KY legislators rushed state tax breaks worth hundreds of millions to Beshear’s desk
As the clock neared midnight Tuesday, Kentucky legislators hurriedly shoveled more state tax breaks toward Gov. Andy Beshear’s desk, adding to the many billions of dollars in state tax breaks already on the books.
One bill included a small sales tax break for vaping hardware that will cost the state’s General Fund an estimated $243,750 and a large tax break for construction projects at historic properties that could cost up to $100 million.
That same bill restored up to $75 million a year in refundable tax incentives for film and television production in Kentucky three years after the state concluded those incentives were not yielding enough for the economy to be worth the loss.
With the General Assembly on a two-week break for Beshear to consider the bills in front of him, critics on Wednesday complained that many tax breaks were slipped through in last-minute committee rewrites and floor amendments, with little discussion about their contents.
Jason Bailey, executive director of the Kentucky Center for Economic Policy in Berea, estimated the cost of the tax breaks advanced this week at $650 million, although the full cost is impossible to know. Some of the bills did not have fiscal impact statements to explain their potential drain on the roughly $12 billion General Fund.
“We are giving away huge portions of our budget — not just now, but for the future, in some cases in perpetuity — to private interests who have lobbied for these giveaways,” Bailey said.
“You look at something like the film incentive tax credit. There are 13 other states that have eliminated their film tax credits because they just don’t pay off,” he said. “We’re slipping ours back in even though we say that we don’t have enough money in the state budget to pay for school textbooks.”
The tax cuts also could have unintended consequences.
Kentucky’s state government is preparing to receive $2.4 billion from the American Rescue Plan Act, or ARPA, the latest federal stimulus package. However, Congress included explicit clawback language in the law to forbid states from reducing their tax collections “either directly or indirectly” while they are taking ARPA money.
Violating this provision could result in the U.S. Treasury Department seeking a proportionate refund of a state’s ARPA money.
Details of this clawback will be worked out in coming weeks by the Treasury Department. But fearing the law’s plain language, Kentucky Attorney General Daniel Cameron, a Republican, joined 21 of his national colleagues on Wednesday by sending a letter of protest to the Treasury Department.
“This language could be read to deny states the ability to cut taxes in any manner whatsoever — even if they would have provided such tax relief with or without the prospect of COVID-19 relief funds,” Cameron and the other attorneys general wrote.
Beshear’s office on Wednesday would say only that he is reviewing the 148 bills the legislature has sent to him for his signature or veto, including a flurry of 111 bills in just the past 48 hours.
At least four tax break bills await Beshear’s attention, including:
▪ House Bill 249 would restore a controversial tax incentive program to subsidize film and television production in Kentucky. Gov. Matt Bevin’s administration essentially shut it down in 2018 after concluding — as many other states have — that Kentucky taxpayers weren’t getting their money’s worth.
“The problem is, we’re spending more than we’re receiving in tax revenue. That’s the bottom line to us,” then-Tourism Secretary Don Parkinson told a House budget subcommittee three years ago.
However, there was intense lobbying to restore Kentucky’s refundable film tax credits, which are attractive to out-of-state production studios.
Under Beshear, the Tourism, Arts & Heritage Cabinet commissioned a report from a New York firm last year that said Kentucky’s refundable film tax credits had been boosting the state’s economy until they were discontinued in 2018. In 2018, after awarding about $25 million in credits over the previous three years, Kentucky had an all-time high of 954 film-related jobs, according to the report.
HB 249 would reinstate the refundable film tax incentive program with a $75 million annual cap.
A different section of the bill would increase the state’s historic preservation tax credit from $5 million to $100 million, with up to $30 million available per rehabilitation project.
The bill’s language seems focused, in part, on one old, unnamed hotel that serves as a popular tourist attraction somewhere in Kentucky. It describes a property with at least 300,000 square feet that was listed on the National Register of Historic Places on or before Dec. 31, 1981. The rehabilitation project must cost at least $50 million, and substantial construction must begin by the end of this year.
WDRB reported on Wednesday that Senate Republican leaders intend for this tax break to benefit the historic Seelbach Hotel in downtown Louisville, which has renovation plans.
▪ Senate Bill 255 would offer a variety of tax incentives for cryptocurrency mining companies that purchase and upgrade existing buildings in the state. Companies would have to make a capital investment of at least $1 million to qualify.
Mining cryptocurrency, such as Bitcoin, is a complicated process. Miners use large rooms full of high-powered computers to solve complex math problems and unlock new currency. Next, they clump the resulting transactions together in blocks; the combined public record is known as the blockchain.
The sponsors did not offer an estimated cost to the state’s General Fund from this bill.
▪ House Bill 230 would offer a sales and use tax break on electricity purchased by cryptocurrency mining operations in the state.
The cost to the state’s General Fund would start at an estimated $1 million a year and then rise substantially, depending on the number of facilities that took advantage of the tax break.
▪ House Bill 563 would establish state tax credits to cover the cost of newly created “education opportunity accounts,” which could be used as public school students transfer either to private schools or to other public school districts.
The estimated cost to the state’s General Fund would be $25 million a year.
This bill, which barely passed the Republican-controlled legislature, might not get a warm reception from the Democratic governor, who is strongly supported by school teachers.
“The governor is committed to public education,” said Beshear spokeswoman Crystal Staley.
“That’s why in his budget he sought to increase the SEEK (per-pupil funding) formula, provide raises for educators, fund textbooks and use $100 million of one-time funds for school construction,” Staley said. “The governor is concerned that instead of improving public education through these initiatives, the General Assembly passed this controversial bill. The governor will therefore review the bill closely.”
▪ A fifth tax break bill, House Bill 278, was signed into law by Beshear on Monday. It would allow Kentucky businesses to deduct from their state income taxes the expenses they paid using their forgivable Paycheck Protection Program loans from last year’s federal CARES Act.
This bill mirrors a federal income tax break provided to businesses for the same reason.
The sponsors did not offer an estimated cost to the state’s General Fund from this bill. But legislative analysts said more than 50,000 Kentucky businesses shared $5.3 billion in PPP loans.
“If all loans are forgiven and the proceeds are used on allowable expenses, the potential fiscal impact, which may be taken over a two to three year period, would be $250 million,” the analysts wrote.
▪ A sixth tax break bill, House Bill 372, did not quite make it all the way through the legislature by the time lawmakers adjourned for their veto break late Tuesday. When lawmakers return March 29, this bill awaits a concurrence vote to see if the House agrees with changes made by the Senate.
HB 372 started as a plan to give an exemption on sales and use taxes to tech corporations like Amazon, Facebook and Google if they open data centers inside the state. The bill’s drain on the state budget would start at $15 million a year and possibly rise, according to a fiscal note attached to the bill.
But legislators expanded the bill to also include a state income tax break for “remote workers,” defined in the bill as Kentuckians who work in their homes for out-of-state companies.
Retroactively effective Jan. 1 of this year, the remote worker tax credit could be claimed for five years, starting at $5,000 for the first year, $4,000 for the second year, $3,000 for the third year, $2,000 for the fourth year and $1,000 for the fifth year. Remote workers also could claim state tax credits against their residential property taxes.
The sponsors did not offer an estimated cost to the state’s General Fund from this bill.
The Kentucky Center for Economic Policy, citing U.S. Census data, said an estimated 124,000 Kentuckians commute to jobs outside the state, typically those living in border counties near Tennessee, Ohio and Indiana. Any of those commuters who are now working from home because of the COVID-19 pandemic seem eligible to apply for the tax credit, without a single new job being created in Kentucky, the center said.
This story was originally published March 17, 2021 at 4:15 PM.
