Kentucky’s budget is on a starvation diet. But lawmakers keep dishing up tax breaks.
Economic suffering is all too real in rural Kentucky. So what is the legislature prescribing? A $60 million dose of corporate welfare for banks and insurance companies.
Lawmakers just cannot stop dishing up tax breaks, even as they struggle to balance a state budget that falls far short of Kentucky’s needs — and even as the state exempts from taxes more money than it collects for the General Fund.
The likelihood is growing that this legislature in its final days will increase some taxes. Just remember: No tax plan can be called “reform” if it leaves the $13 billion in tax exemptions untouched and unexamined.
House Bill 6, which cleared a Senate committee on Tuesday, would transfer $60 million from state coffers to banks and insurance companies in the future, in hopes of stimulating rural economies, but with no requirements or guarantees that any jobs will be created or saved.
What’s guaranteed is a whopping big tax break for the banks and insurance companies that will rush to put money into rural growth funds also known as rural business investment companies.
The $1 for $1 return that HB 6 provides to banks and insurance companies would be Kentucky’s most generous tax credit, testified Pam Thomas, a senior fellow at the Kentucky Center for Economic Policy who formerly headed the legislature’s budget staff. Just breaking even would give the banks and insurance companies a 100 percent return on investment so long as the rural growth funds raise $40 million from other sources.
While the federal government has a rigorous competitive process for awarding rural investment tax credits, all HB 6 requires is properly filling out the paperwork. It’s possible HB 6’s subsidies could support businesses anywhere, including cities, if a company had enough highly paid employees (constituting 60 percent of payroll) in a qualifying rural county.
HB 6 is a Senate vote and some House-Senate negotiating away from final passage. Meanwhile, an accountability measure that would examine for the first time whether such tax breaks work has gone nowhere. House Bill 432 would set up a process for reviewing the state’s many economic development incentives every six years. A panel of lawmakers would weigh the benefits and costs and report annually. The bill hasn’t budged.
In Lexington, a break the legislature enacted in 2011 is being activated at a predicted cost of $32 million over 20 years to subsidize development of the University of Kentucky’s Coldstream Research Park. If the Kentucky Economic Development Finance Authority approves, developers would be exempted from $16 million in city taxes and $16 million in state taxes to help them build infrastructure to serve their projects.
Known as tax increment financing, this break was intended to rejuvenate blighted areas but the legislature has steadily expanded it to subsidize even development of greenfields in prime locations, in Coldstream’s case at the confluence of two interstates. Kentucky has given developers $111 million through TIF rebates in the past decade, and at least $2.9 billion has been pledged on current projects over their 20- and 30-year terms.
And, yet, lawmakers never examine TIFs to see whether the new jobs and economic activity justify the lost revenue.
Just as there’s no mechanism in HB 6 to assure that rural communities will ever receive its promised economic benefits.
This story was originally published March 28, 2018 at 6:16 AM with the headline "Kentucky’s budget is on a starvation diet. But lawmakers keep dishing up tax breaks.."