Ways to Build a New Kentucky

Ways to Build a New Kentucky

February 27, 2009

By Justin Maxson

In 2005, my organization released an analysis of the state’s economic development spending that accompanied a seven-part investigative series in the Lexington Herald-Leader.

Our study and the reporters’ stories painted a troubling picture of Kentucky’s use of economic development tax incentives: rising costs to the state budget, little accountability and a lack of evidence that such programs were actually moving Kentucky’s economy forward.

We called for greater scrutiny of the use of tax incentives and much more attention to other strategies that could create jobs and economic opportunities: entrepreneurship and small business support, workforce development investments and targeted services that would build key sectors of the Kentucky economy.

Four years later, Governor Beshear is promoting a bill in the Kentucky General Assembly that would greatly expand those tax incentive programs. House Bill 229, known as Incentives for a New Kentucky (Kentucky INK), would make current economic development incentives much more widely available; allow companies to receive a portion of their incentives up front as cash; and create new tax breaks for mega-projects, the film industry, information technology companies and existing manufacturers.

Governor Ernie Fletcher’s response to the study and newspaper series in 2005 was to commission several follow-up reports from the University of Kentucky’s Center for Business and Economic Research. The most recent of those was released quietly about a year ago with no attention in the press. But it should be required reading for anyone seeking to understand what needs to change to make Kentucky’s economy better.

In the report, the authors examine why Kentucky has fared worse economically than comparison states in the South in recent years. According to their analysis, the main reason is what they call “stock of knowledge:” the difference in the skills and education of the workforce and in the state’s capacity for innovation.

Quality of life and amenities are also a major factor. Those states that have out-performed Kentucky are better able to attract and keep people because they are places more people want to live and raise families. Also, successful states more closely align their economic development efforts with workforce development and higher education to better emphasize higher quality jobs and skills development throughout the economy.

The report finds that Kentucky’s slow economic growth is almost entirely attributable to slow growth in the state’s rural areas. These are exactly the places in Kentucky that haven’t and won’t benefit much from a strategy that depends on using tax incentives to recruit industries. It’s the places that have never been given a decent answer to the question of how their communities can survive.

The report says Kentucky’s existing incentive programs are already aggressive, and notes that some of the states that have out-performed Kentucky actually rely less on tax incentives. Those states that have surpassed ours have done so “by adopting a much more expansive view of economic development than we have adopted in Kentucky.”

The stock of knowledge, quality of life and vibrancy of Kentucky’s rural areas aren’t built through more tax breaks intended to make Kentucky cheaper. While tax incentives are part of an economic development approach, they are not enough. We must build our economy through smart investments in our people, good planning and the protection and promotion of Kentucky’s many strengths and assets.

Incentives for a New Kentucky are incentives to remain the old Kentucky. Let’s turn to some truly new ideas to make our Commonwealth strong.

Justin Maxson is President of the Mountain Association for Community Economic Development (MACED) in Berea.