Kentucky’s Legislative Research Commission (LRC) retained Anderson Economic Group (AEG) to study the efficiency, effectiveness, oversight, and reporting requirements of Kentucky’s economic development incentive programs. The purpose of this report was to provide in-depth information on these programs to help policymakers make informed decisions about them in the future.
This project reviewed many aspects of Kentucky’s incentive programs. Notable components include a review the purpose and main requirements of incentives, comparisons to 13 peer states chosen by the Kentucky Cabinet for Economic Development (CED), evaluation of incentive cost and effectiveness, and a review of incentive program reporting requirements and practice in Kentucky and peer states.
We estimated the number of jobs created and maintained by firms in Kentucky receiving incentives for each year between 2001 and 2010. We also estimated the cost of these incentives to the state. We completed these analyses using data provided by the CED, the Kentucky Tourism, Arts and Heritage Cabinet (TAHC), and the Department of Revenue. We were able to compare information firms reported to the CED and data maintained by the U.S. Bureau of Labor Statistics (BLS) in order to independently verify employment at firms receiving incentives.
Our analysis found the following. First, businesses that received Kentucky incentives reported creating 55,173 jobs between 2001 and 2010. This resulted in 33,000 “maintained” jobs per year. We also found no systematic over-reporting by businesses to the CED by verifying self-reported data from the businesses with BLS data. Second, the “gross cost” to the Commonwealth of Kentucky was $140 million in 2010 and averaged $3,330 per job per year between 2001 and 2010. In our effectiveness analysis, we found that approximately 35% of all jobs reported would need to have been directly caused by the incentives for the incentives to be more effective than a broad-based tax reduction. Third, we compared Kentucky to its peer states and found several areas where Kentucky lagged. Our recommendations include ways for Kentucky to improve incentive reporting and evaluation, and ways to encourage growth in knowledge-based industries.
The purpose of this paper is to compare the NITC and DIBC proposals, identifying the key factors affecting policy makers, investors, and taxpayers. To date, public discourse about the options has been hampered due to lack information about the proposals, including project viability, financing, and taxpayer risk.
The Consultants at Anderson Economic Group have completed this study independently in order to provide an unbiased source of information on the topic.
Electricity transmission facilities are major investments. They have traditionally been funded by local utilities, with costs allocated across the local users. Improving the grid, however, requires more than a patchwork of locally planned and funded improvements. In the Midwest and other areas of the country, states, utilities, and other stakeholders have agreed to pursue a regional approach to plan and build a more robust grid. As a result, many new transmission projects are now designed to benefit large geographic areas.
Midwest Independent Transmission System Operator, Inc. (MISO)—an independent, non-for-profit corporation of grid stakeholders in the Midwest—is responsible for managing and planning this region’s grid. In early 2009, MISO began developing a new cost allocation method to be used specifically for regionally beneficial transmission projects. The approved cost allocation method assigns costs based on load (actual use of electricity), and applies only to a new category of projects called “Multi-Value Projects” (MVPs).
The MISO cost allocation for MVPs, which FERC found to be consistent with the “beneficiary pays” cost allocation principle, is now being challenged by parties that feel it does not assign costs in a way that is commensurate with benefits.
In this report, we assess whether or not the MVP cost allocation methodology is consistent with the legal principle that costs should be “at least roughly commensurate with benefits.” We also consider whether there is any evidence that the approved methodology places an unfair cost burden on Lower Michigan. Finally, we assess the risks and consequences that stem from modifying the structure of the already adopted cost allocation.