State and local tax revenue generated annually by jobs created directly by the incentive programs exceeds the amount the state has spent on the programs since 1989 (including economic development bonds approved after Jan. 1, 1993 and loan losses since July 1992), Cabinet Secretary Gene Strong told the legislative Interim Joint Committee on Appropriations and Revenue last week. Approximately 126,000 Kentuckians were employed as a result of the incentive programs in 2005.
'These 126,000 jobs produced more annual taxes in one year than we've given up since the inception of these programs," said Strong.
The 2005 job figure is larger when jobs created indirectly as a result of the incentives are considered, and even larger when "induced" jobs--which Strong said could be jobs created, for example, at a new hotel built as a result an improving economy--are factored in. Strong estimated that the incentive programs led to the direct, indirect or induced employment of more than 366,600 Kentuckians last year alone.
A large indicator of the programs' success is their effect on what Strong called Kentucky's "total value added" economy in 2005, or the total economic impact of Kentucky workers and industry. That value exceeded $24.5 billion last year alone.
While the right incentives can have a multi-billion-dollar payoff, poor incentives can cost a state jobs and tax revenue, Strong explained.
"State and local incentives are obviously a major player in attracting and retaining companies," said Strong. "We know in many cases when we don't (land) a project why we lost, and it's often because we didn't offer what other states did."
Offering no incentives usually costs a state business "80 to 90 percent of the time," he added.
So far, Kentucky has been able to attract business rather economically, according to Strong's figures. While more than $2.3 billion in tax incentive credits had been approved for the Kentucky Rural Economic Development Act (KREDA) program through December of last year, only 13 percent -- or about $304 million -- of those were claimed.
The percentage of credits claimed in other incentive programs such as the industrial revitalization and jobs development programs was similar.
"If we can locate a company with the least amount of incentives possible, that's what we'll do," said Strong.
One program with good results, according to Strong, is the Kentucky Economic Development Finance Authority Direct Loan Program. The program's historical loan losses from 1992 through 2005 total only 2.51 percent of gross loans over that period, said Strong.
"We're happy with that loan loss percentage. We believe most banks would like to have that," he said.
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