The Kentucky Legislative Ethics Commission’s latest newsletter indicates that in the first eight months of the year, the Kentucky Economic Development Finance Authority (KEDFA) has approved $124.4 million worth of tax incentives for businesses locating or expanding in the state — a figure that has grown to $830 million since 2012.
Though often touted by Gov. Steve Beshear as a vital and successful tool to attract and retain manufacturing jobs in Kentucky, the program itself is not without criticism from those on both the left and the right who question its efficacy.
The ethics commission report listed some of the biggest recipients of tax incentives over the past few years, featuring such large companies as General Electric, Amazon, Lockheed Martin, General Motors and Toyota — the latter who received the largest incentive of $149 million. The Cabinet for Economic Development provides these incentives, many of which take the form of tax credits and refunds in return for business investments that create or maintain jobs in the state.
Jason Bailey, executive director of the progressive Kentucky Center for Economic Policy, repeated his criticism of these tax credits, saying they further deplete the already dwindling state budget and aren’t always proven to be necessary in the first place.
“These numbers are a reinforcement of an outdated, porous tax code in Kentucky where many corporations simply aren’t paying their fair share,” said Bailey. “Hundreds of millions of dollars are needed for education, roads and bridges, and pensions. But instead of investing in those things, we’re promising future tax dollars to businesses for decisions many of them would have made anyway.”
The last time Kentucky’s General Assembly commissioned a detailed study on the efficacy of the tax incentive program was in 2012, when Anderson Economic Group found that 577 companies had received $1.3 billion of incentives between 2001 and 2010. Those companies reported creating 55,173 jobs — each costing roughly $23,385 — though the consultants stressed that it was impossible to definitively know how many jobs would have been created if Kentucky had not offered the tax incentives in the first place.
Asked if this amount of tax incentives is beneficial to the state, the Kentucky Chamber of Commerce’s senior vice president Bryan Sunderland told IL that they are, so long as they are coupled with proper oversight.
“Generally speaking, the chamber strongly supports efforts to aggressively recruit new jobs to Kentucky with incentives and tax credits, so long as the efficacy of such programs are reviewed to ensure the programs are cost effective and safeguards are in place to protect taxpayers when they are not,” said Sunderland. “In other words, Kentucky should get more than we offer in incentives. Our competitor states are doing just that and Kentucky would lose big if we were not in the game.”
Sunderland said this amount of tax incentives since 2012 “seems quite reasonable” and is small compared to other tax credits and deductions against the income tax, adding, “In a perfect world our quality of life, education system, trained workforce and tax climate would be so good that we wouldn’t need to use incentives; however, other states are aggressively recruiting industry and we must do everything we can to compete.”
Asked if his administration would continue these incentives on such a scale, the campaign for Democratic gubernatorial candidate Jack Conway appeared to agree with the chamber’s assessment of the program.
“Jack is supportive of tax incentives for businesses in order to create and grow jobs in Kentucky, and as governor will conduct a top-to-bottom review of every incentive to make certain they are working as they should,” wrote Conway spokesman Daniel Kemp.
The jobs plan of the Conway campaign features similar language on the Economic Development Cabinet’s incentives program, such as a commitment to “ensuring businesses do their part and create the good-paying jobs they promise.”
The campaign of Conway’s Republican opponent, Matt Bevin, did not respond to IL’s question about the efficacy of these tax incentives. However, asked at an April Louisville Tea Party candidate forum during the Republican primary if it should be the job of government to lure businesses to the state with tax incentives, Bevin indicated strong opposition to this tactic.
“When you’re broke, as we are in this state… it isn’t a function of what can the government do,” said Bevin. “The idea of sending your dollars out to incent people to do certain things is not the right answer. We can’t afford to do it, simple as that.”
Bevin continued: “It is not the role of government. I’m insulted by the idea we take your tax dollars to incent someone to move into your backyard, and to compete against you, when we don’t give the very same break to you as a small business owner. We need to be smarter stewards of the taxpayers’ money in government.”
Independent gubernatorial candidate Drew Curtis noted that he is on Lexington’s Economic Development Board, where he has seen two types of companies apply for incentives: Those who can magnify the impact of the state’s investment, and those “just trying to shake down the government for free money. I’m very much against economic incentives for those. They usually tip their hand by saying ‘If we don’t get the money we’ll have to leave the state’. To which I say: Good. Leave.”
Curtis cited Toyota in Georgetown as an example of the type of tax incentive investment that works to the benefit of the state, saying “when Toyota moved to central Kentucky, hundreds of other companies set up shop here as well. Magnified positive network effects are what I’m looking for if I’m going to offer tax incentives to a company. Just handing out money to keep companies from locating in other states is insane. But any company that can demonstrate an economic benefit to Kentucky — that’s a pitch I’d be willing to listen to.”