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The Incentives for a New Kentucky- Now that the Ink Has Dried

Any shrewd negotiator will advise that you consider the deal closed only when the ink has dried, and in many cases only when the check has cleared.  Now that the ink has dried on the products of the 2009 special session, one great deal stands out: the Incentives for a New Kentucky.  INK, the short name for the incentives legislation signed into law in June by Governor Beshear, encompasses the Kentucky Reinvestment Act, the Kentucky Business Investment Program and other results of House Bill 3.  After a few months in operation, the response to INK has been overwhelming.  The patience and hard work of the state government, the Kentucky Association of Manufacturers and other like-minded Kentuckians to develop the concept of rewarding financial commitment to our state has paid off for the benefit of KAM members and for the entire Commonwealth.  In addition, the timing of the new bill could not have been better, truly the right package of programs at the right time.  Kentuckians now have a statutory scheme in place in time to encourage our manufacturers to invest in our Commonwealth and, most important, to save Kentucky jobs.   

Any shrewd negotiator will advise that you consider the deal closed only when the ink has dried, and in many cases only when the check has cleared.  Now that the ink has dried on the products of the 2009 special session, one great deal stands out: the Incentives for a New Kentucky.  INK, the short name for the incentives legislation signed into law in June by Governor Beshear, encompasses the Kentucky Reinvestment Act, the Kentucky Business Investment Program and other results of House Bill 3.  After a few months in operation, the response to INK has been overwhelming.  The patience and hard work of the state government, the Kentucky Association of Manufacturers and other like-minded Kentuckians to develop the concept of rewarding financial commitment to our state has paid off for the benefit of KAM members and for the entire Commonwealth.  In addition, the timing of the new bill could not have been better, truly the right package of programs at the right time.  Kentuckians now have a statutory scheme in place in time to encourage our manufacturers to invest in our Commonwealth and, most important, to save Kentucky jobs.   

Prior to the last legislative session, Kentucky incentive statutes provided a consistent, but somewhat one-sided scheme.  The most popular and well used programs, KREDA and KIDA, provided for incentives IF the applicant was building a new plant or expanding an existing facility and IF new jobs were created.  The actual incentives granted were based upon the number of jobs created.  Even a significant investment could go unrewarded if no new jobs were created.  While components of prior statutes provided for some incentives for expansion of existing businesses, those provisions were also limited to  businesses that were creating new jobs. 

This job-centric part of the former Kentucky approach, has been copied by several states, many of whom have emulated Kentucky’s significant success over the past few years.  However, as the economy has changed, the Commonwealth’s approach to providing incentives has evolved.  Our state has seen the benefit of inducing companies to make capital investments, regardless of the creation of new jobs, because those investments often drive later decisions to expand or keep plants in Kentucky.  Simply put, the plants with the most recently installed and updated equipment are more likely to survive. 

The INK legislation reflects, among many things, a recognition of this fact and focuses significant state resources on helping Kentucky’s existing businesses.  Under the Kentucky Reinvestment Act, benefits have been expanded to assist existing manufacturers who need to make a significant capital investment in Kentucky facilities in order to remain competitive and to simply retain existing employment. 

Not all of the existing programs were replaced by the INK programs.  Some existing programs offer assistance for companies dealing with special circumstances.  One Kentucky program continues to deal with a narrow group of companies who are seriously considering closing down operations here.  Under the Kentucky Industrial Revitalization Act (KIRA) program, which still exists, incentives are provided for those manufacturing companies that can show evidence that they are financially driven to relocate manufacturing operations outside the Commonwealth.  Providing that evidence can be expensive, invasive and time consuming, often taxing the patience of the boards of manufacturing companies that are already dealing with difficult decisions, but the incentive can often make the difference in the potential relocation decision.

The results of the new INK legislation are positive and measurable.  As many companies expand their operations or otherwise gear up for the growth that they optimistically plan to see in 2010, they are exploring the benefits of the new programs.  Interest in the INK initiative is driving more analysis of additional investment in Kentucky.  

Erik Dunnigan, Deputy Commissioner of Business Development for the Cabinet for Economic Development, is bullish on the new programs.  He reports that, “At the KEDFA board meeting on December 10, nearly 30 preliminary projects were approved for tax incentives under INK-related programs.  It was one of the largest agendas we’ve seen in some time.  Taken together, the approved projects have the potential to create as many as 1,137 new jobs, 1,447 retained jobs and a capital investment of over $128.8 million.  This volume of preliminary projects is an excellent indicator that we are starting to achieve tangible results from the INK legislation.”

The INK changes have fostered balanced interest from both new and existing businesses, because new incoming businesses are not excluded from the benefits of the legislation.  Of the 66 projects approved to date under one of the new or revised incentive programs in INK, 42 of them were for existing Kentucky industries.  

To be sure, there are still conditions and qualifications for each program.  For instance, to qualify for the nonrefundable tax credit against income tax and limited liability entity tax  liability under the KRA, companies must reinvest at least $2.5 million in the existing facility and maintain at the facility at least 85% of the full-time employment base at the time of application.  Companies that have obtained incentives under KIRA within 5 years of the application are not eligible for the manufacturing reinvestment credit. 

In addition, the new INK legislation generally provides tax credits in lieu of job assessments.  These tax credits can be valuable, but only if applied to state tax liability, so proper planning can increase the benefit of the incentives.  

If your company has not reviewed the implications of the new legislation, now may be the right time.  As part of its capital investment plan, your company may be able to obtain its incentives in INK.

  • Partner

    Jeff is the Corporate Services Department Co-Chair and past Chairman of the firm. He is also Co-Leader of the Beverage Alcohol Team. Jeff has been involved in the successful negotiation of billions of dollars in economic ...

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