spending report overview
Accounting for Impact:
Economic Development Spending in Kentucky
MACED has recently completed the report Accounting for Impact: Economic Development Spending in Kentucky. The report is an analysis of how much money the state spends on economic development activities.
While the state spends considerable effort on these activities, the bottom line is that the economic development system is in serious need of attention. The state’s resources are too scant for the public to expect anything other than economic development efforts that result in a reasonable return on our investment.
Today, we invest the lion’s share of state spending in one major strategy — industrial recruitment. Today, we are unsure of the impact of the state’s economic development efforts because we don’t evaluate all of the spending. The state’s economic development efforts need better coordination across the many different programs, departments and cabinets involved.
MACED and many others believe we need a better economic development system that invests more in entrepreneurship, higher education, small businesses and the strengths that make the Commonwealth great.
The following are highlights from the report.
1. Most of Kentucky’s economic development spending is not evaluated and needs greater accountability to ensure the best use of public resources.
• Almost 3/4 of state spending on economic development is through tax breaks and incentives.
• The majority of this spending gets no evaluation, so we don’t know if it works.
• Once passed, most tax breaks in Kentucky stay on the books forever.
• Unlike direct expenditures in the state budget, tax expenditures avoid regular public or legislative scrutiny.
2. Many indicators of wellbeing in Kentucky are sliding the wrong way while we continue to invest the bulk of our economic resources in just one approach — industrial recruitment.
• In Kentucky, the number of children in poverty is increasing; we remain 42nd in the country in per capita income; average annual wages have fallen relative to the national average.
• Eighty percent of state spending goes toward industrial recruitment, mostly through the tax code. Despite this, Kentucky continues to shed manufacturing jobs.
• Reports indicate that tax exemptions and incentives aren’t part of the top ten reasons business executives cite when choosing a new location.
• Tax incentives and industrial recruitment need to be part of a more balanced, smarter economic development approach that is accountable to the legislature and the public.
3. Kentucky’s economic development system needs to be overhauled and modernized to ensure the greatest return on the public’s investment.
• Kentucky lacks a unified plan for economic development. Spending is done across many cabinets, divisions and programs without adequate strategy or coordination.
• The strategic plan created by the Cabinet for Economic Development only encompasses 18% of state spending on economic development. The other 82% happens through other cabinets.
• Kentucky needs a better plan and coordination across cabinets and programs as well as the sunsetting of tax expenditures to ensure regular review.
• Good stewardship of public dollars demands that all economic development spending be evaluated. We have to be sure we are getting the best deal.
4. Kentucky needs a new economic development approach that starts from a stronger foundation, is forward looking, based on Kentucky’s strengths and invests in innovation.
• Sufficient and consistent investments must be made in the things that make the state strong — high quality and lifelong education, efficient and reliable transportation, quality social services and a technology infrastructure second to none. These are what smart companies want in a state.
• We should invest in Kentucky’s entrepreneurs and small businesses.
• A more diverse, results-oriented approach to economic development is likely to benefit those Kentuckians who need it most.