Program Review and Investigations Committee


Minutes of the<MeetNo1> 7th Meeting

of the 2002 Interim


<MeetMDY1> December 12, 2002


The<MeetNo2> 7th meeting of the Program Review and Investigations Committee was held on<Day> Thursday,<MeetMDY2> December 12, 2002 at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Representative Gippy Graham, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Representative Gippy Graham, Chair; Senator Katie Stine, Co-Chair; Senators Charlie Borders, Brett Guthrie, Ernie Harris, Vernie McGaha, and Dan Seum; Representatives Adrian Arnold, Sheldon Baugh, Dwight Butler, Charlie Hoffman, Ruth Ann Palumbo, and Dottie Sims.


Guests: Gene Fuqua, Executive Administrator, Kentucky Economic Development Cabinet; Phyllis Bruning, Director, Kentucky Enterprise Zone Program; and former Representative Hank Hancock.


LRC Staff:  Greg Hager, Ph.D., Committee Staff Administrator, Lowell Atchley, Lynn Aubrey, Judy Fritz, Tom Hewlett, Joseph Hood, Margaret Hurst, Erin McNees, Stacie Otto, Cindy Upton, Mike Clark, Ph.D., LRC Chief Economist, Perry Nutt, LRC Staff Economist, Barry Boardman, Ph.D., LRC Staff Economist, and Susan Spoonamore, Committee Assistant.


Minutes of the November 14, 2002 meeting were approved by voice vote upon motion made by Rep. Arnold and seconded by Sen. McGaha.


Tom Hewlett, Program Review Staff analyst, explained to the Committee that a request had been made in October for staff to investigate the state’s contract with Coordinated Transportation Group (CTG) for non-emergency Medicaid transportation in Medicaid Region 6, which is comprised of Bullitt, Jefferson, Oldham, Shelby and Spencer counties.  He stated that Kentucky’s Medicaid Non-Emergency Transportation Program was designed to provide transportation for Medicaid recipients seeking non-emergency treatments, welfare recipients needing job and child-care related trips, and others. He said that as a result of an Empower Kentucky report released in 1996, the General Assembly passed House Bill 468 formalizing the transportation delivery system.  The report argued that placing various human services transportation systems under one system, using a managed care approach, could slow the growth of quickly escalating costs and limit the incidence  of fraud and abuse.


Mr. Hewlett stated that under the managed care approach, the state Transportation Cabinet contracted with regional brokers who were responsible for recruiting a network of subcontractors to provide the transportation services, administer payments to the subcontractors, reserve and assign trips, assure quality, and provide oversight.  He said that the $6 million contract for transportation services in Medicaid’s Region 6 took effect July 1, 2002. The contract was based on a capitated rate of $5.43 per client per month, with an eligible population of approximately 90,000.


He said that between July 1 and November 2002, over 1,700 complaints had been received, which included failure to pick clients up, rides being provided without the appropriate escort, and being “unresponsive and rude” to recipients and providers. He stated that the subcontractors also complained that the regional broker, CTG, had not been making timely or full payments for transportation services rendered.  Healthcare providers had also expressed concerns because some of their clients were not being transported, which posed a health risk to their clients, providers’ revenues were reduced because patients were not showing up for scheduled appointments, and their clients were sometimes left stranded, waiting for a return trip home even after the providers’ closing hours had passed.


Mr. Hewlett stated that in response to the complaints, CTG blamed the state for its troubles, saying that the capitated rate was unrealistically low and that the number of rides per month had been underestimated.  Mr. Hewlett noted that CTG agreed to the terms when it signed the contract to provide the services. The contract provided for an adjustment in the estimated number of rides per month and the capitated rate based upon data provided by CTG after the first three months of service, but Finance Cabinet Officials stated that CTG had not been able to provide adequate data for a reassessment.


He said that in October 2002, three subcontractors filed suit in federal court in an attempt to force CTG into involuntary bankruptcy to collect money that was owed to them, and then in November 2002, the state requested that the federal court rule in favor of canceling its contract with CTG. He stated that before the court could issue a ruling on the request, CTG filed a motion for voluntary bankruptcy and it cancelled its contract with the state. CTG ceased to provide services as a broker at midnight, November 30, 2002. 


