On economy, Beshear says he has protected Ky. well; Williams says state is being outpaced by neighbors and needs new policies

By Christie Craig
University of Kentucky School of Journalism and Telecommunications

When political forecasters predict the winner and losers of an election, the factor most often considered is the economy. This is typically true for national elections, but economic conditions in Kentucky and the nation make it a major concern in the Nov. 8 election for governor.

Kentucky had the 14th highest unemployment rate in the nation in September, a slight improvement from 11th during 2008, Democratic Gov. Steve Beshear’s first year in office. Beshear argues that his policies have helped Kentucky weather the Great Recession better than most other states.

Republican state Senate President David Williams says Kentucky is being eclipsed by neighboring states and needs big changes in tax policy to make the state the best place in the nation to create jobs. Among other things, he proposes the elimination of the corporate and personal income tax.

Independent candidate Gatewood Galbraith says education is the key to economic prosperity and job creation. He advocates a voucher for high school graduates to be used on books, tuition, and fees for any form of higher education after graduation.

Williams’ plan would assemble a commission of tax and economic experts who would submit a reformed local and state tax system to the legislature. He wants to replace income taxes with what he calls “consumption” taxes, which will likely come in the form of a higher and broader sales tax.

His plan also calls for the elimination or suspension of several taxes, including those on aging whiskey, hay and feed for the horse industry, automobiles (the state portion, not the local), construction-related purchases by businesses, and energy used in manufacturing, processing, production, and transportation and distribution.

Williams opposes income taxes more strongly than he did during the Republican primary, when he told the Lexington Herald-Leader, “A new system should emphasize consumption taxes over income taxes.”

The sales tax in Kentucky is 6 percent.  Items exempt from taxes include food and prescription medications.  Williams believes Kentucky needs to compete with Tennessee, which has no personal income tax, for job creation.  Tennessee has a sales tax of 7 percent (5½ percent on food), plus varying local sales taxes.

While Williams supports big changes in the tax system, Beshear does not, at least for now. “As we are climbing our way out of this recession, I’m not fixin’ to support any broad-based tax increase on anybody,” he said at the Kentucky Farm Bureau forum in July.

The other major element of Williams’ plan is a package of changes affecting labor and business, such as a “right to work” law, which bans union contracts that require employees to pay union dues or fees for collective bargaining. Businesses are attracted to states with right-to-work laws because they weaken unions. Rather than a state law, Williams would allow counties to enact local right-to-work laws by referendum, something done in no other state.

Likewise, he would also allow counties to vote against being covered by the “prevailing wage” law, which sets generally union-scale wages for public construction projects costing $250,000 or more. 

Beshear took office in December 2007, about the time the economic downturn began. In 2008, he got the legislature to expand the state’s tax-incentive programs for creation of jobs. From 2008 to 2011 state press releases named 120 companies that promised to create jobs with the incentives. CN2’s news service, Pure Politics, surveyed them and got a response from 87. The initial estimation of those to be hired was 11,786, but the verified number of those hired was 3,691, less than a third of the jobs originally promised.

Beshear has assured taxpayers that state tax incentives will not be delivered to these companies unless they deliver jobs, but he continues to say that the incentives have created 19,500 jobs.

Beshear points out that USA Today ranked Kentucky fourth in overall personal income growth in 2010; that the state jumped 12 spots in Forbes magazine’s ranking of best places to do business; that its business tax climate was ranked 19th in the nation by the National Tax Foundation, an improvement of 15 spots since 2009; and that the credit rating agency Moody’s predicted Kentucky will have one of the five highest job growth rates in the coming year. However, Moody’s and another rating agency recently lowered Kentucky’s credit rating.

According to the U.S. Department of Agriculture’s Economic Research Service, every county in Kentucky county but one gained jobs from the second quarter of 2010 to the second quarter of 2011, a distinction achieved by no other state. The only county that did not gain jobs was Williams’ home Cumberland County.

Williams prefers to compare Kentucky with neighboring states, which he says are outpacing Kentucky, and cites the testimony of Mike Mangeot, head of the Kentucky Economic Development Association, on right-to-work laws.

