Economic incentives scrutiny cut from budget
by John Stamper
Lexington Herald-Leader
Leaders of the General Assembly killed a proposal yesterday to closely scrutinize economic development incentives the state offers companies.
The proposal to give Legislative Research Commission economists access to incentive details got nixed by Senate negotiators in a compromise version of the state's two-year budget, approved early yesterday by a committee of lawmakers.
The measure, aimed at determining the effectiveness of Kentucky's costly incentive programs, was one of a handful that House and Senate leaders wrestled with through the wee hours of the morning.
The House had included the accountability measure in its version of the budget, but Senate President David Williams balked, citing privacy concerns of corporations.
"That would have killed our ability to attract business," Gov. Ernie Fletcher said yesterday.
Fletcher claims that businesses would shun Kentucky if researchers were allowed access to sensitive financial data, including the amount of tax incentives claimed by individual companies on their tax returns.
But four other states have no problem publicizing the amount of economic development tax breaks received by individual companies. Illinois and North Carolina even post that information on the Net.
"There have been no claims from anybody in those states that anybody got harmed," said Greg LeRoy, executive director of an economic development watchdog group called Good Jobs First.
A series of articles published in the Herald-Leader last year found that $1.8 billion of spending by the Cabinet for Economic Development over 25 years has failed to improve Kentucky's sub-par rankings on key economic indicators.
For example, Kentucky's national rankings on per-capita income, poverty and gross state product (a broad measure of economic output per person) remain unchanged since 1990.
The cabinet now provides incentives worth more than $100 million annually to companies.
The "majority view" among economists is that tax incentives influence the location of a business less than 10 percent of the time, said Timothy J. Bartik, senior economist for the W.E. Upjohn Institute for Employment Research.
In most cases, businesses accept incentives even though they've already decided where to locate based on other factors.
"There are several studies that suggest that business tax cuts, if financed by cutting productive public investments such as spending on infrastructure or spending on education, will in the long run hurt a state's economic development," Bartik told Michigan lawmakers earlier this year.
Past efforts to study the effectiveness of Kentucky's incentive programs were also thwarted.
A study authorized in October 2000 by the LRC's Program Review and Investigations Committee was halted a year later because Gene Strong, the cabinet's longtime secretary, declined to produce sensitive information.
"Quite frankly, they were not anxious to share," Sen. Katie Stine, R-Southgate, said in October 2001.
Strong, whose $225,000 annual salary is among the highest in state government, has denied allegations that his cabinet did not cooperate fully with the LRC.
Although current and past efforts to scrutinize incentive programs have failed, a working group of six lawmakers appointed by Rep. Ruth Ann Palumbo, D-Lexington, and Rep. Harry Moberly, D-Richmond, will continue exploring the issue in coming months, Palumbo said.
"If you don't evaluate your programs, you can't make smart decisions," LeRoy said. "You're just throwing money at an issue without any clue whether you're getting any bang for your buck."
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