He explained that while the state was undertaking the process of issuing a new Request for Proposals and selecting a new broker for Region 6, an interim program had been put in place.   He said that the Finance Cabinet hoped to have a new broker for Region 6 within the first few months of 2003.  He also said that the Transportation Cabinet had added four staff and four new phones to deal with the calls from the transportation providers.  He said that there had not been enough time to determine if the Department of Transportation could adequately meet the demands, or if it would need additional staff.


Rep. Arnold asked if other regions were having operating problems too. Mr. Hewlett stated that some of the other regions had start-up problems. 


Rep. Baugh stated that he was hearing complaints from subcontractors regarding trips being denied, late payments and no payment for services. He also stated that there seemed to be a constant problem with the broker refusing to honor  the approvals for payment.  Mr. Hewlett stated that any new system would have complaints. He stated that the capitated rate was in place to help the broker provide efficient service. Brokers would try to restrain the number of rides because they only get the flat rate per month. He said that in the past, there had been no ceiling on the amount to be paid out nor a restraint on the number of rides.  Mr. Hewlett also explained that in a previous Program Review study, staff found that any willing provider was allowed to participate in the programs.  He said that if providers had problems, the Transportation Cabinet or the Finance Cabinet should have been able to address those issues.


Rep. Palumbo asked what had been done to inform the 1,700 complainants that something was being done to correct the problems.  Mr. Hewlett stated that there had been extensive testimony at the Health and Welfare Committee meeting last month, and when the interim program began there had been press releases and media announcements.  He said there had not been enough time between the filing of the bankruptcy and the institution of the interim program to notify each complainant individually.  He said that staff found that things seemed to be working much better now.


Rep. Sims stated that in the rural areas, some people did not have access to newspapers or web sites.


Chairman Graham asked for a motion to adopt staff’s report entitled Public Funding of Gubernatorial Campaigns in Kentucky and Other States, which had been presented at the November 14, 2002 meeting of Program Review. 


Sen. Stine stated that she wanted to see a more thorough analysis of party spending as to how it had affected elections in the past, and how it would affect elections in the future before the Committee adopted the report.  She also stated she would like for staff to present that information within a couple of months.


Chairman Graham asked Dr. Hager for his comments.


Dr. Hager stated that staff would do whatever the Committee requested.


Rep. Palumbo stated that she would like to see the Committee adopt the report, along with a motion for staff to do a more thorough analysis of party spending as to how it had affected elections in the past, and how it would affect elections in the future.


Sen. Stine stated that staff might find information that would alter the body of the report, and therefore the report should not be adopted at this time.


Upon roll call vote, a motion made by Sen. Stine and seconded by Sen. Seum for staff to do a more thorough analysis of party spending before the report would be approved by the Committee was adopted.


Chairman Graham introduced Perry Nutt, Mike Clark, Ph.D., and Barry Boardman, Ph.D., LRC Economists. to present the report entitled The Costs, Benefits, and Monitoring of Kentucky’s Enterprise Zones.


Mr. Nutt stated that the report was an evaluation of Kentucky’s enterprise zones, which included a description of the program, a comparison of Kentucky’s Enterprise Zone Program to other states, an analysis of the costs and benefits of the program, and an evaluation of the monitoring procedures for the program. 


Mr. Nutt explained that the Kentucky Enterprise Zone Program was created in 1982 as a way to revitalize economically depressed areas, by offering tax incentives and other non-tax incentives to businesses, which would result in greater employment and higher income for people living in the zones.  He stated that ten enterprise zones had been created, and that each of those zones was scheduled to expire on December 31 of its twentieth year unless reauthorized by the General Assembly.  He said that the Louisville and Hickman zones were established in 1983, and were set to expire at the end of 2003.


He stated that before a business could be designated as a qualified enterprise zone, the business had to meet certain requirements.  He said that 50 percent of its employees must perform substantially all of their work within the zone, and a business established after the zone was created must employ 25 percent of its workforce from the targeted workforce.  Mr. Nutt explained that the workers had to be residents of Kentucky, and the workers had to either live in the zone, or have been unemployed or have received public assistance for at least 90 days prior to their being employed by an enterprise zone business.  He said that if a business was established before the zone was created, it could qualify by increasing employment by 20 percent with 25 percent of the new workers meeting the requirements for the targeted workforce, or by increasing investment within the zone by 20 percent. 


