$800,000 Per Job....Good Deal or Bad Deal?
If Kentucky lawmakers and Governor Fletcher approve an energy bill that includes incentives for Peabody Energy Corp., the cost per job is expected to be about $800,000.
That's a new stratosphere for incentive packages offered by the state of Kentucky to lure new jobs and about 20 times the average cost per job that Kentucky has given Toyota, Ford and U.P.S. over the years. According to Peabody's handout to state lawmakers on July 6th, the company's proposed coal-to-natural gas plant would employ 125 workers plus another 250 mining jobs. That's 375 jobs for the $300 million in tax breaks and incentives that Fletcher and House and Senate leaders have talked about using to lure the Peabody facility. Do the math. That's $800,000 per job.
Compare that to figures requested and compiled by state Rep. Dennis Keene (D) Campbell Co. Here are the numbers Keene received from LRC staff, with poor addition and rounding thrown in by me:
State Incentive Packages 1986-2007
Ford $193 million 6100 jobs
Toyota $125 million 3000 jobs
U.P.S. $137 million 4400 jobs
That's about $34,000 per job. And I didn't thrown in the state's incentive package for Fidelity in Northern Kentucky ($21 m. for 3300 jobs) which would have skewed the number even lower.
State representatives Ron Weston and Mary Lou Marzian of Louisville say the incentive plan offered to Peabody looks "like a bad deal for Kentucky" and they think the $300 million could "be better spent on other needs." Rep. Keene says the new benchmark for corporate incentives will prompt the next company to ask for a similar sweetheart deal from Kentucky. Keene says "Peabody is getting the longer end of the stick with this deal."
But western Kentucky lawmakers, including energy bill sponsor Rep. Rocky Adkins says Kentucky must "ante up" if it wants to be on the cutting edge of a new technology that could help solve America's energy problems. Adkins says the incentives aren't just for Peabody and can't be easily measured by tangible results like the number of jobs. He says research and development at U.K. and U of L will flourish and that taking the first step toward a coal liquification plant that works could create a "new economy" in Kentucky's coal fields. Adkins also says it's not fair to measure the cost of the incentives versus the jobs created because the Peabody jobs may not, ultimately, be the most important ones that spring from the deal. He says engineers, scientists and researchers, with no ties to Peabody might see Kentucky as a fertile breeding ground for new energy technologies and move here, with their big salaries.
There's also a political angle to the incentives. Besides the obvious angle of Fletcher hoping to generate more reelection votes in Kentucky's coal regions, there's the angle of rural vs. urban legislators. It could be tough for lawmakers in the Golden Triangle to vote "no" on a gigantic incentive plan for businesses to come to eastern and western Kentucky when legislators from those coalfield districts have repeatedly supported tax breaks for businesses in Louisville, Lexington and Northern Kentucky over the years.
To view the video version of this story, with apologizies to Rocky Adkins Marzian, go to WHAS11.com then scroll down to "lawmakers debate incentives."
Comments
Jeez . . . double Jeez!!!
How does this make any business sense?
How could any member of the General Assembly support this?
Mark H. makes a good point about "support for issues in other geographies." Regardless, this is hypocritical and an embarrassment to Kentucky that such a plan for this kind of consideration would last more than a day. It is a lot o gaul for a company that has cash available, in the amount of 1.2BILLION, this is just too, too much.
I gotta sit down
Posted by: Jim Anderson Stivers | August 13, 2007 11:08 PM
It is a good point to make again and again, and I appreciate the fact that some of our representatives (Keene, Marzian and other) are willing to question the ROI of the Peabody deal.
If we are interested in incentivizing R&D for renewable energy production or carbon sequestration, lets do that. Lets not provide incentives to the largest energy company in the world, in the name of energy diversification. We already provide an annual $60 million sales tax exemption on coal purchased to make electricty in the state. I am pretty clear they do not need more support with public money that should go to education, child care and other vital needs.
KY has water, coal and miners. Want to or not, we may get a plant. Why should we subsidize it?
And the reality is that the economic cost of this deal to the state is likely to be much higher assuming mandatory federal caps on carbon emissions (which most lawmakers and others assume). The evidence is clear that synthetic gas plants (and the resulting fuel) will produce more carbon. Someone will pay for it. And to paraphrase a Wall street Journal summer editorial, public subsidies for coal conversion may amount to the largest corporate welfare scam in the history of the US.
There is substantial evidence that $300 million invested in early childhood education, renewable energy R&D or energy efficiency incentives will have a greater impact then the proposed 275 jobs.
The expectations of corporations concerning Kentucky's willingness to "offer the farm" (no pun intended) are already too high, lets not raise the bar any further.
We need a leader to step forward with a new economic development vision that meets both short-term and long-term e
Posted by: Justin Maxson | August 14, 2007 12:25 PM
Whoa. Somebody explain this to Jody before we give Peabody all the keys to the Capitol.
Posted by: Anonymous | August 14, 2007 2:48 PM
In the history of economic development, this deal will go down as the absolute dumbest project ever given incentives. Only a few short months ago, the State of Mississippi gave Toyota incentives of approximately the same amount as sought for Peabody Coal. Many of those incentive dollars will go for community improvements to schools, etc. and not just to company coffers. Toyota has a proven record of success in building autos while the technology for the Peabody plant is unproven and incomplete. In addition, Toyota in Mississippi will attract tens of thousands of high paying auto related jobs to that State.
Why is no one asking the Governor about Toyota, or Hyundai, or Honda? It has been a long time since an automotive assembly plant has looked seriously at Kentucky. It is a sad commentary indeed that we have gone from the premier southern location for automotive assembly to doling out a THIRD OF A BILLION for something that has not even been deemed feasible.
IF the Assembly wishes to create alternative energy incentives, it would be much wiser to get away from a "job based" incentive program and perhaps simply award new investment in this sector a tax free grace period for a period of five to ten years during startup or give special tax incentives to venture capital firms that invest in alternative energy in Kentucky. If an economic development incentive can not provide demonstrable returns over a reasonable period of time it should simply not be done. Hoping that such a project will draw researchers and other projects is too flimsy a reason to risk this much public money.
Posted by: Anonymous | August 14, 2007 5:11 PM
Speaking from an unbiased perspective here - I don't care if the plant comes to KY or not, but this appears to be another example of poor reporting at best, agenda reporting at worst. Tax incentives and/or tax breaks do not equate to giving money away. You can't give away dollars that you never had. So this theoretical $800K per job is very misleading reporting. I haven't seen or read of the incentive package, but typically those programs are conditioned on jobs created and income derived from those jobs, and then the incentives kick in. There may be some upfront incentives with this package as well, don't know. The point being, any incentives given to jobs created isn't wasted dollars as this report purports, rather it is typically dollars deferred from the state coffer because of the created job. Big difference.
Posted by: Kentucky Leadership | August 14, 2007 6:15 PM
$800k per job in deferred taxes or cash....either way, there is no return on investment over a reasonable length of time for the Commonwealth. I also doubt seriously that this us a "typical" incentive package.
Posted by: Anonymous | August 14, 2007 10:37 PM
What difference does it make. The Sierra Club and State Environmentalists will hold the whole project up forever anyway (see Thoroughbred project in Muhlenberg county) because they aren't going to let anyone outside the Golden Triangle get any help in fighting poverty and unemployment.
Posted by: Rory Miller | August 15, 2007 11:46 AM