Gov. Ernie Fletcher bristles at the suggestion that Kentucky lags behind other states in economic growth. And he questions the source of studies that show Kentucky losing ground - studies like the Tax Foundation's annual State Business Tax Climate Index that shows Kentucky ranked 39th and falling.
The governor cites studies of his own that show Kentucky's economy rebounding, with thousands of new jobs, reduced state government, lowered taxes and new businesses moving into the Commonwealth.
Sitting down with us in his Capitol office ... the governor listed rapid-fire accomplishments to which his administration lays claim. In the battle of economic measures, Fletcher has good reason for choosing those that reflect progress - he's locked in a tight re-election campaign in the Republican primary.
But Fletcher also acknowledges that the state is not doing well as some southern states in attracting new business. He hesitantly mentions one by name - Tennessee. Our neighbor to the south makes Kentucky's growth seem anemic, and the governor doesn't want to draw attention to Tennessee's superior business climate - business owners looking to relocate might be listening.
Fletcher said Tennessee has two enormous advantages over Kentucky for businesses looking for a place to locate: Tennessee is a right-to-work state and it has no state income tax.
Fletcher considers his tax reform one of his chief accomplishments. He says his tax reforms have reduced taxes for 78 percent of Kentuckians. His reforms have shifted some of the tax burden from Kentucky residents to nonresidents. An example of that, he says, is the alternative minimum tax.
He admits the tax net has caught some small businesses it was not intended to, but he says the tax is being modified to exempt those businesses. Small businesses, those grossing less than $3 million a year, are exempt, he says.
He said tax experts his administration consulted told him the alternative minimum tax would not stifle the economy but would stimulate growth. That is exactly what has happened, he says.
He says the state has created between 60,000 and 100,000 new jobs, attracted hundreds of new companies and reduced corporate income tax from 8.25 percent to 6 percent, which has resulted in more tax revenue for the state. “Corporate profits are up, and that's where the majority of the increased revenue is coming from,” he said. “Our growth has been pretty good.”
At the same time the state is creating private sector jobs, Fletcher says, he has cut the state payroll by 2,000 jobs (4 percent) through attrition.
And after inheriting a budget shortfall projected at $750 million, he has put the state in the black with repeated surpluses, included more than $400 million projected this budget cycle.
There's no denying that the governor, in his first term, has made strides in improving the state's economy. But while Fletcher is comparing Kentucky's economy today with Kentucky's economy yesterday, his opponents will be comparing Kentucky's economy today with other states in the region - today.
The governor needs to take an honest look at how Kentucky compares with other states using any objective source, including that Tax Foundation comparison. The foundation's index places 113 variables into five indexes that each measure a different sector of a state's business tax climate: corporate tax, individual income tax, sales tax, unemployment tax and property tax. Based on that index, Kentucky has dropped from 29th to 39th since 2004.
If Kentucky has indeed improved its tax structure to make it more attractive to business, it has done less than its neighbors. We may not be moving backward, but we're not keeping pace with states that are moving forward faster.
Facing up to that fact will be the first step toward catching up.
- The Paducah (Ky.) Sun