He said that several types of tax incentives were available through the Enterprise Zone Program.  He stated that a qualified business was allowed to take a credit against its corporate income tax. The tax credit amounted to 10 percent of the wages paid to each employee who met the targeted workforce requirement, with the maximum credit being $1,500 per employee. He said that qualified business were also exempt from the motor vehicle use tax for commercial vehicles and non-commercial  vehicles (first $20,000 of retail price) that were used only for business purposes. He also said that a third tax incentive was a sales and use tax exemption for the purchase of new and used machinery and equipment. He said that the final tax incentive was an exemption from the sales and use tax for building materials.  The building materials could only be used for remodeling, rehabilitation, or new construction in the zone. The incentive was also available to individuals living in the zone and all firms located in the zone. 


Mr. Nutt stated that 11 of the 14 states that Kentucky competed with in attracting new businesses had enterprise zone programs. He said that Tennessee, Mississippi and West Virginia did not have state-run enterprise zone programs. He said that some differences existed between Kentucky’s enterprise zone program and other states’ programs. Some states restricted zone-related benefits to specific types of businesses; enterprise zone benefits in Kentucky are available to all types of businesses. He said that Kentucky’s program also offered a wider range of tax incentives than other programs. He stated that research relating to enterprise zone benefits had been limited because the conditions within the zones could only be approximated and the effects specific to the enterprise zone could not be isolated. He also said that research indicated that the enterprise zone programs may not be attracting many firms from outside the state. He said that the zones benefited from movement of firms within the state, but the state as a whole did not.  He stated that research also revealed that existing firms in the zone may be substituting machinery for labor, which would lead to a negative impact on employment.


Rep. Sims asked how Hickman, Louisville, and Ashland became Kentucky Enterprise Zones. Mr. Nutt stated that initially legislation specified that there could be seven zones across the state, but later legislation allowed 10 zones throughout the state. He said that there are two conditions to qualify: high unemployment or low income, or a declining population of at least 10 percent. 


Rep. Sims stated that Hopkinsville and Louisville should have a high employment rate.  Mr. Nutt stated that the zones were not actually the city, but certain parts within the city.


Mr. Nutt stated that data from the Kentucky Revenue Cabinet indicated that at least $14 million in tax incentives was taken through the enterprise zones in Fiscal Year 2002, but information supplied by the Kentucky Enterprise Zone Authority showed that approximately $62 million in tax incentives may have been taken in Fiscal Year 2002.   He said that the difference between the two estimates could be attributed to purchases from out-of-state suppliers. He stated that based on data obtained from the Kentucky Enterprise Zone Authority’s annual monitoring report for Fiscal Year 2002, the sales and use tax exemption accounted for approximately 79 percent of all tax credits taken, the motor vehicle usage tax exemption accounted for 19 percent of the credits, and the corporate income tax credit accounted for 2 percent of the credits taken. 


Sen. Stine asked if the sales and use tax on vehicles was different from the property tax.  Mr. Nutt stated that was correct.  The enterprise zone exemption on vehicles was the motor vehicle usage tax.


Barry Boardman, Ph.D., LRC staff economist, stated  that the tax incentives had not translated into measurable benefits for those living in enterprise zones. He said that the population in many of the zones had continued to decline, poverty rates had remained much higher than the national or state rates, and employment had made little improvement and remained much higher than nationally or in the state. He said that the poverty rate had actually increased in six of the ten zones. He also said that the poverty rates fell at a greater rate in the rest of the county, and they still remained as much as two to three times higher than the rest of the county within the zones.


Rep. Palumbo asked if the poverty rates had declined in the zones. Dr. Boardman stated that in four of the ten zones, there was a decline in the poverty rate.


 He explained that zone incentives did not reach zone residents for several reasons.  1) Investment spending may increase as a result of the enterprise zone tax incentives, but the effect was likely to be small. 2) Much of the increased spending could take place outside of the state and the zone, therefore benefits occurred in other parts of the state and not in the enterprise zones. 3) Finally, firms could choose to retain the tax incentive, which would result in lower costs and greater profits for the firm. 


Rep. Arnold asked if zone expansion had been allowed in some areas just to be near industry. He also asked if the expansions had been located adjacent to an enterprise area. Mr. Nutt explained that staff was able to determine that some of the approved expansion areas with zero population had been approved for undeveloped areas and were typically industrial sites.  He stated that the expanded zones were linked continuously.


