A Consultant's View

A Consultant’s View – Economic Development in Kentucky and Surrounding Jurisdictions2016 KAED Spring Conference

Page 2 KAED Conference 2016

Introductions

► Jamie Lindemann► EY Indirect Tax – Credits and Incentives► Cincinnati office► EY Kentucky Credits and Incentives Subject Matter Professional


Introductions

► Stuart Green► EY Indirect Tax – Credits and Incentives► Cincinnati office


EY’s US Investment Monitor (USIM)

► The USIM is an Ernst & Young LLP research initiative designed to analyze investment in the United States and discuss factors that attract large investment projects to particular locations.

► It is a joint effort of EY’s Quantitative Economics and Statistics (QUEST) and Indirect Tax Incentives practices.

► QUEST is a multidisciplinary practice that combines business and industry experience with capabilities including federal, state and local tax policy analysis and revenue estimation; economic development strategy and targeting; economic and fiscal impact modeling; and statistical sampling and surveys.

► Indirect Tax focuses on the tax process that can help companies effectively manage their state and local tax costs. They focus on helping clients identify and obtain incentives that may be available through legislative change or negotiation with appropriate agencies: income or sales and use tax exemptions, income or franchise tax credits, sales and use tax refunds, property tax abatements, training expense reimbursements, employer credits, and favorable financing arrangements.


EY’s US Investment Monitor – Key Findings and Insights► The nearly 5,800 announced projects in 2014 accounted for over

$150 billion of mobile capital investment and more than 410,000 new and retained jobs in the United States. ► Compared to last year this is 800 more project announcements and $5 billion more

in capital investment, but nearly 30,000 fewer jobs. ► The states that attracted the most investment were led for the third

year in a row by Texas and Louisiana. However, New York ranked third in capital investment — its highest ranking in the last five years.

► The top 10 states by the number of 2014 job announcements accounted for 54% of all new or retained jobs captured in this year’s USIM.

► Foreign companies continue to choose the United States for major investment and job creation. Announcements of US projects by these companies represent $36 billion, or 24%, of total USIM mobile capital investment.


Top 20 Capital Investment Announcements

► 10 of the 20 largest capital investment projects announced in 2014 were chemical manufacturing facilities. ► These facilities will produce ethylene, methanol and

fertilizer.► Represent total capital investment of more than $25

billion and will create more than 4,600 jobs.► 3 of the top 9 projects announced were new liquefied

natural gas export facilities and expansions of existing facilities.

► Two $5 billion mobile capital investment projects announced in 2014 related to solar panel and electricity storage technology.


Top 20 Projects Ranked by Capital Investment in 2014

Company name State Product/facility useInvestment

(in $m) JobsSCT&E LA LNG export facility $9,250 200

Tesla Motors NV Battery manufacturing facility 5,000 6,500

SolarCity NY Solar panel manufacturing facility 5,000 3,000Fund Connell USA Energy and Chemical Investment TX Methanol production and export facility 4,500 700

Cerner MO Offices and mixed-use development 4,300 1,500

Venture Global LNG LA LNG export facility 4,250 100

Badlands NGL ND Ethylene manufacturing facility 4,000 500

Boeing WA Commercial airplane manufacturing 4,000 2,760

Dominion MD LNG export facility 3,800 75

Chevron TX Ethylene manufacturing facility 3,000 200

Chevron TX Ethylene manufacturing facility 3,000 200

Axiall LA Ethylene manufacturing facility 3,000 250

Marathon Petroleum LA Oil refinery 2,200 65

Shandong Tralin Paper VA Paper and fertilizer manufacturing facility 2,000 2,000

Yuhuang Chemical LA Methanol production facility 1,850 400

State Farm TX Offices and mixed-use development 1,500 700

Cronus Chemicals IL Fertilizer production facility 1,400 175

Castleton Commodities International LA Methanol production facility 1,200 50

AM Agrigen Industries LA Fertilizer production facility 1,200 150

Comcast PA Technology development 1,200 1,500


Top 20 Job Announcements

► The projects included in this year’s USIM are expected to create or retain more than 410,000 jobs across the United States.

► The 20 largest job-creating projects accounted for more than 47,200 jobs across a wide range of industries and facility types. ► These projects accounted for 11% of the total jobs announced in 2014.

