Subcommittee on Energy - Alternative Fuels

The Subcommittee on Energy met today in Frankfort and heard two presentation regarding alternative transportation fuels. 

The first was made by two UK researchers who have a federal grant to utilize biomass to create butinol through on farm processing. Legislators were generally very skeptical of whether the combination of our small farms and the economic analysis would make this viable for Kentucky farmers. A copy of the presentation can be downloaded HERE.

The second presentation was made by Melissa Howell, Executive Director of the Kentucky Clean Fuels Coalition. Her presentation was an update of the various projects from ethanol to natural gas refilling stations and various others. The committee only had one specific question, which was the position of the Clean Fuels Coalition on how to fund the Transportation Budget, which relies heavily on motor fuels tax, as more electric vehicles hit the road. Ms. Howell basically said that they were a non-profit that pushed for clean fuels and didn't take a position on those type of issues. A copy of the presentation can be downloaded HERE.

Econ Development Committee - Incentives Study

The Interim Joint Committee on Economic Development met today and were provided a presentation regarding a study of the state's Economic Development incentives. The study was authorized by HJR 5 in 2011 and provided for an outside consultant to be hired by the Legislative Research Commission to study these incentive programs, compare them to peer states, and make recommendations to improve these incentive programs. The study and presentation was handled by Anderson Economic Group the outside consultant. A copy of the full study is available for download HERE and our notes are below. 

Kentucky's programs fared pretty well in the study's comparison to its 13 peer states. Further, the state's business tax and labor cost were also found to be very competitive compared to peer states. Businesses that received Kentucky incentives reported creating 55,173 jobs between 2001 and 2010. This resulted in 33,000 "maintained" jobs per year. The cost to Kentucky of incentive programs were $140 million in 2010 and averaged $3,330 per job per year between 2001 and 2010. The incentive programs in general were found to be effective when compared to an alternative policy of broad-based tax decreases to try and achieve the same goals. The state has seen an increase in knowledge based jobs, particularly due to growth in advanced manufacturing. 

Speaker Pro-Tem Larry Clark, who sponsored HJR 5 that created the study, commented that he thought the report showed Kentucky's Economic Development incentives are better than most legislators thought. 

The report was critical in two areas: Hi-Tech jobs and Cabinet for Economic Development transparency. 

Kentucky has seen strong growth in knowledge based industries: hi tech, advanced manufacturing, and other technology based businesses. However, the report showed that there was still significant brain drain as total employment in knowledge based industries in Kentucky is only 25% of the employment in peer states. Kentucky is getting Hi-Tech/STEM graduates and Kentucky is spending more on research at universities than peer states, but not getting those jobs. Need better working partnership between research universities, Economic Development cabinet and the private sector. 

The other critical area was a lack of transparency and accountability of information coming from the Cabinet for Economic Development. 

That being said it is clear by the very limited recommendations offered by the consultants that there appears to be few changes the General Assembly could take on that would drastically increase the incentives effectiveness. The consultants recommendations were targeted at improving incentive reporting and ways to encourage growth in knowledge-based industries. The recommendations in short were:

- Require more reporting and annual reports be provided on certain programs by the Cabinet, including one comprehensive Annual Report. 

- Put more emphasis on bridging the gap between Economic Development, research universities, and the private sector.

- Consider increasing or expanding the tax credit for R&D expenditures.

A copy of the report is available for download HERE. 

Labor & Industry Committee - Unemployment Insurance Update

The Interim Joint Committee on Labor & Industry met this morning and heard a presentation from Secretary Joe Meyer on Unemployment Insurance. Our notes are below and a copy of the Unemployment Insurance Annual Report is available for download HERE. 

HB 495 

- Bill passed in 2012 Session allowed for method to borrow money to payback interest on Unemployment Insurance dollars borrowed from the Federal Government. Initially thought the money would come from a financing arrangement with KEMI, but instead the state borrowed $76 million from JP Morgan Chase at 1.95%. The Maturity/Pay Off of the loan is in 2018. Didn't use KEMI because JP Morgan was half the finance cost.

- $47.7 million already drawn to payback Commonwealth from the last years interest payment and the remaining $26.3 million is available to make Sept. 23 interest payment for this year.

Overall Unemployment Insurance Status Update 

- $948 million borrowed from Federal Government for Unemployment Insurance benefits as of 1/1/2012. The state borrowed and repaid $37 million earlier this year for cash flow reasons.

- Extra FUTA tax has reduced debt to $918 million as of current date. It is estimated that the debt should be down to $915 million by end of 2012 and below $800 million by the end of 2013. 

- House Bill 5 Reforms related to process and tax changes are fully implemented except for changing the procedures on how employers are notified of new claims, however this should be fully implemented in the next 2 weeks. 

- Appeals and Employer Protests - Secretary Meyer said that there is a perception that the appeals and protest process is tilted against business. However, his testimony was that the numbers don't show that. Of the roughly 83,000 employer protests in 2011, benefits were denied 66% of the time. Of the roughly 22,000 appeals, employers and claimants received similar treatment as each had a favorable decision rate of 31% if they brought the appeal. 

- 8.2% unemployment insurance rate for this month, same as last month. Claims have been cut in half compared to last year. Positive trend from 2009-2012 in terms on initial claims and benefits paid out. 

A copy of the Annual Unemployment Insurance Report is available for download HERE.