Economic development needs attention
All Kentuckians should be part of debate
Lexington Herald-Leader, November 21, 2005
By Justin Maxson
Kentucky's decision-makers and voters shouldn't be afraid of a debate about economic development. Too many people and communities are in real need to not ask hard questions.
Significant evidence indicates that Kentucky's economic development system is in serious need of attention. Too much money is spent through tax preferences and incentives without knowing whether we are getting an appropriate return for the investment of public dollars. Most of the state's economic indicators continue to stand still or move in the wrong direction.
The Cabinet for Economic Development and other state agencies engage in a range of economic development activities, including industrial recruitment, small-business development and promotion of tourism. But the bottom line is that industrial recruitment through financial subsidy gets the lion's share of state dollars.
And we do have some great success stories in a few places in the state, including Toyota in Georgetown and UPS in Louisville. But the reality is that most other communities have a very different story to tell: factories that close down even after getting major incentive packages, leaving only empty industrial parks and broken promises.
Industrial recruitment and business development using tax preferences and incentives need to be part of the economic development puzzle in Kentucky. But they should be a useful tool, not a goal or the main strategy.
As much research indicates, businesses look for many other more important attributes when they consider moving or expanding: the quality of work force, performance of local schools, college graduation rates, quality of physical infrastructure and other community amenities.
First, we must invest in these foundations of a strong economy. Incentives are not enough if that foundation is weak.
Are we getting an appropriate economic bang for our tax break buck? If we don't have a decent answer to this question, we should not be spending public money this way.
While there is no simple answer to the question of how else the state should be spending its economic development dollars, there are at least three important directions moving forward.
• Improve the economic development system. Ensure accountability in Kentucky's economic development spending and accurate evaluation of its effectiveness, with particular scrutiny given to tax breaks.
• Make all tax preferences for economic development purposes be reauthorized biennially when the budget is passed, so legislators must weigh their value in light of other needs and priorities.
• Invest more in the basics. Ensure that the state is adequately investing in the foundations of a strong economy: education, work force development, infrastructure, environment and technology are all critical parts of a strong economy and healthy communities.
• Better fund a range of economic development strategies. We need to invest more in strategies that have the greatest potential to create good jobs and promote healthy communities: developing entrepreneurs, making risk investment capital available, investing in value-added agriculture and forestry, promoting tourism, aggressively supporting locally owned businesses, strengthening strategic work force development efforts and engaging in targeted recruitment activities based on Kentucky's strengths.
Kentucky needs to change its economic development system on par with the Kentucky Education Reform Act, which has shown significant progress for the state's schools. To get there, we need an effective process that involves Kentuckians in defining and planning a different and better economic development road.
What is most clear to me is that too much money is being spent without knowing whether it makes a real difference to most Kentuckians. In the end, it is reasonable and right for Kentuckians to expect more from the economic development system — that it be transparent, accountable and as effective as possible in moving Kentucky forward.
Justin Maxson is president of the Mountain Association for Community Economic Development in Berea.