► Major job-creating projects were announced by a variety of transportation equipment manufacturers in 2014. ► Boeing – New $4 billion manufacturing facility in WA.► Volkswagen - $600 million manufacturing facility expansion in

Chattanooga, TN.► Vertex Rail – New $55 million manufacturing facility in Wilmington,

NC.


Top 20 Job Announcements - Continued

► Several other investments in new manufacturing facilities with large job impacts were announced in 2014. In total, the manufacturing sector accounted for half — more than 206,000 jobs — of all new or retained job announcements captured in this study. ► General Electric (GE) plans to spend $280 million to modernize

manufacturing facilities at its Appliance Park in Louisville, KY. GE announced that it will retain more than 5,000 jobs at the site.

► Alevo Energy completed work in October 2014 on a $1 billion facility in Concord, NC, that will produce batteries. The facility employs 2,500 workers and could create more jobs as production increases.

► Remington Outdoor announced that it will invest $110 million and create 2,000 jobs for a new manufacturing facility in Huntsville, AL. The facility will produce handguns for Remington’s commercial, military and law enforcement businesses. Remington will purchase a facility that previously housed Chrysler automobile manufacturing.


Top 20 Job Announcements - Continued

► The acquisition or construction of new headquarters and office facilities tend to attract many new jobs to states as companies consolidate their operations.

► Office and research facilities accounted for more than $24 billion (16% of total spending) of the investments tracked in this year’s USIM and nearly 130,000 new and retained jobs (31% of total jobs). ► Toyota announced that it would spend $300 million to build a new North

American headquarters campus in Plano, TX. The investment will create approximately 4,000 new jobs in the state, with support from the Texas Enterprise Fund.

► Comcast announced that it would build a new 59-story Comcast Innovation and Technology Center in Center City, Philadelphia, PA. The facility will be next door to Comcast’s global headquarters. The $1.2 billion facility will house 1,500 Comcast employees, including technologists, engineers and software architects.

► Engineering firm Burns & McDonnell announced plans to invest $130 million to expand its headquarters in Kansas City. The new facility will house 2,100 employees.


Top 20 Projects Ranked by New and Retained Jobs in 2014

Company name State Product/facility useInvestment

(in $m) JobsTesla Motors NV Battery manufacturing facility $5,000 6,500

General Electric KY Appliance manufacturing facility 280 5,263

Toyota TX Headquarters facility 300 4,000

SolarCity NY Solar panel manufacturing facility 5,000 3,000

Boeing WA Commercial airplane manufacturing 4,000 2,760

Alevo NC Battery manufacturing facility 1,000 2,500

Burns & McDonnell MO Offices 130 2,100

Remington Outdoor AL Firearm manufacturing facility 110 2,000

Volkswagen TN Automobile manufacturing facility 600 2,000

Shandong Tralin Paper VA Paper and fertilizer manufacturing facility 2,000 2,000

Giti Tire SC Tire manufacturing facility 560 1,700

Express Scripts MO Offices and research and development facility 56 1,500

Under Armour TN Apparel 100 1,500

Macy’s OK Retail merchandise 170 1,500

Comcast PA Technology development 1,200 1,500

Cerner MO Offices and mixed-use development 4,300 1,500Vertex Rail NC Rail car manufacturing facility 60 1,340

Blue Cross Blue Shield of Illinois IL Offices 0 1,300

Zenefits AZ Offices 0 1,300

Sealed Air Corp. NC Headquarters facility 58 1,262


Industry Summary

► Industries capturing high amounts of investment include liquid natural gas, chemical manufacturing, and other non-durable manufacturing for batteries and solar panels.

► Chemical manufacturing alone accounts for nearly a quarter of all investment, and non-durable manufacturing as an industry overall is nearly half of 2014’s capital investment.

► Additionally, durable manufacturing plays a strong role; machinery, motor vehicle parts and semiconductors continue to be important investments in the US, accounting for nearly $4 billion in investment.

► Other industries poised to add significant employment include food, beverage and tobacco product manufacturing, as well as wholesale and retail trade. These industries are generally more labor-intensive than industries such as chemical manufacturing.


