Kentucky

Tax incentive evaluation ratings

Tax Incentive Evaluation Ratings: Kentucky

Rating: Trailing

Key points:

  • Kentucky is trailing other states because it has not adopted a plan for regular evaluation of tax incentives.
  • Evaluations could help determine the effectiveness of the Kentucky Business Investment Program, under which officials have approved hundreds of millions of dollars in incentives.
  • The Cabinet for Economic Development has built a rich database on incentives, which could prove valuable if the state were to begin evaluating the programs.

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Kentucky hired a private economic consulting firm to produce a comprehensive evaluation of the state’s economic development incentives in 2012. This impressive document included rigorous analysis of the impact of the state’s economic development programs as well as recommendations for improving their effectiveness.That one-time study, however, has not been followed by the creation of an ongoing process for evaluation of the state’s incentives. 

If Kentucky established regular evaluations, as many other states have done, it would be able to draw on a rich database built and maintained by the Cabinet for Economic Development. The database includes the names and locations of businesses with incentive contracts, their average wages, whether they’ve met job creation commitments, and the costs of the incentives.b The database serves a variety of audiences, including businesses, local economic development organizations, and journalists.Evaluators could aggregate and analyze the data on a programmatic level and draw conclusions about the effectiveness of incentives.

In 2009, about the same time Kentucky created the database, lawmakers also shifted the state’s approach to economic development, eliminating several incentives and creating others. The most significant change was the creation of the performance-based Kentucky Business Investment (KBI) Program.Under the program, the state enters into contracts of up to 15 years with businesses to provide incentives so long as they meet job creation, wage, and investment targets.The state has approved hundreds of millions of dollars in KBI incentives—costs that will gradually affect the state budget if businesses fulfill their commitments.Regular evaluations of KBI and other Kentucky incentives could help show whether these programs are worth the price and identify ways they can work better.

Endnotes

  1. Anderson Economic Group, “Review of Kentucky’s Economic Development Incentives,” prepared for the Kentucky Legislative Research Commission (June 11, 2012), http://www.lrc.ky.gov/Lrcpubs/AEG%20KY%20Incentive Report_jun112012.pdf.
  2. Kentucky Cabinet for Economic Development, “Kentucky’s Financial Incentives Database,” accessed Feb. 1, 2017, http://thinkkentucky.com/fireports/FISearch.aspx.
  3. Mandy Lambert (commissioner, Department for Business Development, Kentucky Cabinet for Economic Development), interview with The Pew Charitable Trusts, Sept. 28, 2016.
  4. Kentucky Rev. Stat. § 154.32-010 to 100, http://www.lrc.ky.gov/statutes/chapter.aspx?id=37792.
  5. Kentucky Cabinet for Economic Development, “Just the Facts: Kentucky Business Investment (KBI) Program” (July 2016), https://www.thinkkentucky.com/kyedc/pdfs/KBIFactSheet.pdf.
  6. Kentucky Cabinet for Economic Development, “Kentucky’s Financial Incentives Database.”
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Tax incentives—including credits, exemptions, and deductions—are one of the primary tools that states use to try to create jobs, attract new businesses, and strengthen their economies. Incentives are also major budget commitments, collectively costing states billions of dollars a year. Given this importance, policymakers across the country increasingly are demanding high-quality information on the results of tax incentives.