HB 3: Kentuckys New Economic Development Toolbox

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HB 3 Kentuckys New Economic Development Toolbox

• Overview of Financial Incentive Programs

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What HB 3 Did

• Created one program for new and expanding
  industry (Kentucky Business Investment Program)
• Significantly expanded the use and availability
  for the Kentucky Reinvestment Act (KRA) program
• Amended the Kentucky Enterprise Initiative Act
  (KEIA) program

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What HB 3 Did, cont.

• Created a small business tax credit program
• Created a new sales tax refund for computer
  equipment
• Enhanced Kentuckys tourism and heritage
  preservation programs
• Other

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Kentucky Business Investment (KBI) Program
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KBI Program

• With the enactment of HB 3, the Kentucky Rural
  Economic Development Act (KREDA), Kentucky
  Industrial Development Act (KIDA), Kentucky Jobs
  Development Act (KJDA) and Kentucky Economic
  Opportunity Zone (KEOZ) are not available to new
  projects...
• One new, flexible consolidated program is
  available for new and expanding industry

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KBI Program

• Manufacturing
• Agribusiness
• Service and technology (activities provided
  predominately outside the commonwealth)
• Regional and multinational headquarters

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KBI Program, Cont.

• Minimum Qualifications
• 100,000 investment
• 10 new Kentucky resident jobs
• 90 of new jobs must be paid 125 of FMW in
  enhanced incentive counties (150 in other
  counties) combined with 15 in benefits

• All Projects, Regardless of Type
• Must achieve 90 of the established jobs target
  and the established wage target by activation
  date and maintain those averages or better
  through the term to maximize approved costs
• May be owned or leased

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Projects in Enhanced Incentive Counties

• Same criteria used to determine enhanced
  incentives counties as formerly used to determine
  KREDA counties
• 15 year term for tax incentive agreement
• Wage assessment of 5 (all state) and corporate
  income tax credit/LLET available for recovery of
  incentives
• Equipment expense unlimited as part of approved
  costs
• Counties maintain eligibility for enhanced
  benefits for 3 years after certification lapses

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Projects in Other Counties

• Ten year term for tax incentive agreement
• Eligible for up to 4 percent wage assessment (3
  state/1 local assessment fee) and corporate
  income/LLET tax credits as recovery methods
• Local jurisdictions with an occupational fee may
  offer less than the full amount available, and
  the state wage assessment portion will be
  pro-rata if no local occupational fee is
  assessed, then another form of participation will
  be expected
• Equipment expense is limited to 20,000 for new
  Kentucky resident jobs created as part of the
  total approved costs

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KBI Eligible Costs

• For OWNED projects, including those with capital
  leases, eligible costs include 100 of the cost
  of land, building, and attendant construction,
  labor, installation, etc. costs, and start up
  costs, including equipment (subject to 20,000
  per job created in other counties)
• For LEASED projects, eligible costs include start
  up costs and 50 of estimated annual rent for
  each year of the tax incentive agreement

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KBI Approved Costs

• KEDFA will set approved costs at final approval,
  however, all expenditures must be made by
  activation and it is the confirmed approved
  costs that will be the final, eligible recovery
  amount
• Annual recovery limits will be set in the
  agreement and may be adjusted annually to reflect
  a companys success in meeting job and wage
  targets

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KBI Administrative Matters

• Application Process/Preliminary Approval
• Fees
• Final Approval/Activation
• Disclosure
• Monitoring
• Ongoing reporting requirements

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Kentucky Reinvestment Act (KRA)

• Assists existing manufacturers who need to make
  significant capital investments in order to
  remain competitive
• Requires minimum 2.5 million in new investment

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KRA, cont.

• Existing manufacturers may recover
• Up to 50 of the cost of new equipment
• Up to 100 of eligible skills upgrade training
  costs
• Recovery of approved costs will be through
  corporate income/LLET tax credits
• Cabinet to negotiate minimum number of jobs to be
  retained, with 85 of pre-project base being the
  statutory floor
• An approved company will have 3 years from
  preliminary in which it must enter into a final
  reinvestment agreement
• The term of the Reinvestment Agreement is 10
  years
• The company may not have received benefits under
  KIRA within the last 5 years

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KRA Administrative Matters

• Application Process/Preliminary Approval
• Fees
• Final Approval/Activation
• Disclosure
• Monitoring
• Ongoing reporting requirements

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Kentucky Enterprise Initiative Act (KEIA)

• Program now allows companies to receive sales
  tax refunds for the purchase of electronic
  processing equipment costing at least 50,000

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KEIA, cont.

• Project must still meet total minimum investment
  of 500,000
• The term of the project is negotiable, but may
  not exceed 7 years, including any extensions,
  from KEDFA approval
• The sales tax refunds for electronic processing
  systems will apply against the 5,000,000 annual
  cap previously allotted for just research and
  development
• The annual cap for construction and building
  materials remains at 20,000,000 per year

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Small Business Development Credit Program

• This program is currently under construction, and
  consistent with the legislation, will not be
  available until 2012
• To qualify, a small business must have 50 or
  fewer employees create and maintain 1 job for 12
  months paying no less than 150 of FMW and
  expend 5,000 or more
• The program will be capped at 3,000,000 in total
  credits available in a fiscal year

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Sales Tax Incentive for the Purchase of
Communications Systems or Computer Systems

• Available to software publishers data
  processing, hosting and related services
  internet publishing, broadcasting and web search
  portal businesses or, custom computer
  programming services

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Sales Tax Incentive for the Purchase of
Communications Systems or Computer Systems, cont.

• This program will be directly administered by the
  Dept. of Revenue
• Provides a sales tax refund to companies that
  qualify
• Requires an expenditure of 100,000,000 or more
  on qualifying equipment, located at a single
  facility, and used for the full period of
  depreciation under the IRS code

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Tax Increment Financing Changes

• Allows TIF to be used for an Arena with Seating
  Greater than 5,000 being developed on Vacant Land
  
• Allows for Extension of Termination Date for
  Local TIFs Approved Prior to July 1, 2003 and
  expanded prior to August 1, 2006
• Reduced the Minimum Capital Investment for
  Signature TIFs Approved Prior to January 1, 2008
  to 150,000,000
• Establishes Signature TIF Loan Support Program
• Allows Activation Date to be Extended for Four
  Years for Projects Approved by the TIF Commission
  and Five Years for Projects Approved by KEDFA
• Applies the Activation Date Changes without a
  Formal Request to All Projects Previously
  Approved That Have Not Yet Activated

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Summary