Announced Capital Investment Jobs in US Facilities in 2014

Sector IndustryInvestment

(in $m) JobsAgriculture, mining, construction

Agriculture, forestry, fishing and hunting $473 1,821Construction 502 2,614Mining including oil and gas extraction 7,978 4,645

Subtotal: Agriculture, mining, construction 8,952 9,080Durable manufacturing

Machinery and fabricated metal manufacturing 14,045 40,530Motor vehicle and parts metal manufacturing 13,961 48,540Other durable manufacturing 2,254 13,685Semiconductor and electronic component manufacturing 11,219 29,895

Subtotal: Durable manufacturing 41,478 132,650Financial and professional services

Business support services 832 24,496Finance, insurance, and real estate services 4,225 22,910Health care and social assistance 362 3,744Management of companies and enterprises 603 3,567Other services 533 3,982Professional services 3,339 39,094

Subtotal: Financial and professional services 9,895 97,793Information

Data centers 3,363 5,763Information 6,610 20,440

Subtotal: Information 9,973 26,203Non-durable manufacturing

Chemical manufacturing 38,142 12,367Food, beverage, and tobacco product manufacturing 6,278 23,298Other non-durable manufacturing 6,094 18,971Petroleum and coal products manufacturing 13,601 1,667Pharmaceutical manufacturing 1,750 5,964Rubber and plastics manufacturing 2,632 12,367

Subtotal: Non-durable manufacturing 68,497 74,634Trade and transport

Transport, storage and logistics 4,194 19,392Wholesale and retail trade 7,833 50,725

Subtotal: Trade and transport 12,027 70,117Total $150,821 410,477


Project Size

► While attention is often focused on the megaprojects in any given year, projects under $250 million in capital investment accounted for 99% of project announcements and 88% of total jobs announced in 2014.

► While less than 1% of projects announced in 2014 were for over $500 million in investment, these projects accounted for 8% of total announced employment

$0-$9 $10-$49 $50-$249 $250-$499 $500+

76%

18%

5%1% 1%

49%

22%17%

4%8%

Share of project announcementsShare of new em-ployment


Project Size - Continued

► Only 137 project announcements (nearly 4% of total projects) in 2014 were larger than 500 jobs, of which only 44 projects (1% of total projects) were larger than 1,000 jobs.

► Fifty-one percent of projects announced fewer than 50 jobs created or retained, up from 45% in 2013.

0-49 50-149 150-249 250-499 500-999 1,000+

51%

31%

9%6%

2% 1%


Project Size - Continued

► The average project size was less than $35 million for 9 of the 10 states with the most project announcements.

► Of these states, only Louisiana had an average project size of greater than $35 million — the average project announced in Louisiana in 2014 represented $129 million in new investment.

► For the third straight year, Texas led the nation and Ohio placed second in announcements of new capital investment projects. Kentucky ranked fifth.

TX OH IL NC KY MI PA LA TN CA

705

580

386

311261

232 225 201 198 190


Foreign Investment

► In 2014, total investment in new and expanded US facilities announced by foreign companies reached $36 billion, accounting for 24% of all mobile capital investment monitored.

► The manufacturing industry remained the top industry among foreign investment projects with 91% of all announced foreign investment.

► The majority of foreign investment (55%) was in non-durable goods manufacturing and 36% was in durable goods manufacturing. Durable goods manufacturing projects related to products such as semiconductor and electronic components, motor vehicles, and automobile parts.


Announced Foreign Investment and Job Announcements in US Facilities by Origin Country in 2014

Investing countryInvestment

(in $m) Jobs

China $11,831 19,125

Germany 5,047 27,263

Japan 4,390 20,188

Singapore 2,483 1,538

Canada 2,206 13,900

Switzerland 1,630 8,143

United Kingdom 1,163 12,704

South Korea 875 4,438

Netherlands 776 3,289

France 472 6,620

Subtotal 30,874 117,209

Other countries 5,166 40,719

Total foreign investment 36,040 157,928

US investment 114,782 252,549

Total, all investment $150,821 410,477


Top States by Capital Investment

► Projects announced in these states accounted for 60% of total mobile capital investment announced during 2014.

LA TX NY MO OH NV CA MI SC MD ND

$25.9

$22.3

$8.1

$5.8 $5.6 $5.4

$2.8

$5.0 $4.6 $4.6 $4.6

$16.7

$20.9

$5.2

$2.0

$8.4

$0.8

$5.3$6.6

$3.9

$0.5$1.5

2014 2009-2013 Average


Top States by Announced Jobs

► In 2014, projects monitored by the USIM announced more than 410,000 new and retained jobs, a 1% increase over the average total new and retained jobs announced from 2009 to 2013.

