By Tim Carpenter, Kansas Reflector
TOPEKA — Kansas Department of Commerce secretary David Toland shared with state legislators his frustration with the third state audit of Kansas’ use of federal infrastructure grants aimed at revitalizing the economy in the wake of the COVID-19 pandemic.
Toland’s written response, and his decision not to attend the Kansas Legislature’s meeting Monday for the public release of the Legislative Division of Post Audit’s latest examination, prompted two of his Republican critics to threaten a fourth audit of the Commerce Department or leveraging of subpoena powers to get the attention of agency leadership.
“Thousands of staff hours have been spent responding to these audits, all at taxpayer expense,” Toland said in a letter to auditors and shared with House and Senate members. “Yet, like the other two audits conducted on the BASE grants, no recommendations to the agency were made in this audit by LPA.”
He said the Legislature’s Republican-led audit committee had compelled the Commerce Department to take part in a dozen audits since 2022.
Toland serves as lieutenant governor in the administration of Democratic Gov. Laura Kelly. Until Tuesday, he was considered a potential candidate for governor in 2026.
In the latest audit, examiners looked at the state’s BASE 1.0 and BASE 2.0 grant programs financed through the federal American Rescue Plan Act. ARPA was created in 2021 to jumpstart economic development projects delayed or slowed by the pandemic.
The new chapter in the auditing series focused on Kansas’ decision to require grant recipients to contribute a 25% match to qualify for an ARPA award. Auditors reviewed the decision to allow expenditures made in the year before the pandemic struck in 2020 to be included in calculations to determine match compliance.
“There are many unanswered questions,” said Rep. Kristey Williams, an Augusta Republican. “At this rate, maybe we need a fourth audit, because it’s really frustrating that this is minimized.”
Program decisions regarding BASE grants were reviewed by the executive committee of SPARK, a panel created by the Legislature and otherwise known as Strengthening People and Revitalizing Kansas. Toland was a member of that seven-member panel, along with Senate President Ty Masterson and then-House Speaker Ron Ryckman, both Republicans; a Kelly administration Cabinet member; and prominent businessmen Greg Orman, Jon Rolph and Bill Pickert.
Sen. Caryn Tyson, R-Parker, said the BASE audits revealed issues worthy of further scrutiny.
“It demonstrates a pattern of behavior,” said Tyson, who raised the prospect of the committee relying on its subpoena power to compel the Commerce Department to engage with the committee. “If we have to, we can invoke the authority that this committee has in order to get this information.”
Auditing of the BASE program was ordered by the GOP-controlled legislative audit committee comprising House and Senate members.
Sen. Pat Pettey, a Democrat from Kansas City, Kansas, said it made sense for the committee to submit follow-up questions to agencies involved in audits. In terms of the Commerce Department and the BASE grant program, she said, the extensive interest in the topic among some legislators was puzzling.
“To me, it does appear to be overkill,” she said. “I’m at a loss. There’s been three audits. I’m at a loss as to this attitude toward Commerce.”
In the most recent audit of BASE, or Building a Stronger Economy, grants indicated nearly $150 million in federal funds was funneled through the Commerce Department for infrastructure projects in the first and second rounds of awards.
Kansas auditors reported they studied all 72 BASE grant award agreements in Kansas. They found matching expenditures acceptable to the Commerce Department included construction costs, such as labor and materials; non-construction costs, such as land purchases; and administrative costs, such as payroll services. Eighty-three percent of matching funds were linked to construction costs.
“Commerce was focused on moving at the speed of business and getting the money deployed, instead of being punitive or punishing applicants during the already difficult situation caused by COVID-19,” Toland’s letter said.
There were 35 recipients of BASE 1.0 funding in 2022, while there were 37 recipients of assistance in BASE 2.0 during 2023. BASE 1.0 grants totaled $99 million and BASE 2.0 allocated $45.5 million.
The Kansas Department of Commerce, as with the states of Missouri, Nebraska and Oklahoma, required recipients to provide matching funds equal to 25% of the project cost. There were no federal laws or rules that directed use of matching funds within the BASE program.
Toland told auditors the Commerce Department and the SPARK executive committee believed the matching grant concept was important so that awardees had “skin in the game.” He said the idea acknowledged “best practices” in economic development and amplified impact of the federal government’s investment. Overall, match recipients contributed $275 million to the 72 projects tied to BASE grants in Kansas.
The audit report documented two instances in which grants were approved by the Commerce Department despite projects falling short of the 25% match rule. The city of Ottawa was approved despite a match of 24.6% and the Friends of the Free State Capitol had a match of 24.4%.
“I unapologetically stand by these decisions,” Toland’s letter said. “The Department of Commerce exists to grow the Kansas economy. A project that will have a catalytic impact on our economy for decades to come, but that is 0.4% below a voluntarily imposed match threshold, should have the opportunity to come to fruition.”
Toland said none of the three audits tied to the BASE program documented positive results of the program.
“The projects supported by BASE 1.0 and 2.0 will set these businesses and communities up for long-term success that would otherwise not have been possible without this program,” Toland said.
In May, legislative auditors shared results of a review of how the Commerce Department scored hundreds of applications for BASE 1.0 funding. The assessment indicated the Commerce Department didn’t fully document the process of deciding who won awards.
In a separate BASE audit in February, auditors said recipient SOFTwarfare didn’t spend all the $3 million grant to build a $4 million micro data center in Great Bend within two years as the original contract required.