Sen. Seum asked if any monitoring had taken place, and if so, what agencies received the monitoring reports. Mr. Nutt stated that some monitoring had taken place and Kentucky was probably a little more advanced in monitoring than some of the other states. He also stated that the LRC received an annual report from the Kentucky Enterprise Zone Authority.


Sen. Seum asked if zone administrators were considered to be  county employees or state employees, and had there been any studies conducted showing the impact of tax incentives at the local level.  Mr. Nutt stated that the zone administrators were considered local employees, and  that he was not aware of any studies showing the local impact of tax incentives.


Sen. Seum asked if staff was able to determine the effect of the enterprise zones at the local level, and whether it was the responsibility of the local zone administrator to produce that information. Mr. Nutt stated that it was difficult to make that determination because local data was sparse. He also stated that he did not think that the local official was responsible for keeping track of the fiscal impact at the local levels. He said they were charged with taking applications from the businesses and forwarding those applications to the Kentucky Enterprise Zone Authority for certification.


Rep. Arnold asked if homeowners living within the zones were entitled to the exemption on sales and use tax for building materials. Mr. Nutt stated that the exemption on the sales and use tax for building materials was open to everyone within the zone. 


Rep. Arnold asked if the monitoring reports included data regarding the purchase of building materials of non-certified firms and individuals, and if so, was staff able to determine if any abuse had occurred in the purchasing of building materials.  Mr. Nutt stated that there was a problem, but he would go into more detail later on in his presentation. 


Sen. McGaha asked if some of the expanded zones were considered continuous because of a very narrow strip of land that drew the zone together. Mr. Nutt stated that was correct. He said that there was a chart in the report showing where a zone was connected by a very thin line. In that particular case, he said that the city had annexed a very narrow area to get to an industrial park outside of the city. 


Sen. McGaha and Sen. Harris voiced their concerns over the taking of a good program and running it in the ground. They asked what zone or zones had been connected by the thin narrow line. Mr. Nutt stated that it was Hopkinsville. 


Sen. McGaha asked if there were similar things going on in other zones. Mr. Nutt stated that there had been some other cases in other zones, but that the report did not contain the charts for the other areas. He said staff would provide the committee with the maps.


Sen. Seum asked for the definition of a qualified business. Mr. Nutt stated that a qualified business was a business, new or existing, that had been certified by the Kentucky Enterprise Authority. If it was a new business, then it had to meet certain conditions before it could become certified.


Sen. Seum asked if a non-corporation or any self-employed person, or a homeowner or just a person who wanted to remodel a house would be eligible for the building materials exemption. Mr. Nutt stated that if it had to do with the purchase of building materials, then anyone within the zone could purchase building materials. He said they did not have to be qualified.


Sen. Stine asked if the monitoring previously done prior to the monitoring amendments made in January 2000  was done in a voluntary and haphazard fashion. Mr. Nutt stated that the monitoring before January 2000 had to do with the certification of the targeted workforce employees, which had been taking place since 1992.  He said that the data collected on investments made by particular qualified firms within each zone had not been done until the past several years.


Sen. Stine asked if it would be correct to say that the data was too recent  for staff to examine and make any determinations.  Mr. Nutt stated that was correct.


Mr. Nutt stated that staff had concerns regarding the monitoring procedures of the approval of zones and expansions, determining whether businesses were qualified to receive benefits through the program, and monitoring qualified businesses to ensure that benefits were properly provided. He said that expansions for areas with no population and the ability to link the expansions with narrow geographic areas had allowed expansions of zones into areas that were not located near the rest of the zone, and into areas that were underdeveloped, rather than areas that were economically depressed. He stated that the most serious of the monitoring issues was the lack of procedures to ensure that only eligible firms and individuals received the sales and use tax exemptions. He said that the degree of abuse of the sales and uses tax credit was unknown, but the lack of monitoring procedures created the potential for abuse. 


Sen. Guthrie asked if staff found any evidence showing that existing firms were misreporting their increases in investments.  He also asked if firms were required to sign forms as to the accuracy of the information they were submitting.  Mr. Nutt stated that they did sign forms.


