Incentives Help Automakers Address Global Challenges
Incentives offered by the state of Kentucky demonstrated to Ford that Kentucky valued reinvestment and job retention on a par with new investment and new jobs.
Area Development Research Desk (Q3 / Summer 2013)
In April, Toyota Motor Manufacturing Kentucky (TMMK) announced it would invest $360 million to expand its Georgetown, Kentucky, manufacturing plant and establish its first U.S. production site for the Lexus ES 350, creating an estimated 750 jobs in the Commonwealth. TMMK will produce about 50,000 Lexus vehicles a year starting in 2015. Toyota will invest an additional $171.2 million in other plant refurbishments. The investment is the second-largest ever made by Toyota in its Georgetown plant, and the largest since the $800 million addition of Plant 2 in 1991, more than 20 years ago.
As an incentive to secure Toyota’s investment and job growth in Georgetown, the Kentucky Economic Development Finance Authority preliminarily approved the company for tax incentives up to $146.5 million through the Kentucky Jobs Retention Act. The Kentucky Jobs Retention Act was actually developed in 2007 in order to encourage Ford — which has a history in Louisville dating back to the manufacture of the Model T in 1913 — to maintain jobs at its Louisville Assembly Plant (LAP) and Kentucky Truck Plant (KTP) as well as to add new jobs and investment.
The act promised that up to 50 percent of new investment could be recovered through a credit against corporate income tax and a wage assessment for the jobs that were preserved or created over time, as well as credits remaining unused from previous agreements if the company made an investment of at least $100 million. In addition, the investment recovery could be increased up to 75 percent if additional investments were made at either site. The legislation also incorporated millions in training funds. The initial incentive to Ford was for $24 million. The amount was increased to $180 million in 2008, and boosted once again to $240 million in 2010. The incentive package was structured in a way that it could be renegotiated to induce additional investments made at either Ford plants in Louisville — giving the state more flexibility to negotiate.
Commenting on the incentives package at the time of the announcement, Curtis Magleby, then director of government relations for Ford, noted, “We’re much more encouraged by Kentucky’s willingness to work with us on a partnership for the future. We need new tools to address today’s global manufacturing challenges, and a lot of times [state economic developers] have a toolbox that’s been around for decades.” Magleby said Ford wanted to make sure the state of Kentucky prized reinvestment and job retention on a par with new investment and new jobs. The wage assessment option was also important to the Kentucky package, he said. “Manufacturers go through adjustments, and are not always in a profit position,” he said, and incentives need to be able to account for those swings. “The way you get the incentive in Kentucky is a refund of your 5 percent payroll tax, so it becomes a bottom-line operational cost improvement. Many of the old economic development tools are solely corporate tax liability, and those come and go.”
The training component was important too, Magleby said, and demonstrated “the state’s understanding of the need to continually upskill.”