The Kansas Department of Commerce describes Industrial Revenue Bonds (IRBs) as “among the most popular and cost-effective methods of financing up to 100 percent of a new or growing business’ land, buildings and equipment.”
But are they really?
Perhaps for developers, but for taxpayers between 2010 and 2024, IRBs have meant about $1.1 billion in foregone property tax revenues — mostly to school districts — a new report from the Kansas Division of Legislative Post Audit found.
Dave Trabert, CEO of the Kansas Policy Institute, which owns The Sentinel, said that money has to be made up.
“If the property were considered taxable, the amount of tax that a city or county wants to collect would be spread over a larger base and require a lower mill rate,” Trabert said. “Therefore, property tax abatements result in higher mill rates on taxable property, so everyone pays more to subsidize the abatement. When the abatement expires, mill rates aren’t reduced to offset the new property tax revenue; cities and counties just spend more.”
IRBs are bonds issued by a city or county to finance a private project. In effect, the developer or business owner gets to borrow money at the same interest rate — generally significantly better than the developer could get on their own — as the issuing government. However, more often than not, as part of the incentive package, the entity issuing the bonds also issues a property tax exemption known as an IRBX.
The vast majority of the IRBs issued during the audit period were in Johnson (309), Sedgwick (233) and Wyandotte (73) counties.
LPA found that the vast majority of foregone property tax revenue — some $436 million — would have gone to school districts that cannot actually issue IRBs and would have had to make up at least some of the missing funds through property tax increases.
“The state and local taxing entities forgo tax revenue when properties are tax exempt,” LPA wrote. “But this doesn’t mean the state and local taxing entities would’ve received $1.1 billion more in property taxes during 2010-2024 if the projects hadn’t received IRBXs. That’s because it’s likely that at least some portion of the projects would not have developed the way they did had they not received an exemption. Thus, these estimates should be viewed as the maximum potential forgone property tax revenue.”
Trabert said that’s the problem with IRBs and other subsidies.
“Government officials argue that IRB projects (or STAR bonds and other subsidies) wouldn’t happen because the projects aren’t profitable without tax abatements,” Trabert said. “They may not think of it this way, but they are really saying that everyone must pay more so the project owners can make money. Doesn’t that sound like something Karl Marx said?
“If elected officials think these projects are worthwhile, why don’t they put some skin in the game by reducing spending and charging a lower mill rate?”
Additionally, local governments are required to submit a cost-benefit analysis estimating forgone property tax revenue when applying for an IRBX, but those estimates differed substantially from the actual forgone revenue for 23 projects that LPA reviewed.
Likewise, in 2022, LPA audited the IRBX program and estimated the economic and fiscal impacts of 8 IRBX projects over a 30-year period. Part of that work compared CBA estimates for forgone property tax revenue with actual amounts reported by county appraisers.
That audit found that forgone property tax revenue estimates in 6 of the 8 CBAs were between 18% and 266% different than the county appraisers’ amounts. The 2 remaining IRBXs were still active at the time, but auditors estimated they’d likely be significantly different as well.
Moreover, in 2024, three foreign businesses received $282 million in IRBs.
“In this audit, we defined a foreign business as either being organized outside the U.S. or being a U.S.-organized subsidiary of a foreign business,” LPA wrote. “However, we didn’t examine in detail the relationships between subsidiaries and their foreign parent companies. As a result, we can’t comment on corporate ownership structures, decision-making authority, or the flow of money between subsidiaries and their parent companies as it relates to IRB benefits.”
LPA did not find any instances in 2024 of IRBs going directly to a foreign business. All three businesses are U.S.-organized subsidiaries of foreign businesses.
LPA recommended:
- BOTA should work with the legislature during the 2027-2028 legislative session to establish a deadline that defines when an IRBX application needs to be forwarded to them after it is received by the county appraiser.
- BOTA should develop a process to identify and track potential IRBX applications. This could include using IRB informational statements to identify when an IRBX application may be filed and when an application they expected to receive is missing;
- The Kansas Department of Revenue (KDOR) should ensure that its Statistical Report of Property Assessment and Taxation and its abstract system contain accurate data. KDOR should improve its data quality control process to identify questionable data submitted by counties, follow up with counties when issues are found, and correct errors when necessary.
