Politics & Government

Bill gives away $60 million to create jobs in Kentucky, but no proof of jobs required

A proposed $60 million tax break aimed at creating jobs in rural Kentucky is poised to get final approval from Kentucky lawmakers, but critics contend the bill lacks one key element: proof that those cashing in the tax break actually created jobs.

House Bill 6, the Kentucky Rural Jobs Tax Credit, will give $60 million in tax breaks to banks and insurance companies that sign up for the program and invest in eligible businesses throughout the state’s rural areas.

The bill provides a dollar-for-dollar tax credit on investments made through the program, while also leveraging an additional $40 million of non-refundable investments.

Pam Thomas, a senior fellow at the Kentucky Center for Economic Policy, said the bill is well intentioned but will cost the state $60 million of General Fund revenue at a time lawmakers are slashing spending on education programs, without ensuring that jobs are created.

“The only people guaranteed to make out on this are the banks and insurance companies,” Thomas said. “They don’t have to create one job. There are no performance measures.”

When banks and insurance companies apply to invest in the program, they must include an estimate of the number of jobs their investment would help create or retain, along with a detailed investment strategy and impact assessment. However, the bill contains no language requiring proof of job creation before investors receive the tax break.

Once investors sign up for the program, they have two years to invest the money, 20 percent of which must be invested in counties with labor force participation rates below the national average.

The bill limits investments to businesses that have fewer than 250 employees who are residents of rural areas ; made less than $15 million in net income during the previous year; and have their “principal business operations” in one or more rural areas.

The bill defines rural as any “enhanced incentive county” — a classification given to counties with high unemployment rates — with populations less than 70,000.

“Principal business operations” are defined as the location where at least 60 percent of employees work, or where employees that are paid at least 60 percent of the business’ payroll work. Under that definition, a company with highly-paid executives who work remotely in a rural area could qualify for investments even if the majority of employees work in an urban area, such as Lexington or Louisville.

The bill’s sponsor, Rep. John Blanton, R-Salyersville, said the investments will put “another tool in the toolbox” for businesses looking to expand in rural areas where residents have limited access to well-paying jobs.

“In Eastern Kentucky and in parts of Western Kentucky, it gives us another tool to help diversify our industries,” Blanton said. “This is for companies who are looking for that little extra, that don’t have the capital for that next step.”

At a Senate Appropriations and Revenue Committee hearing Tuesday, Blanton said supporters of the bill include the Kentucky League of Cities, One East Kentucky, the Southeast Kentucky Chamber of Commerce, and Save Our Appalachian Region (SOAR).

Though the bill is meant to fuel economic growth in rural areas, Thomas said the bill does not effectively narrow investments to rural parts of the state.

Thomas said the state would be better off investing directly in rural businesses, rather than losing $60 million of tax revenue and trusting banks and insurance companies to make the proper investments.

“It’s like taking an aspirin for a stomach ache,” she said. “It’s a solution, it’s just probably not a solution to your problem.”

State Sen. Robin Webb, D-Grayson, said the legislature should focus on making sure tax breaks that already exist actually work before creating more and suggested narrowing the scope of the bill.

Blanton said the bill requires $40 million of additional, non-tax refundable investments from fund managers and other private investors, which will create incentive for the banks and insurance companies to create jobs.

“There’s going to be opponents of anything you do, especially when you talk about tax credits, and I get that,” Blanton said. “I look at these things in a very stringent manner. I wouldn’t haphazardly enter into something like this.”

The committee approved the bill and sent it to the Senate, where it could win final approval as early as Thursday.

Will Wright is a corps member with Report for America, an initiative of The GroundTruth Project. Reach him at 859-270-9760, @​HLWright