit Committee received an audit recently completed by the Legislative Division of Post Audit. The audit, titled Kansas Tax Revenues, Part I: Reviewing Tax Credits, revealed that the historic preservation tax credit program is not efficient. Further, the Department of Revenue is not accurately tracking the cost of the program.
Historic preservation tax credits provide funds to those who wish to renovate qualified historic buildings. Last year the legislature placed a cap on the dollar amount of credits that could be issued, and that caused some developers in Wichita to complain that their projects were no longer economically feasible. The city has made expansion of the amount of available credits a legislative priority. Wichita Governmental Affairs Director Dale Goter (in plain language, the city’s lobbyist) was present at the committee hearing, as was I.
In the audit, the historic preservation tax credit is identified as a program that the legislature may want to re-evaluate. In this case, the program is significantly more expensive than originally planned. The fiscal note that accompanied the tax credit legislation when passed in 2001 and revised in 2002 estimated an annual cost of $1 million. In 2007, the actual reported cost was $8.5 million.
The audit also finds that the historic preservation credit is not cost-effective:
The Historic Preservation Tax Credit isn’t cost-effective. That credit works differently than the other three because the amount of money a historic preservation project receives from the credit is dependent upon the amount of money it’s sold for. Our review showed that, on average, when Historic Preservation Credits were transferred to generate money for a project, they only generated 85 cents for the project for every dollar of potential tax revenue the State gave up.
The audit also found that there were data recording problems at the Kansas Department of Revenue regarding the tax credits. The audit found that some tax credits weren’t recorded in a tracking database, even though the credit had already been claimed on a tax return. Over a five-year period, about $6 million in tax credits was under-reported by the Department of Revenue. This is the information that lawmakers had concerning the cost and performance of the tax credit program.
The audit noted “The Department doesn’t have sufficient computer controls to ensure that its database entries are accurate. … Finding problems like these in a relatively small sample raises questions about the integrity of the Department’s tax credit information.”