Business incentive changes proposed

FRANKFORT — As the economy softens and job losses mount, Gov. Steve Beshear's administration is pushing a proposal that would change the way the state lures and keeps jobs in Kentucky.

A state legislative panel gave its blessing Thursday to a major overhaul of the state's incentive programs designed to attract new businesses and beef up its employment numbers. The changes would make it easier for businesses to access the state's incentive programs and would do more to help current businesses expand and add jobs to the Kentucky economy, economic development leaders told the committee on Thursday.

But there are still questions on how much the new incentives would cost the state and whether the programs would help the state's hardest-hit areas.

The House Economic Development Committee unanimously approved the measure that includes business tax credits for paying tuition for continuing education of employees and tax credits for businesses that make substantial investments in technology. The overhaul would also streamline the state's sometimes overlapping and confusing incentive programs, economic development officials said Thursday.

The measure also includes tax credits to entice Hollywood to shoot more movies in Kentucky, more money for historic preservation and incentives to attract a developer to build a hotel at the Kentucky Exposition Center in Louisville. The bill would allow companies to get money up front, in limited cases, rather than receive tax credits.

Rep. Tommy Thompson, D-Owensboro, co-sponsor of House Bill 229, said the bill will now go to the House budget committee before it goes to the full House. It's not clear how much more money the new plan would cost the state, Thompson said.

Beshear has pushed for an overhaul of the state's incentives for businesses and campaigned on making the state's economic development initiatives more transparent.

Over the past eight months, the state's Economic Development Cabinet has been working to tweak its incentive programs with the aim of not only attracting new businesses but also of keeping jobs in Kentucky, said Donna Duncan, commissioner of the Department of Financial Incentives. Kentucky's economic development incentive programs have become almost too complex for companies outside of Kentucky to understand, Duncan said.

Several business leaders praised the revamped incentive program during Thursday's committee meeting. Jim LeMaster, president of the Kentucky Association of Manufacturers, said that, although the association was behind the overhaul, his members would like to see a lowering of the minimum investment that would trigger some of the incentives.

The proposed changes don't do enough to help small businesses and entrepreneurs, said Jason Bailey, research and policy director for the Mountain Association for Community Economic Development.

"We need to be diversifying our approach, and this is more of the same," Bailey said.

Although the proposed incentive programs would be more generous in economically depressed counties, Bailey said they will probably do little to help a struggling Eastern Kentucky. Rural, poor areas will probably never attract large manufacturing facilities, no matter how generous the incentive, he said.

The state's money would be better spent helping entrepreneurs hatch new businesses and boosting the skill level of workers, Bailey said.

He said the proposal falls short of promises Beshear made during his 2007 campaign, when he lambasted the state's economic development program. Beshear promised to increase accountability in the incentive programs after a 2005 series of articles in the Herald-Leader determined that the Cabinet for Economic Development had done little to gauge the effectiveness of its incentives, was more secretive than counterparts in some other states and sometimes loosely monitored its programs.

The Cabinet now lists on its Web site much more information about the incentives companies receive, but more could be done, Bailey said.

The cost of the state's incentive programs will go up if HB 229 becomes law, but "we don't know if they're really working," he said. "We offer them because other states offer them."

Bailey praised the proposal to help companies recoup the cost of educating their workers, but questioned the wisdom of giving companies large up-front payments in exchange for the promise of future jobs.

Kentucky is one of the few states that don't offer comprehensive tax incentives for entertainment companies to film in their state.

Todd Cassidy, director of economic and community development for the Tourism, Arts and Heritage Cabinet, said that movie production companies have filmed movies about Kentucky in other states because those states had economic incentives.

Currently, production companies can be reimbursed for sales taxes on some expenses associated with shooting in Kentucky. Under the new proposal, movie companies could recoup up to 20 percent of their costs through a tax credit if they spend more than $500,000.