Mangeot, who represents local economic developers, was asked how Kentucky could improve its competitiveness with Tennessee and other Southern states. He replied, “Right-to-work, honestly. I can tell you it keeps us from the table, period.” He added, “The personal income tax hurts us especially when dealing with the other seven states that don't have that."

In one of his television ads, Williams accused Beshear of losing nearly 100,000 jobs. Most of that loss has been recouped. The ad, and more recent ones from Williams and a supportive group, also cites a report calling Kentucky the worst managed state. That label came from a website that looked mainly at long-term trends in the states, such as education and poverty rather than short-term factors influenced by the current administrations, such as the lower credit rating.

First debate with Beshear focuses on jobs and the economy

By Rachel Bryant, Lauren Forsythe and Sara Jean Burton
University of Kentucky School of Journalism and Telecommunications

The invisible governor has appeared. Gov. Steve Beshear participated in a televised debate Tuesday night, the first with all three candidates for his job in attendance. The discussion at the Eastern Kentucky University Center for the Arts in Richmond focused on jobs and the future of the state's economy.

"The governor wants to keep emphasizing incentives," state Senate President David Williams said. "You have to take a broader look at our unemployment situation," the Republican said, adding, "You have to change the tax system, the unemployment insurance system, the tort reform system." Williams said the state should abolish income taxes and raise consumption taxes.

Beshear said in rebuttal, “Our economic incentives programs are obviously working because it bothers these two guys tremendously to even talk about it." At two points, he noted that Williams' father-in-law is creating 25 jobs with the incentive plan Beshear pushed through the legislature, and "I even got Senator Williams to vote for it.”

Independent candidate Gatewood Galbraith sided with his GOP opponent. He said the government is rewarding companies that pay $8 an hour to their employes, and "They are going to be on food stamps."

Among the many topics of disagreement were tuition increases for higher education. Beshear said he would keep trying to hold down tuition if re-elected. “No Kentuckian ought to be denied higher education because of cost and we’re getting close to that,” he said, adding that in the nine times he has cut the state budget he has never cut or lottery-funded KEES scholarships.

Williams said the cost of higher education in Kentucky is still a “good deal” compared to other states, and said Beshear had proposed “a significant cut to higher education” in 2008 and wanted to pay for the scholarships by borrowing money.

Galbraith said he supports a tuition freeze and would implement the “Commonwealth Incentive,” giving each high school graduate a $5,000 voucher to be used towards higher education expenses. He focused more on the importance of technical education, saying "Someone who can fix a transmission is going to be more valuable than someone with a degree in English lit."

Galbraith disagreed with the major-party candidates about mountaintop-removal strip mining of coal, which he called "overly destructive." Williams said "I support mountaintop removal" because using coal keeps Kentucky’s electricity costs low and helps the state compete for manufacturing jobs.

Beshear said likewise, but he said mountaintop removal should be done in an environmentally friendly way. He noted the law generally requires reclamation to the approximate original contour, except "when you can show a better and higher use for the land … for things like hospitals, airports, subdivisions and the like … . In those limited circumstances we should allow it." (Only about 3 percent of such sites are actually developed.)

The expansion of gambling in Kentucky was another topic of conflict. Williams said he was opposed to an expansion of gambling. “Slot machines are the worst enemies of folks at racetracks,” he said.

Beshear and Galbraith both said more gambling in Kentucky would bring more money to the state and help the horse industry, which Beshear said the state could lose because other states have slot machines at racetracks, or full-scale casinos.

“We’ve got folks going across the river to spend their entertainment money, including Senator Williams,” Beshear said. Williams has said that he no longer visits casinos.

Williams said he supports taking pseudoephedrine off of drugstore shelves to crack down on methamphetamine, which is made with the drug. Beshear talked about prescription drug abuse but did not take a position on pseudoephedrine. Galbraith said that if elected he would sue the pharmaceutical companies for money to be used towards rehabilitation services, and said money should not be spent on arresting college students for smoking marijuana but instead spent on more serious drug problems.

The debate was sponsored by the Kentucky Broadcasters Association and the League of Women Voters. It was broadcast in most Kentucky TV markets and on more than 100 radio stations. The candidates are scheduled to share a stage one more time, on Oct. 31 at KET.