Sen. Guthrie stated that he agreed that monitoring should be taking place, but he did not think that a report should be audited every time.  Mr. Nutt stated that they could go out and do random checks.


Sen. Stine asked if staff was able to distinguish between incidences where businesses might be eligible to take a machinery deduction because of another tax incentive that was available to them, but that they in fact might attribute that deduction to enterprise zones simply because it is easier to report it that way rather than go through whatever other restrictions might be, thus artificially inflating the apparent costs of the enterprise zones.  Mr. Nutt stated that lack of data prevented staff from making that determination. He stated that if the zones did not exist, then firms would have available to them a statewide exemption that is covered in KRS 139.17, which covers new and expanded equipment. 


In conclusion, Mr. Nutt stated that staff found little evidence that zone residents had experienced improvement in their economic well-being. He said that while the enterprise zones had benefited from the tax incentives, the costs had been at least $169 million for the past decade and it appeared that the incentives had not led to substantial increases in investments within the zones. Also, the current structure of the program possessed several monitoring challenges which could result in program abuse. 


Sen. Harris asked if residents of the zones would be in worse shape than they were now if the zones did not exist.  Mr. Nutt stated that if the program did not exist, there could be even greater deterioration within the zones.  He said that staff’s analysis indicated that whatever small benefit or whatever benefit the zone may have had in slowing down that deterioration, it had not been large enough to offset the other negative impacts. He said there was a widening gap between the zones and the rest of the county. 


Sen. Harris asked if the state was throwing good money after bad money.


Mike Clark, Ph.D., LRC Chief Economist, explained that it was unclear what could have happened without the zones.  He said that the purpose of the Enterprise Zones was to revitalize the areas and staff had been unable to determine if that had actually taken place.  He also said that the effect had not been large enough to show up as improvements relative to the county or the state. 


Sen. Harris asked if the zones could be stemming the decline. Dr. Clark stated that they could be. 


Rep. Baugh asked if staff had researched the performance of businesses located in the enterprise zones.  Dr. Boardman stated that staff had not done that. He said that staff had difficulty in actually trying to measure the economic well-being of the people in the zone, and it had been even more difficult to isolate businesses in the zones. 


Rep. Baugh asked if the businesses were actually staying in business or were the businesses just start-ups, then dissolving and starting a new business.  He also asked if the new businesses were producing tangible results for the community.


Dr. Clark stated that the businesses did get an immediate benefit by receiving a tax credit which resulted in additional investments resulting in more jobs and therefore translating into benefits for residents of the area. Although, he said that staff found that when the benefit actually went to the firm, the firm did not substantially change their behavior.  He said the firms tended to retain a great deal of the benefits which could be in the form of higher profits.  He said it did achieve some investment response – the tax incentives basically reduce the costs of investing. He stated that in looking at general data for the state, staff found that the response of investing was not very large. He said that to a large extent, purchases such as large machinery were made from out of state suppliers.  He said that staff found that over 80 percent of purchases or additional investments for the state were made outside of Kentucky. He said that the benefits seemed to be going directly to the firms.


Rep. Baugh asked if businesses were to purchase equipment out of state and did not pay sales tax, would they still get their equivalent percentage of sales tax exemption off their profits whether they paid it or not. Dr. Clark stated that if the machinery was purchased out of state, and if it was delivered into the state, then they have to pay that sales tax. He said that the firm turns in that certificate and they are exempt from that sales tax.


Rep. Baugh asked if a resident property owner or just a property owner was entitled to receive benefits for remodeling a house located within a zone. Mr. Nutt stated that they did not have to be a resident property owner in order to receive benefits.


Rep. Baugh asked if that was the actual intent of  the Kentucky General Assembly when initially implementing the Enterprise Zone Program. Dr. Clark stated that staff could not speak to legislative intent regarding the Enterprise Zone Program.


Rep. Sims asked if a firm could be in an enterprise zone and also take advantage of other programs such as KREDA, KIDA, KJDA, and KIRA.  Mr. Nutt stated that a firm could take advantage of other programs as long as they met the criteria for the other programs.


Rep. Sims asked that if a county qualified for any of the other programs, would that effect the amount that an enterprise zone received. Mr. Nutt stated that it would not have an effect.


Sen. Borders stated that he was glad to see the report on the enterprise zones because it was a subject that very few legislators understood, and he would like to hear more comments at the January meeting.  


