Bill gives away $75M to bring jobs to rural Kentucky. Critics call it ‘horrible deal.’

The Kentucky Capitol.
The Kentucky Capitol.

An investment firm’s efforts to pass legislation authorizing a $60 million tax break to boost investment in rural Kentucky counties failed last year amid reports that the company’s plans had backfired in other states and lacked crucial accountability measures.

Now, Advantage Capital Partners is back, this time with a $75 million tax break plan.

Critics say the company has a history of wooing legislators with promises of job growth in distressed communities, then using the resulting legislation to make them millions while leaving taxpayers with little to show for their money.

“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,” Julia Sass Rubin, an associate professor at the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, told the Herald-Leader last year. “There’s no doubt that this is a horrible deal for the taxpayers.”

The new bill, called the Kentucky Rural and Opportunity Zone Jobs Act, promises a total of $150 million of investments in rural Kentucky communities and federally-designated opportunity zones.

State Rep. John Blanton, R-Salyersville, said House Bill 203 would “unlock $150 million of capital for small, rural businesses.”

“A decade after the Great Recession many rural Kentucky counties are still waiting for the recovery and we need a bold strategy to get things back on track,” said Blanton, the bill’s sponsor.

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The bill would set up a $100 million rural investment fund managed by a select number of companies, such as Advantage Capital. The fund managers would attract insurance companies to invest in the fund, and direct those investments to small businesses in rural areas.

Investors would receive a dollar-for-dollar tax credit on $75 million of those investments. Blanton and Advantage representatives also claim the fund managers would leverage an additional $50 million in non-refundable investments, though that specific language is not currently included in the bill.

In theory, the investments would boost local economies and offset the $75 million tax credit burden shouldered by the state.

Rubin said HB 203 may differ slightly from the rural tax credit bill proposed last year, but that its mission is the same: use taxpayer dollars to make money for firms like Advantage.

“They have a repertoire of bad bills that they peddle. They adapt based on what the state will tolerate,” Rubin said. “They basically live off the dole. Their entire business model is to bill the taxpayers.”

Rubin said the language of House Bill 203 is “intentionally confusing,” and is written so that firms like Advantage can have guaranteed profits without any responsibility for job growth.

“It’s intentionally incomprehensible,” Rubin said. “You put in language like this when you’re swindling people.”

The bill does include a penalty system if Advantage or other fund managers don’t meet certain job growth requirements, “but then, when you do the actual math, it’s insignificant,” Rubin said.

The House Standing Committee on Economic Development and Workforce Investment passed House Bill 203 unanimously on Thursday. The bill now goes to the House for a full vote.

Pam Thomas, a senior fellow with the liberal-leaning Kentucky Center for Economic Policy, said that while the goals of the legislation are admirable, “the language in the bill doesn’t actually require that one job be created or retained.”

“The devil’s in the details,” Thomas said. “This is just a complete scam.”

Thomas and other critics said the bill, and others like it, provide no recourse for the state if the investments fail to produce promised jobs.

In addition, as the bill is currently written, there is no requirement that fund managers show whether the investments would have a positive fiscal impact on the business or community they invest in.

Anthony Toups, a principal with Advantage Capital, pointed to success stories of similarly-structured tax credit programs.

E-Z Pack, a manufacturing company in Cynthiana, has created nearly 200 jobs since it received investments through a similar program, Toups said.

“These are actual companies that receive actual capital,” Toups said.

Proponents of the legislation also point to success stories in other states, and say fund managers cannot profit unless the investments meet or exceed job commitments.

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“There are multiple safeguards to protect taxpayer money and hold firms accountable,” said Zachary Taylor, an account director with RunSwitch PR, which is representing Advantage. “Both the state and the firms participating in the program are looking to achieve the same goal: to stimulate investment in rural areas to create jobs, grow businesses and drive economic impact.”

However, a 2017 review of similar programs by the Pew Charitable Trusts showed that auditors in Washington D.C., Alabama, Missouri and Colorado all recommended that programs similar to House Bill 203 be shut down.

Though Advantage Capital points to success stories, critics argue the companies’ numbers can be deceptive.

In Oregon, for example, a non-profit that advocated for the tax breaks issued a report that claimed the program created or retained more than 2,500 jobs. That study, though, counted the total number of jobs at businesses that received investments, not just new jobs.

Advantage said it only counts jobs as “retained” if they would have been cut without the investment. At least one Oregon company refuted the idea that it would have cut all its jobs, according to the Pew report.

In Nevada, Advantage’s managing director told lawmakers that state audits in Missouri and Florida confirmed revenue for the states exceeded the cost of the tax credits. Those audits never existed, according to the Nevada State Journal.

Rubin said if Kentucky wants to invest in rural businesses, legislators should lean toward Kentucky-based investment groups, such as the Kentucky Highlands Investment Corporation, which has already invested more than $270 million in Kentucky since its founding in 1968.

“If the state wants to do economic development, look in your own back yard,” Rubin said.

HB 203 also promises growth in “high-wage jobs,” but defines “high-wage” as equal to the average wage in a county.

In counties with high rates of poverty, including many in Eastern Kentucky, this definition is misleading, Thomas said.

In Leslie County, for example, per capita income is just over $15,000, while the median household income is just shy of $28,000, according to the U.S. Census Bureau.

“The primary beneficiaries of this will not be rural Kentucky or Kentucky taxpayers,” Thomas said. “The big guarantee winners for this are the fund managers and the insurance companies.”

Will Wright is a corps member with Report for America, a national service program made possible in rural Appalachia with support from the Galloway Family Foundation. Reach him at 859-270-9760, @HLWright
Will Wright is a corps member with Report for America, a national service project made possible in Eastern Kentucky with support from the Galloway Family Foundation. Based in Pikeville, Wright joined the Herald-Leader in January 2018 and reports on Eastern Kentucky.