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.