TX NC OH TN KY IN VA GA MI IL SC

33.4

29.527.6

24.6

19.6 19.117.0 16.7 16.0 16.0

14.5

37.0

24.6

27.6

18.1

12.6

19.8 18.8 18.4

30.0

9.6

14.8

2014 2009-2013 Average


Kentucky: How Does It Compare to Other States?

► Obstacles► Decreasing concentration of chemical manufacturing employment► No Top 20 projects by capital investment► Not a Top 5 state for foreign investment► Not a Top 10 state for total capital investment

► Noteworthy Achievements► One of the top 20 projects ranked by new and retained jobs.

► General Electric – Louisville, KY – Appliance manufacturing facility with a $280 million investment and 5,263 jobs.

► Top 5 state for number of projects announced (261) and mobile project jobs (19,600) in 2014.

► Drawback to incentives in Kentucky – Award amounts limited by capital investment

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General Tax Incentives► Sales/use tax exemptions refunds► Federal/state EZ credits► Capital investment tax credits► Statutory lookback reviews► §45D New Markets Tax Credits (NMTC)► Special Economic Zones or Free Trade

Zones

R&D Incentives► Federal/state R&D credits► Horizon 2020 (EU)► R&D cash grants► R&D super deductions► Wage withholding tax refund

for researchers

Green Incentives► Energy efficiency/GHG reduction incentives, credits and grants► Incentives for LEED-certified buildings► §48C alternative energy ITC► R&D/manufacturing incentives for green products► Clean Development Mechanism► Feed in tariffs

Types of Incentives Around the US

KAED Conference 2014

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Types of Incentives (cont’d)

Property Tax Incentives► Real and personal property tax exemptions► Real and personal property tax abatements► Industrial Revenue Bond (IRB) structuring

for favorable property tax treatment► Tax Increment Financing (TIF)

Hiring and Training Incentives► Wage rebates, job creation grants and credits► Employment related tax incentives► WOTC/WtW/TANF► State point-of-hire credits► Hiring and employee screening assistance► Training grants for prospective expenditures► Training tax credits (retroactive or

prospective)

Other Incentives► Infrastructure

grants/assistance► Community Development

Block grants (CDBG)► Low cost financing for capital

expenditures► Utility discounts► Waiver of permit fees► Expedited permits► Free or discounted

land/buildings► Recovery Zone Facility Bonds

KAED Conference 2014


Popular State Incentives

► Georgia Jobs Tax Credit and Retraining Credit► Tax credits of up to $3,500 per eligible new job to be taken over a

maximum of 5 years► Tax credit equal to 50% of all direct training expenses incurred, up to

$1,250 per employee► Tennessee Jobs Credit

► Credit of up to $4,500 per new job► New Mexico High Wage Jobs Credit

► Up to $12,000 per eligible new job taken for a period of up to 4 years► Colorado Enterprise Zone Credits

► Tax Credits for job creation, investment, and training in enterprise zones


Summary

► Many factors play key roles in a company’s decision to invest in a particular location. Policymakers and state business leaders alike should be aware of the effects that taxes, operating costs, natural resources and the nature of the local market — among others — have on a state’s economic climate. Awareness of industry trends, workforce development levels, and the availability of state and local tax incentives can help businesses choose where to locate their mobile capital investments. These factors were highlighted by several trends seen in this year’s US Investment Monitor: ► State tax incentives. As in previous years, many states used tax incentives to persuade

companies to locate large capital investment projects within their borders. ► Infrastructure. States with access to infrastructure such as natural gas pipelines and

deepwater ports benefited from large capital investment announcements. ► Foreign investment. Foreign investment accounted for nearly one-quarter of all

investments announced in 2014, including several investments of $1 billion or more.


Summary – Continued

► This year we have seen an especially marked rise in the solar panel and battery industries, as well as proof of the continuing strength of the chemical manufacturing industry.

► The diverse nature of the projects analyzed in this year’s US Investment Monitor reinforces what has been shown in the previous nine years of this publication: by maintaining a competitive environment for business investment across a broad range of industries, states can attract large investments that generate jobs and opportunities for additional growth.

Economy & Finance

A Consultant's View