Rep. Palumbo asked if staff had trouble in determining economic well-being in some of the areas. Dr. Boardman stated that it was difficult to specifically measure the people that live in the zone, because data was not that detailed. Staff had to use census tract data to approximate the number of people living in the zones, and what was happening within the zones. 


Rep. Palumbo asked if staff had to use census tract data to determine that six of the ten zones did not have improvement. Dr. Boardman stated that was correct with respect to the poverty rate. He said to keep in mind that the 2000 average poverty rate in the zones was 29.5 percent and in the rest of the county it was 11.8 percent  on average.


Rep. Palumbo asked if the poverty rate would be higher if the Enterprise Zone Program was not available. Dr. Boardman stated that data was unavailable to make that determination.


Sen. McGaha stated that the information from the Enterprise Zone Authority showed that approximately 78 percent of the reported credits in FY 2002 were taken by firms in the Louisville zone, and across all zones 20 firms accounted for 62 percent of the credits taken in FY 2002.  He asked if  staff was able to identify those 20 firms. Mr. Nutt stated that the firms were identifiable.


Sen. McGaha asked if the data from the Kentucky Enterprise Zone Authority accounted for almost 75 percent of that particular tax incentive. Mr. Nutt stated that the data used was self-reported data to the Enterprise Zone Authority.


Sen. McGaha requested that some of the businesses located within the zones be asked to come before the committee to tell their side of their story.  He also said he had concerns regarding the responsibility of the vendor in determining whether the individual making a purchase was eligible for a tax exemption.


Chairman Graham explained that The Costs, Benefits, and Monitoring of Kentucky’s Enterprise Zones report would not be voted on for adoption until the January meeting in order to give people from the community an opportunity to respond to the report.


Sen. Stine asked why the total enterprise zone costs shown in the chart was different from the amount stated in the Executive Summary. Mr. Nutt stated that the difference was the estimate of how much the out-of-state sales would be subject to the use tax. He said that the chart contained figures that were obtained from the Office of the State Budget Director, and the amount in the Executive Summary was obtained from data provided by the Kentucky Revenue Cabinet. Staff wanted to show the two differences.


Sen. Stine asked if firms could be putting credits in the Enterprise Zone column instead of the KREDA column, which would create an overlap. Mr. Nutt stated that there should not be much overlap, but staff would go back and look at that and report back to the committee.


Rep. Arnold asked if there were two counties in Kentucky that were in a Federal Empowerment Zone. Mr. Nutt stated that he thought Somerset was in the Federal Empowerment Zone.


Rep. Arnold asked if a county could be a part of the Federal Empowerment Zone and the Kentucky Enterprise Zone Program. Mr. Nutt stated that he did not know, but would find out and furnish the information to the committee.


Sen. McGaha stated that Wayne and Clinton were the two counties in the Federal Empowerment Zone, not Somerset. 


Chairman Graham asked Gene Fuqua, Executive Administrator, Kentucky Economic Development Cabinet and Phyllis Bruning, Director, Kentucky Enterprise Zone Authority, for the Cabinet’s response to the report. 


Ms. Bruning stated that the Kentucky Enterprise Zone was governed by an 11 member Enterprise Zone Authority, and that she and an assistant administered the program. She said that from 1983 through fiscal year 2002, the Authority had certified 4,101 companies for the benefits of the program, and that approximately 2,050 companies were currently certified. She noted that the sales tax benefits on building materials were available to entities and individuals who were not certified by the Authority. 


Ms. Bruning also stated that from 1983 through fiscal year 1999, approximately 1123 participants were decertified from the program.  She said that Cabinet had enhanced the monitoring of the program in order to increase compliance and those changes had resulted in 1,093 decertifications from fiscal year 2002 through the present. She explained that the Cabinet for Economic Development was continuing its efforts to improve the monitoring of the program, and that the Cabinet planned to use site visits to further insure statutory and regulatory compliance with the program. She stated that the Cabinet agreed with the recommendations of the report as to the monitoring issues and that the Cabinet was committed to enhancing the monitoring of the program. 


