An act related to economic development
Kentucky Legislature wrapped up the 2021 extraordinary session just before midnight on Thursday, September 9. While this session was primarily focused on COVID-19 related bills, the legislature considered and passed legislation related to economic development projects that exceed $2 billion in investment. This legislation is primarily geared towards attracting an economic development project to the 1500-acre Glendale Megasite located roughly 45 miles outside of Louisville.
Senate Bill 5 allows the Commonwealth of Kentucky to offer a forgivable KEDFA direct loan to increase the competitiveness of the Glendale Megasite relative to comparable Megasites in Memphis and Southern Indiana. The KEDFA direct loan, in addition to being forgivable, could offer a low or zero percent interest rate. The amount of the loan cannot exceed the value that a project would have received under existing Kentucky economic development incentive programs discounted to the net present value of those programs.
Essentially, this Bill allows Kentucky to provide cash into these “mega” deals to close gaps with competing sites. Per the legislation, the net present value of the incentives provided should not differ from what would have been provided under existing programs.
Five prospective economic development projects are currently looking at the Commonwealth of Kentucky and would exceed $2 Billion in investment. The Glendale Megasite is marketed as the most qualified Megasite in the southern auto corridor. Without this legislation, these four types of Kentucky Incentives would have been the primarily tools available for attracting these projects:
- Payroll Incentives – The Kentucky Business Investment (KBI) program offers incentives based on net new payroll generated by the project. Manufacturing projects in Kentucky typically receive between $7,000 and $9,000 per new job to support new employment over a 10-year period. Larger projects could receive greater support depending on total investment impact, job numbers and wages. Eligible companies can realize the value of this program over time as either a payroll tax rebate or as a corporate income tax credit.
- Sales and Use Tax Incentives – Kentucky utilizes the Kentucky Enterprise Investment Act (KEIA) to rebate sales tax on construction material back to economic development projects. On a $2 billion project, the expected value of this program would conservatively exceed $23 million.
- Property Tax Abatement – Kentucky is similar to Missouri and New Mexico in offering property tax abatements through an industrial revenue bond structure that mitigates property tax through a payment-in-lieu of tax (PILOT) or through tax increment financing. Senate Bill 5 does not include real or personal property tax incentives as eligible values for the calculations for the KEDFA direct loan for “mega” economic development projects. This is notable because Kentucky taxes machinery as business personal property at the state level. The legislation could have allowed for a portion of the value of the property taxes been included in the economic development incentive package.
- Workforce Development Support – Kentucky has multiple approaches to workforce development, including Bluegrass State Skills (BSSC) and in-kind support from the Kentucky Community and Technical College System (KCTCS). BSSC offers cash back grants to eligible companies with eligible training programs with a maximum value of $75,000. Senate Bill 5 offers $20 million through this program for eligible projects that exceed $2 billion in investment.
Kentucky’s traditional incentives are performance based and non-transferrable. While this approach to economic development policy protects that taxpayer interests and ensures that companies perform on expectations prior to receiving benefit, it often limits the ability of incentives to help drive investment in capital expenditures. Companies considering significant expansions and new locations are often more persuaded by incentives offering immediate benefit to offset initial capital costs. Senate Bill 5 remedies this discrepancy for projects over $2 billion. The Kentucky Economic Development Finance Authority (KEDFA) now has the discretion to utilize this programing to attract “mega” projects to the Commonwealth.