Democratic Gov. Andy Beshear on Friday vetoed a bill the Kentucky legislature passed to grant untold millions of dollars in tax breaks to tech companies opening data centers inside state and remote workers employed in Kentucky by non-state companies.
Beshear cited “the rushed nature” of how Bill 372 was rewritten and passed in the closing hours of the 2021 General Assembly. The bill also did not come with a tax note. detailed explanation of what the tax breaks would cost the Treasury in the years to come.
“While I support the concept of programs to induce remote workers to relocate to the Commonwealth and reasonable incentives to support the establishment of data centers, I am concerned with the wording of this particular language, as well as the rushed nature the bill had passed, ”Beshear wrote in his veto message.
“The legislation creating these programs requires more time, discussion and nuance,” Beshear wrote. “I am also concerned about the initial amount the bill provides based simply on the promise of a project, as well as the lack of discretion to say ‘no’ to a project that is sure to fail.”
Beshear’s veto will be maintained because the Republican-dominated legislature has adjourned.
The House bill is unrelated to two other bills that Beshear has enacted in recent weeks granting a variety of tax incentives to cryptocurrency mining companies that buy and upgrade existing buildings in the state. , then buy large amounts of electricity.
The House bill began as a plan to give tax breaks to companies like Amazon, Facebook, and Google if they open data centers in Kentucky. The bill’s drain on the general state fund would start at $ 15 million per year and likely increase, according to a tax note attached to the bill.
“The negative impact on the General Fund during full implementation will be substantial if a number of entities take advantage of this exemption,” the tax note continued.
Data centers – where computer servers are running all the time – should not employ a lot of people under the terms of the House bill. To qualify for tax breaks, which would be available immediately and guaranteed for 30 years, companies would agree to create at least 20 permanent jobs and spend at least $ 150 million within five years on construction and equipment.
In the Senate, with little discussion, lawmakers added more wording to the House bill that would have granted tax breaks over a five-year period to Kentuckians who work remotely for companies outside of the state.
Critics, including the Kentucky Center for Economic Policy in Berea, urged Beshear to veto the bill, saying it was poorly drafted, open, and ceding too much state resources without a clear plan to achieve any goals. .
There are already state incentive programs available to businesses looking to create jobs in Kentucky, said Jason Bailey, executive director of the center. But these tax breaks could be “easily played” and “stacked on top of existing incentives” to drain the public purse while creating few new jobs, Bailey warned.
There’s another complication, too: Congress, in its recent $ 1.9 trillion COVID-19 relief package, banned states from accepting federal aid while passing tax cuts, has said Bailey.
“The tax breaks for remote workers and data centers in Bill 372 can be seen as an unacceptable indirect use of US bailout funds to pay for tax cuts,” Bailey wrote to Beshear.
“Under the provisions of this law, Kentucky would be obligated to repay an equal amount of federal assistance. Kentucky’s budget would be hit twice – first with the loss of state taxpayer dollars through tax relief and then with the loss of desperately needed federal aid, ”Bailey wrote. .
The sponsor of the bill disagreed with Monday’s veto.
State Representative Phillip Pratt, R-Georgetown, said states like Ohio are reaping the economic benefits of hosting data centers that hire local residents with a living wage, and lawmakers wanted to involve the Kentucky to this action.
“I think (Beshear) missed an opportunity to bring good paying jobs to Kentucky,” Pratt said. “We have tried to adapt it so that it is transferred to the less populated counties. I thought it was a good economic development bill. Obviously, he saw something there that he didn’t like.