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Kentucky Economic Development Spending Lacks Accountability

 

November 2005

 

Kentucky spends more than $800 million a year on economic development programs with little accountability for how the money is spent, according to a newly released study by the Mountain Association for Community Economic Development (MACED).

 

The study shows that in 2004 the state spent 79 percent of its economic development money on subsidizing businesses and recruiting industry and spent relatively little on programs that develop home-grown businesses and jobs. State records show recipients of state economic development benefits include some of America's richest corporations, such as Wal-Mart and the Weyerhaeuser Corporation, a global wood-products manufacturer.

 

Over the past six years Kentucky spent $4.6 billion on economic development programs, the study says. About 60 percent of the state's economic development spending, primarily in the form of tax breaks, does not require any reporting from the business or evaluation from the state, the report indicated.

 

Economic development spending is scattered among 15 state agencies, and no single agency evaluates all of the spending programs, the report says.

 

"Kentucky has handed out billions of dollars to businesses, many of them out-of-state corporations, trusting that this investment will pay off," said Justin Maxson, MACED president. "Not only is the state gambling with our money, we don't even bother to count the chips to see whether we’re winning or losing. Where’s the accountability?"

 

In recent years the state has approved sizeable tax credits and cash incentives to large corporations.

 

~ Since 1993 the state has given Weyerhaeuser Corporation, one of the world's largest forest-product corporations, $300 million in tax incentives and credits for promising to create approximately 300 jobs, a cost of $1 million per job.

 

~ In the past 12 years Kentucky has given Wal-Mart, the world's largest corporation, $43 million in tax breaks and incentives for distribution centers.

 

~ In 1999 the state and local governments gave Sykes Enterprises $7.6 million in cash and tax incentives to place two call centers in Eastern Kentucky. By 2004 both call centers had closed and the jobs had moved off shore.

 

"The state should be encouraging a diverse economy with diverse economic development efforts, not putting all its eggs in the one basket of smoke stack chasing," Maxson said. "We need to be investing more in what is unique about Kentucky -- locally owned businesses with real market opportunity and home-grown entrepreneurs. We need to invest in good ideas and the people to carry them out locally."

 

Kentucky has ranked 42 nd in the United States in per capita income for the past 34 years. Since 1980, Kentucky workers have dropped from earning 92 percent of the national annual average annual wage and salary per job to earning 85 percent of the national average.

 

MACED tracked state appropriations and tax breaks for economic development from 1999 to 2004.

 

The MACED report contains the following recommendations.

~ Create a statewide plan that unifies economic development programs.

~ Improve evaluation of economic development spending.

~ Build an expiration date into tax-break legislation so the legislature will have to reauthorize it, rather than allowing it to continue without evaluation.

~ Expand economic development spending on education, workforce development and high-tech business development, rather than relying on industrial recruitment and tax subsidies.

 

MACED, based in Berea, is a 30-year-old nonprofit community development organization that works to improve the quality of life in eastern Kentucky and Central Appalachia by creating economic opportunity, strengthening democracy and supporting the sustainable use of natural resources. To read the report visit www.maced.org or call at 859-986-2373 to receive a hard copy.