KY plan would give away $60 million to create jobs. It backfired in other states.

An investment firm pushing Kentucky lawmakers to approve a $60 million tax break aimed at creating jobs in rural parts of the state has a history of persuading lawmakers in other states and then making millions from tax breaks that often don’t create the promised jobs.

Louisiana-based Advantage Capital Partners and others like it have for decades pitched taxpayer-funded investment programs to lawmakers as a way to provide businesses in rural or under-served areas with capital to expand their operations and create jobs, but audits and investigations of those programs have shown massive profits for the companies with limited success for taxpayers.

The Kentucky bill, which would provide $60 million in tax breaks to banks and insurance companies, was passed by the Senate Revenue and Appropriations Committee on Tuesday and could be considered by the full Senate on Monday.

“The big takeaway is that this an extraordinary transfer of taxpayer dollars to a small number of out-of-state firms that live on this type of handover,” said Julia Sass Rubin, an associate professor at the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, who has studied tax credit programs. “There’s no doubt that this is a horrible deal for the taxpayers.”

The proposal, House Bill 6, comes at a time when lawmakers are slashing education programs and struggling to fund the state’s ailing pension system.

Critics of the programs say states could utilize more targeted and less costly investment strategies, including direct investment in rural businesses or establishing a revolving loan fund for Kentucky banks.

Of all the ways to spur economic growth in rural areas, “I can’t think of one that’s poorer than this,” Rubin said, calling the firms “leeches off the taxpayers.”

“They prey on people’s desperation to create jobs,” she said

The three major firms pushing this type of legislation — Advantage Capital Partners, Enhanced Capital and Stonehenge Capital — have convinced lawmakers for decades to set up programs where the firms can manage taxpayer-funded investments and profit off interest and fees, according to a report by The Pew Charitable Trusts.

In Kentucky, Advantage Capital has spent more than $45,000 since the beginning of 2017 lobbying lawmakers, according to records from the Kentucky Legislative Ethics Commission.

Advantage Capital Vice President Ryan Dressler said in a written statement that company’s investments in other states have resulted in job growth, and that a floor amendment filed by Sen. David Givens, R-Greensburg, would require 3,000 new jobs as a result of the program. For each job not created, the fund would be required to pay a $20,000 penalty, Dressler said.

As currently written, the bill contains no language requiring proof of job creation before investors receive the tax break.

If passed, the bill will provide $60 million in tax breaks for banks and insurance companies that put money into a rural growth fund, which will be managed by an investment firm. The bill also requires fund managers to leverage an addition $40 million of non-tax refundable money to be invested in the fund.

Fund managers will then invest the money in businesses through loans and equity investments, in theory creating jobs that will offset the state’s $60 million loss of revenue.

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.

In other states, the programs have backfired.

In Maine, an investigation by the Portland Press Herald showed that investment firms used complex financial practices, including money transfers and one-day loans, to create the illusion of investment in a paper mill, all while securing millions of taxpayer dollars.

The mill eventually closed, putting 200 employees out of work and leaving the state legally required to pay $16 million in tax breaks to investors despite the failure.

Pam Thomas, a senior fellow at the Kentucky Center for Economic Policy, wrote in an article that “the programs are structured so that the investment funds and investors will earn money regardless of what happens in the states where the programs exist.”

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.”

Dressler, of Advantage Capital, pointed to a Maine state audit that found the program helped businesses in the state create or retain 764 permanent jobs, as well as more than 1,000 “indirect permanent jobs” within the businesses’ supply chains.

Rubin was skeptical of whether the firms will invest all the money in Kentucky businesses, saying they have in the past used loopholes in the laws to avoid not investing the money.

“They’re smart, they adapt,” Rubin said. “Their business is to sell this legislation, not investments.”

Advantage Capital refuted this claim, noting that HB 6 requires the fund to invest 100 percent of the money and keep it invested throughout the program’s duration.

The legislation also prohibits one-day loans and includes language that would allow the state to revoke all tax credits if one-day loans are used.

In a similar program in Colorado, the state gave out $100 million in tax credits, but an audit revealed that just $44 million was available for investment, according to the Pew report.

Audits and reports from Washington D.C., Alabama, Colorado and Missouri all recommended that the programs in their states be shut down because they didn’t create promised jobs.

Lobbyists for the firms tout reports of success in other states, but critics contend the information is often misleading.

In Nevada, Advantage Capital lobbyist and managing director Ryan Brennan told lawmakers state audits in Florida and Missouri confirmed that revenue for the state exceeded the cost of the tax credits.

Those audits did not exist, according to a report by the Nevada Journal.

Revenue in those states “appear to have been papers actually sponsored by Advantage Capital and/or other national organizations that have a strong financial interest in continuing to receive and monetize state tax credits,” according to the Nevada Journal.

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