$75 million Ky. rural jobs tax credit bill returns. Critics ask if it will create jobs.
An investment firm has returned to Kentucky in search of a $75 million tax break that has failed in past legislative sessions and that has generated some criticism in other states.
The House Agriculture Committee on Wednesday approved House Bill 308, which would create the Kentucky Rural Jobs Act. The bill would let insurance companies invest part of their assets in Kentucky businesses that either create or retain jobs with an average local wage in exchange for a credit against their state insurance premium taxes.
The state’s liability for the tax credits would be capped annually at $15 million, to run for five years from 2024 to 2029, according to the bill’s sponsors.
Advantage Capital, a New Orleans-based business lender, has lobbied the Kentucky legislature for several years to create such a tax break. But earlier versions of the bill stalled after they were criticized, in Kentucky and elsewhere, for potentially giving away millions of tax dollars without guaranteeing the creation of any new jobs.
In Georgia, the state auditor last month issued a report concluding that his state was suffering a net loss of about $55 million on its own version of the program, the Georgia Agribusiness and Rural Jobs Act. And in Massachusetts, Gov. Charlie Baker last year vetoed a similar tax credit, writing that it would “provide much greater benefit to the corporate investors who receive the credits than to the rural communities it is supposed to help.”
There has been similar skepticism in Kentucky, acknowledged the sponsor of this year’s Kentucky House bill, Rep. Richard Heath, R-Mayfield, in an interview on Wednesday.
“There’s been push-back on bills where you’ve got these tax credits, with people asking how much can Kentucky afford to give out,” Heath said.
However, Advantage Capital executives traveled back to Frankfort to testify alongside Heath.
“We’ve found that rural businesses in Kentucky have really struggled to obtain the capital that they needed for job creation and for business growth,” Darian Harris, an associate with Advantage Capital, told the House committee on Wednesday.
Harris said the Kentucky Rural Jobs Act would establish a $125 million fund, of which the state’s portion would be $75 million.
He said the estimated 15,000 Kentucky businesses that would be eligible for investment under the bill operate in less populated counties of 50,000 people or fewer; in economically distressed opportunity zones; or in Western Kentucky counties named in the presidential declaration of emergency because of last month’s tornadoes.
Advantage Capital arranged for one of its local clients to testify for the bill.
Nathan Nedley, chief financial officer of Commercial Specialty Truck Holdings in Cynthiana, told the House committee that financing from the firm in 2016 helped his company to grow into a major employer in Harrison County, where it has more than 300 workers.
“At that time, we were not candidates for traditional lending,” Nedley said. “So it was either that sort of program or other equity-type infusions. So this was critical to us.”
But Pam Thomas, a senior fellow at the Kentucky Center for Economic Policy in Berea, said this year’s bill has many of the same weaknesses as earlier versions. Among them, the bill would require the state Revenue Department to approve applications for the tax credit if the paperwork was in order, she said, well ahead of any evidence being available to show that Kentucky has benefited economically.
The bill talks about “high wage” jobs, but it defines “high wage” as “a wage that is at least 100 percent of the county average.” The bill talks about creating new jobs, but it adds that tax credits are also available for projects where jobs are simply retained, with no expansion necessary.
And despite the use of the word “rural” in the bill’s name, Thomas said, by expanding the places eligible for investment to include the opportunity zones, it now encompasses much of the state, including urban areas.
“We have concerns about incentives in general, but this incentive program in particular is really, really bad,” Thomas said.
“You don’t have to get any new jobs out of this,” Thomas said. “There is no guarantee in here, for all these tax credits, that we’re going to get one new job out of it.”
The bill is expected to proceed to the House budget committee for further review.
