FRANKFORT — Kentucky needs an independent review of its tax-incentive programs to determine what they cost the state in lost revenue and if they produce the jobs intended, House Speaker Pro Tem Larry Clark, D-Louisville, told a Senate panel Tuesday.
Clark and the rest of the House Democratic leadership are sponsoring House Joint Resolution 122, which authorizes the legislature to hire a consulting firm to study how tax incentives are awarded under 15 programs. The House approved the measure Feb. 24 without opposition.
On Tuesday, the Senate Economic Development, Tourism and Labor Committee briefly discussed the bill but did not vote on it. Committee Chairwoman Alice Forgy Kerr, R-Lexington, said she expects approval next week.
First, she said, she wanted to hear how the state Economic Development Cabinet, which administers tax incentives, feels about an outside study. Economic Development Secretary Larry Hayes told the committee the cabinet supports it.
"We're on board to cooperate any way we can," Hayes said.
Kerr noted that the cabinet in 2007 paid University of Kentucky economist Kenneth Troske $75,000 to study the effectiveness of tax incentives.
In that report, Troske concluded that tax incentives have had a small positive effect on the state's economy, but he couldn't determine whether the economic benefits of the programs outweigh the cost of providing government services demanded by new companies and their employees.
The state's worker-training programs were far more cost-effective, he found.
The report also showed that Kentucky's strategy of luring businesses with tax breaks hadn't produced the number of new jobs state officials claimed. Although Kentucky companies had received tax breaks to create 127,137 jobs since 1989, the report said Kentucky would be missing only 19,246 of those jobs had it not spent $788 million on the incentives.
The 2007 analysis came one year after the Herald-Leader published a series of articles that determined the Cabinet for Economic Development had done little to gauge the effectiveness of its incentives, was more secretive than counterparts in other states, and sometimes loosely monitored its programs.
Clark told Kerr a new study would be valuable because it would be conducted independently of the cabinet and would cover more territory.
"We just want a measuring stick so we can know we're doing the right thing and they're effective," Clark told the committee.
