Commonwealth of Kentucky
Cabinet for Economic Development

REPORT ON EFFECTIVENESS OF KENTUCKY’S BUSINESS INCENTIVES RELEASED

Frankfort, Ky. -- The first in a series of reports, commissioned by the Kentucky Economic Development Partnership Board, examining the effectiveness of business incentives in Kentucky was released today. The report, produced by the Center for Business and Economic Research (CBER) within the University of Kentucky’s Gatton College of Business and Economics, is the result of a contract between the Partnership Board and CBER, through the Cabinet for Economic Development.

Contents of the initial report titled, "An Examination of Incentives to Attract and Retain Businesses in Kentucky", were presented before the Executive Committee of the Kentucky Economic Development Partnership Board by CBER earlier today.

The report consists of the following parts: 1) a review of previous studies examining the effectiveness of states’ efforts to attract businesses; 2) a summary of Kentucky’s incentive programs; 3) a summary of incentive programs in neighboring states; 4) a discussion of the data and empirical methodology used to examine the business incentives; 5) the results from CBER’s analysis with both short-term and long-term affects; 6) a review of whether the effectiveness of the incentives varies by region; and 7) a summary of results, conclusions, and issues to be examined in subsequent reports.

Main findings in the report are:

• Kentucky’s business incentives are very similar to the incentives offered by its competing states.
• Since 1992 there has been a substantial increase in the amount of the tax incentives claimed as well as a substantial reduction in the use of financing programs (loans and grants).
• The yearly cost of all incentive programs is quite small relative to the size of the Kentucky economy or the magnitude of Kentucky’s taxes, amounting to less than 1% of total state revenues in a year.

Main results from CBER’s analysis are:

• Tax incentive programs are positively associated with the growth of employment and earnings in a county.
• The Bluegrass State Skills Corporation (BSSC) training program is also associated with a positive increase in employment and earnings in a county.
• Both the tax incentives and BSSC training incentives are associated with positive long-term (five years) impacts on employment and earnings that are as much as four times larger than the short-term impacts.
• Without the use of business incentives during the period 1996 to 2004, 44,829 fewer jobs would have been created in Kentucky.

Additionally, the report found that only a small percentage of tax incentives awarded are ever claimed. By 2004, only 12% of incentives awarded were actually earned by companies.

For further information about the report contact Dr. Ken Troske, Director, Center for Business and Economic Research at 859-257-1282 or email ktroske@uky.edu. To view a copy of the full report please visit http://gatton.uky.edu/CBER/ResearchReports.html.

The Kentucky Cabinet for Economic Development is the primary state agency in Kentucky responsible for creating new jobs and new investment in the state. New business investment in Kentucky in 2005 totaled more than $1.6 billion with the creation of over 16,700 new jobs. Information on available development sites, workforce training, incentive programs, community profiles, small business development and other resources is available at http://www.thinkkentucky.com/.