Millions of dollars intended for economic development in Kansas have been spent on other purposes with no tracking of whether it was used effectively.
Lawmakers said they were appalled and called for an overhaul of the Economic Development Initiatives Fund on Wednesday after state auditors revealed a lack of accountability in management of the fund.
The Legislature created the fund in 1986. It’s replenished each year with lottery and gaming revenue.
But over the past 33 years, it has become a way to supplement overall state spending instead of fulfilling its namesake purpose. Auditors found that during fiscal year 2018, nearly half of all spending from fund — $20.1 million — didn’t appear to go toward economic development.
“Of course, I was appalled by what I saw … This is just a perfect example of why we need to be looking at these things,” said Sen. Julia Lynn, an Olathe Republican who chairs the Senate Commerce Committee.
The report marked the second time this year auditors have found problems with an economic development fund. A July audit faulted the administration of a jobs creation fund controlled by the Department of Commerce.
Wednesday’s audit showed that in fiscal year 2018, Kansas spent $42.3 million from the Economic Development Initiatives Fund (EDIF). A handful of agencies – such as the Department of Commerce and the Department of Agriculture – received a few million each. Nearly half was sent to the state’s general fund.
Only 18 percent, or $7.8 million, of the money spent from the fund that year went to programs that met state requirements for receiving EDIF dollars, auditors said. The law intends for the fund to help finance innovative Kansas companies or products and support research and development and community infrastructure.
Auditors found eight programs that met the requirements. They included an agriculture marketing program, the Governor’s Council of Economic Advisors, several research and development programs administered by the Kansas Board of Regents and a housing trust fund that helps residents rent or buy homes.
Kansas does not use best practices when awarding EDIF dollars, auditors said. And the state doesn’t track the performance of fund recipients or evaluate whether the fund itself is effective.
State law requires that all funding to the EDIF must go into one of three accounts, but auditors found that the Legislature has not distributed funding to the accounts in recent years. Instead, lawmakers have provided funding directly to agency budgets.
Auditors said that agency, legislative research and state budget officials they approached “were unaware of what (state law) says about these accounts.”
Rep. Tom Burroughs, a Kansas City Democrat, said lawmakers need to fund agency programs properly.
“We’re the ones that have failed on not following our own statutes,” Burroughs said.
Department of Commerce Secretary David Toland said economic development needs in 2019 don’t match the language currently in state law requiring all EDIF funding to go into three accounts. Toland called the language obsolete.
“We strongly encourage the legislature to review this component of EDIF and eliminate the current account language which does not address the needs of economic development today,” Toland said in a letter in response to the audit.
In their report, auditors say lawmakers should consider creating an oversight body to watch over spending from the fund and consider whether state law should continue to require EDIF dollars to flow into the three accounts.
“I definitely think this needs to be overhauled,” said Sen. Rob Olson, an Olathe Republican. “I don’t see a lot of controls in it.”