Kentucky Smashes Business Investment Record

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By Alex Ebert

Kentucky has obliterated its previous record for capital investment, catapulted by an administration hungry for job growth, and businesses like Amazon.com Inc. and Toyota Motor Corp. making giant commitments to the Bluegrass state in return for tax incentives.

And it’s only halfway through 2017.

A triumphant Gov. Matt Bevin (R) announced May 26 that the state has raised $5.8 billion in commitments from companies locating or expanding operations in Kentucky. This shredded the state’s previous 2015 record of $5.1 billion, in only five months.

“People are feeling for the first time that Kentucky really gets it. There’s no secret source, we just out-hustle people,” Bevin told Bloomberg BNA prior to the announcement. “Other states can offer much more lucrative financial incentives; it’s not the money that makes them come.”

Credits Not Determining Factor

For many businesses, the state’s tax credits—which provide income tax reimbursement if companies maintain employment and wage levels—were something to keep Kentucky competitive, but weren’t the largest determining factor.

Only sites with access to water, highway and train transport in a right-to-work state made the final decision for Craig Bouchard, CEO of Braidy Industries. His firm committed to a $1.3 billion investment in an aluminum mill in Greenup County, Ky., which has an unemployment rate above 9 percent. But because the mill will be hiring more than 500 skilled full-time workers with an average salary of $70,000, the local population mattered most, especially the availability of unemployed former coal workers already knowledgeable in safety regulations and technical skills.

“When you look at the quality of the labor there and the unemployment, it turned the table,” Bouchard told Bloomberg BNA. “If we went to another area, it would have depressed other industries by taking their skilled employees. Here, they’ll join our company with a loyalty and a look in their eyes you’ve never seen.”

Bouchard said that right-to-work laws matters to him because they provide some security in keeping employment costs lower than his competitors, which manufacturers need to survive down times in cyclical markets.

Good Deal or Sham?

With a new $1.33 billion commitment to its Georgetown, Ky., plant for construction of a new process for building Camrys, Toyota became eligible for up to $43.5 million in tax incentives linked to the company’s retention of employees and investment in the community. However, the company says recent legislation and tax incentives weren’t dealmakers in their decision to expand.

“These are all good things, but they were not factors for us,” Will James, Toyota Kentucky president, told Bloomberg BNA. “We’ve been here for 30 years, and its the largest Toyota plant in the world. How critical are incentives? For a long time we invested without them. We don’t make deals with incentives in mind.”

However, James said the incentives given to Toyota are good for taxpayers. “The return on investment for tax revenues is great. History has shown time and time again that it makes sense to help bring in or retain jobs.”

Bevin said a small rebate in taxes is a good trade in return for millions in payroll and tax revenue to the state. “We’re not putting money on the barrel; we’re never going to pay for jobs.”

But not all groups heralded the announcement as a success.

“Gov. Bevin is telling you that Kentucky has broken a record, but he’s basing that on announced estimates that have not happened yet, and may never happen,” Rep. Sannie Overly, chair of the Kentucky Democratic Party, said in a statement. “Kentucky gives performance-based incentives, which means a company can be approved for incentives up to a much higher figure than it will actually invest. This entire announcement is a sham because this money has not been spent in Kentucky.”

Giants, Startups

Often times tax incentive packages aren’t good trades for taxpayers, Greg LeRoy, executive director of Good Jobs First, told Bloomberg BNA. He said rebates on corporate income taxes create structural deficits for states and localities that have to pay for greater infrastructure but don’t receive the tax dollars needed to keep apace with growth.

“Amazon was coming to Kentucky anyways—there is no need to pay them to fulfill their business model,” he said, referring to Amazon’s need to create regional hubs in order to keep its promise of two-day delivery to Amazon Prime subscribers. “We don’t think anyone should be paying Amazon to do anything.”

Good Jobs First also takes issue with the amount governments pays in credits per job. The organization advocates that governments cap all incentives at $50,000 per job. Based on the eligible incentives in the Amazon deal, Kentucky would be providing $14,814 per job created if Amazon received all $40 million in credits to hire 2,700 people.

But to small companies, the incentives mean so much more.

“Growing up in Kentucky, success often meant getting out,” Ankur Gopal, CEO of Interapt, a mobile and wearable technology startup in Louisville, told Bloomberg BNA. “To me its not an intellectual problem—it’s a brain drain problem.”

Gopal said the $2 million in possible incentives meant he can pay to retain the best technology brains in-state. His company would receive the full tax rebate if he nabs 250 employees—a cost of only $8,000 per tech job created in his company. The deal he struck has also been a “badge of credibility” to investors.

“Not all tax incentives are good deals. The state needs to avoid fly-by-night deals that have worked in the past, and hold our company’s feet to the fire and keep us accountable,” he said. “But when you look at the work we’re doing, we’re creating jobs in a space that’s under-employed or unemployed [in Kentucky].”

To contact the reporter on this story: Alex Ebert in Columbus, Ohio at aebert@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

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