Sen. McGaha asked what was the most common reason for decertification.  Ms. Bruning stated that it was the failure of a business to respond to the monitoring report that the Cabinet prepares and sends out to each business. She said that if the business failed to respond, then the Authority notified the Revenue Cabinet so the Revenue Cabinet could collect and recover any tax incentives that the business may have received. She said that the next reason for decertification would be for a business failing to meet the 25 percent targeted workforce. 


Rep. Arnold asked if a business would be subject to repaying the tax if it was decertified, and if so, what was the success rate was for recouping the taxes.  Ms. Bruning stated that a business would be subject to repaying the tax money depending on the reason. She said that if the business was decertified  for failing to meet the targeted workforce, then from the date of decertification, they would no longer be eligible. She stated that if a company was decertified for failing to respond to the monitoring letters, then the Cabinet notified the Revenue Cabinet.  Ms. Bruning stated that the Cabinet did not know the answer to the question of recouping any monies. She said that information would have to come from the Revenue Cabinet.


Rep. Arnold asked if the Enterprise Zone Authority could ask an individual to repay money if that individual bought the equipment with a tax break and then that individual moved outside of the Enterprise Zone, but within the county, and still continued to do business.  Ms. Bruning stated that there was no language in the statutes or regulations that would allow the Cabinet to ask for repayment. 


Rep. Arnold asked if the Enterprise Zone Authority would ask the General Assembly to look at that issue. Ms. Bruning stated that it could be an issue to be looked at. She said that there were a lot of businesses that move out of the zone or just go out of business.


Sen. Seum asked if the 11 board members received a salary.  Ms. Bruning stated that the board members received $100 per meeting plus expenses.


Sen. Seum asked if the Board had any recommendation as to whether or not the Enterprise Zone Program should be continued. Ms. Bruning stated that the Board had made no comments either way. 


Sen. Seum asked if the Board communicated regularly with the local zone administrators.  Ms. Bruning stated the Board communicated with the zone administrators on a continuous basis,  which included the bi-monthly meetings of the Board.


Sen. Seum asked if the Board had communicated to the businesses that there could be the potential for the Enterprise Zones to be discontinued. Ms. Bruning stated that she explained to the businesses, especially in the Louisville area,  that under the current law the Program was due to expire in 2003.


Rep. Palumbo asked if the Board communicated with the Secretary of State’s Office to see if a business had renewed its papers before decertifying. Ms. Bruning stated that the Cabinet regularly used the Secretary of State’s website to check to see if the company was a business in good standing.


Rep. Palumbo asked who appointed the Enterprise Zone Authority members.  Ms. Bruning stated that per the statutes, the Governor appointed the membership.


Rep. Baugh asked if a business could be certified if it was a single site business or a business with multiple locations.  Ms. Bruning stated that a business could have multiple locations.  She stated that the zone administrator provided the Authority with the exact locations so the Authority  and the Revenue Cabinet could be aware of the multiple locations in the zone.


Rep. Baugh asked if there was a way to determine the amount of equipment bought by a business with multiple sites, with some sites located in an enterprise zone and others outside of an enterprise zone. Ms. Bruning stated that there was not a way to determine that.


Rep. Baugh asked if an enterprise zone business could buy all its machinery for all its locations through its business located in the enterprise zone even though the other branch businesses were not located in the zone. Ms. Bruning stated that was a potential problem.


Rep. Baugh asked if it was a real problem or a potential problem. Ms. Bruning stated that since she did not go to all of the businesses on site, she did not know if it was a real problem or a potential problem.


Rep. Baugh stated that he was not saying that all businesses were dishonest, but those type of things happen and there needed to be a way for the Authority to monitor those purchases. 


Sen. McGaha asked if there was nothing that could be done to stop a business from purchasing equipment in a zone, and then moving and using the equipment in a business located outside of the zone.  Ms. Bruning stated that there was nothing to stop that kind of activity.  She stated that the Enterprise Zone Authority advised the businesses that the purchases must be made for equipment that is used in the zone.  She said that there was no mechanism in place to stop that kind of activity.


Sen. Stine stated that the unavailability of data appeared to have made it hard for staff to draw any reasonable conclusions about the program.  She said she would like to see the Cabinet tighten up the monitoring process and close some of the loopholes rather than throw the program out. She felt like the program was too important to the inner-city areas.


Rep. Graham stated that the Kentucky Chamber of Commerce would be given an opportunity to respond to the report at the January 16th meeting. 


The meeting was adjourned.