Kansas legislators question business and affordable housing tax credit programs over data and costs

Ryan Vincent, executive director of the Kansas Housing Resources Corp., spoke Tuesday to the Legislative Post Audit committee about the importance of affordable housing tax credits. (Morgan Chilson/Kansas Reflector)

TOPEKA — Two tax credit program audits were met with skepticism from the Legislative Post Audit committee Tuesday, one because it lacked data about usage and the other about concerns the state will lose as much as $1 billion in income tax in the coming years.

The committee heard presentations about two tax credit programs, the High Performance Incentive Program, or HPIP, and the Kansas Affordable Housing Tax Credit, or KAHTC.

Sen. Caryn Tyson, R-Parker, asked for limited-scope audits of both programs, seeking an answer to the total dollar amount of tax credits awarded and how much businesses had used them in the past five years.

 

HPIP uncertainty

The HPIP program uses state income tax credits to encourage businesses to make capital investments, said Josh Luthi, principal auditor for the Legislative Post Audit division.

Luthi reported that data challenges prevented the auditors from tracking the amount of tax credits earned and used. He said three different data sets provided to auditors by the Kansas Department of Revenue were “inconsistent” and varied by millions of dollars.

“For example, for tax year 2019, one data set showed businesses earned about $900 million in HPIP credits credits and used about $90 million,” Luthi said. “The second data set showed businesses earned about $230 million in credits and used about $110 million, and the third data set showed businesses earned about $160 million and used about $100 million.”

Kathleen Smith, with the Kansas Department of Revenue, explained why there were three data sets, one of which included duplication of numbers. She said the revenue department believes the third data set is accurate but has an employee dedicated to going through each file to verify all information is accurate.

They expect to have accurate numbers by January 2026, Smith said.

The data is difficult to track because tax credits may be passed through to shareholders of the company who then claim the credits on their tax returns, or the owner of an LLC may use the tax credits, Luthi said. That requires revenue employees to manually process tax data.

“We do not know how much (earned tax credit) is out there that hasn’t been used,” Luthi said.

In addition to the challenge of transferred credits, Smith noted that the tax credits can be used over 16 years.

The inability to determine how much tax credit was unused concerned legislators.

“This is critical,” Tyson said. “That’s part of the reason I requested the audit is because we really don’t know what we’re handing out on one hand, what the state’s obligated for.”

Smith said she had numbers for 2023 that indicate $154.7 million in tax credits were claimed, and of that, $115.1 million in total credit was allowed.

 

Affordable housing tax credits

The affordable housing program offers tax credits for building units that are rented at specific percentages below market prices in the areas they are built. The developments must remain affordable for 30 years.

The tax credits can be used annually for 10 years, and Luthi submitted a chart that showed how the credits offered each year aggregate over time. For instance, in calendar year 2023, $25.3 million in tax credits would continue through 2033.

Added to that number in 2024 was $30.6 million in tax credits, which would continue through 2034. In 2031 through 2035, Luthi’s chart showed that available tax credits would be $107 million per year.

Luthi’s chart showed that over about 14 years, the program would offer tax credits of just over $1 billion.

Since 2023, $73 million in KAHTC tax credits have been awarded for 67 projects statewide, Luthi said.

Ryan Vincent, executive director of the Kansas Housing Resources Corp., which manages KAHTC, said the program has done what was intended by significantly increasing the number of affordable housing developments statewide.

The state credits combine with federal credits, he said. In 2022, before KAHTC, the federal tax credit funded 491 homes in Kansas. Since then the two tax credit programs have funded 2,123 homes in 2023; 2,435 in 2024; and through August of this year, 1,184 homes, Vincent said.

“Just the development budget of the homes that are already built through this program equals $1.5 billion – with a ‘b’ – across Kansas,” Vincent said. “We don’t give the credits until the housing’s built. Without these credits, the homes wouldn’t have been built without the dollars. Without the credits, the dollars wouldn’t have been spent in your respective communities. These programs generate, or these properties generate, short-term economic development and tax revenues immediately.”

Vincent told legislators that changes last session capped the KAHTC program at $8.8 million of tax credits per year, much less than the $25 million to $30 million awarded in 2023 that 2024. The changes also said the state couldn’t use the $8.8 million to participate in a federal program that used private activity bonds, he said.

Because of those changes, Vincent said development probably wouldn’t continue at the same pace that it has in the last couple of years.

Tyson said she had heard negative feedback from constituents about the program, pointing to a person who told her a house built with tax money was sitting empty and wasn’t needed in their community.

Vincent said housing market studies are done to make sure housing is needed in any area before developments are approved and also said developers wouldn’t invest their dollars in rental properties that they didn’t believe could be rented.

Tyson and other legislators raised concerns about the overall cost of the program.

“We’re talking a billion-dollar giveaway,” Tyson said. “And so what that does is ties our hands for future programs and ties our hands for moving forward with the budget and expenditures. I just would like to keep that in mind. I know you keep saying how wonderful it would be to have the cap removed. You haven’t convinced me yet.”

Vincent disagreed with the term “giveaway.”

“I know how much compliance and how much investment and how much work it is for all the parties. Ultimately, I go to those ribbon cuttings. I walk through those developments,” he said. “I have the conversations with the clerk at the Holiday Inn that used to have to drive two hours into Colby because they weren’t able to find a decent, safe, affordable home. Home matters and home pays big dividends, so I ask that you as policymakers remember that.”