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2017 Results for Business


The Kentucky Chamber’s Advocacy Efforts:
 Saving Money for Kentucky Businesses 

The Kentucky Chamber’s advocacy during the 2017 session of the Kentucky General Assembly saved Kentucky businesses an estimated $760 million a year.  Here’s a breakdown of how the Chamber’s work generated real savings for the business community.

Background

HB 30: This bill would require the use of U.S. made construction materials in public construction projects, regardless of cost or availability.  A 2016 study by the Bush School of Government at Texas A & M of a similar federal law found the domestic content requirement increased the cost of construction by as much as 16%.  The Legislative Research Commission estimates that state and local construction materials cost approximately $893 million per year (Fiscal Note for 16 HB 516). Increasing these costs by 16% would add $142.8 million to government construction costs.  Since the business community provides an estimated 40% of tax revenue (according to an Ernst and Young study), the cost of this legislation would be $57.1 million per year (40% of $142.8 million).

HB 263: This tax reform bill would have imposed new taxes on business, including making Kentucky a “throwback” state (imposing taxes on income in another state and requiring combined reporting for companies with multi-state operations). The Legislative Research Commission estimates the cost of these new business taxes as follows:

· Throwback provision:                                       $16 million
· Combined reporting requirement:                     $25 million
· Disallowance of “tax haven” transactions:        $25 million
· Limited Liability Entity Tax change:                  $13 million
· Domestic production activity deduction:           $4 million
· Film industry tax credit:                                   $5 million
The total impact of these tax changes on Kentucky’s business community would have been an estimated $88 million annually.

HB 196: This legislation would have imposed penalties on construction companies that classify workers as independent contractors, which would essentially require them to classify independent contractors as employees. That would have required contractors to withhold taxes and pay unemployment insurance/workers’ compensation for these workers. A 2011 study of the construction industry in Kentucky found that the cost of reclassifying construction workers considered to be “misclassified” as independent contractors would cost construction companies an estimated $11.28 million per year due to additional tax, unemployment insurance and workers’ compensation costs that would have to be paid if the workers were considered employees.

SB 33, HB 178, 201 (Minimum Wage Increase), HB 420 (Paid Maternity Leave): SB 33 and HB 178 and 201 would have phased in an increase in the minimum wage, from $7.25 to $10.10, over a three-year period:
· $8.20/hour in 2015
· $9.15/hour in 2016
· $10.10/hour in 2017

The Bureau of Labor Statistics estimates that approximately 49,000 Kentuckians earned at or below the minimum wage in 2013, and a 2007 University of Kentucky study estimated that the average minimum wage worker works 27 hours per week. The table below estimates the employer cost of this increase for each year, assuming the 49,000 minimum wage employees worked 27 hours per week and no current employees were laid off. The estimate also takes into consideration that the employer must pay a FICA tax (for Social Security and Medicare) and an Unemployment Insurance assessment of an estimated 8.65% of wages.

 

Year

Hourly Increase in Current Minimum Wage

FICA & UI

Taxes

(8.65%)

Total Hourly Cost to Employer Per Employee

Total Weekly Cost to Employer Per Employee

Total Yearly Cost to Employer per Employee

Total Cost to Kentucky Employers

2018

$0.95

$0.08

$1.06

$28.62

$1,488

$72.9 million

2019

$1.90

$0.16

$2.06

$55.62

$2,892

$141.7 million

2020

$2.85

$0.24

$3.09

$83.43

$4,338

$212.5 million

 

The estimated cost to Kentucky employers of the minimum wage increases in these bills ranges from $72.9 million to $212.5 million. It is important to note that this is a rough estimate based on the assumptions noted above, as some economists predict that increasing the minimum wage could affect total employer costs in other ways, including: lower employment, increased prices, reduced employee turnover and reduced profits.

HB 420:  This legislation would have required employers with 50 or more employees to provide six weeks of paid maternity leave for an employee who has been employed at least one year. Three states (California, New Jersey and Rhode Island) currently have laws that require paid maternity leave that is funded by employee payroll taxes. In California, each worker pays about $30 per year, and taxes are capped at $29 per year in New Jersey.* HB 420 would not have required employees to fund maternity leave, so the cost would have fallen on Kentucky employers. While no published studies are available of the financial impact on Kentucky, assuming costs similar to the California and New Jersey programs, Kentucky employers’ costs would have been approximately $30 per year per employee. The U. S. Small Business Administration estimates that more than 70% of Kentucky’s workers (approximately 1.05 million) are employed by private businesses with 50 or more employees. This would have resulted in a cost of approximately $31.5 million per year ($30 per year X 1.05 million employees = $31.5 million per year).

*Source: “What would it cost to have mandatory, paid parental leave,” Fortune, February 5, 2015

The combined cost of the business mandates in SB 33 and HB 178, 201 and 420 are estimated to reach $244 million by 2020.

HB 365:  This legislation would have prohibited insurance companies from requiring the use of mail-order pharmacies. The bill also would have prohibited insurers from imposing different cost-sharing amounts between retail and mail-order pharmacies. Since mail-order pharmacies typically are less expensive than retail pharmacies, health insurance companies often encourage their use to reduce costs and lower premiums. The Financial Impact Statement filed by the Department of Insurance states that the limitations on mail-order pharmacies would increase costs for all private insurance policies in Kentucky by as much as $5.5 million per year. Since the Current Population Survey of the U.S. Census reports that 50% of Kentuckians have employer-provided health coverage, HB 365 would have cost Kentucky businesses up to $2.75 million in additional health insurance premiums (50% of $5.5 million = $2.75 million).

HB 3: This bill eliminates the government-defined hourly wage in construction contracts (known as prevailing wage) on government projects. A 2014 study by the Kentucky Legislative Research Commission determined that the prevailing wage law inflated labor costs by 24% on average and increased total project costs by an average of 10% to 16%. In a separate analysis, the LRC estimated total state and local government construction costs at $2.976 billion per year (Fiscal Note for 16 HB 516). A 16% reduction in those costs would result in total annual savings to government of $476 million. Since the business community provides 40% of government revenue, the savings to business would be approximately $190 million per year (40% of $476 million).

HB 296: This legislation improves the efficiency of the workers’ compensation system to contain rising medical costs and encourage a quick return to work for injured employees. It is estimated to save at least $50 million per year.

HB 105, 106, 141: These bills, often referred to as “bathroom bills,” would allow discrimination against persons in the use of public accommodations/restrooms based on sexual orientation. An Associated Press analysis of the financial impact of similar legislation passed in North Carolina in 2016 found the cost to the state in lost business to be $3.7 billion over 12 years ($308 million per year).  The financial loss was due to reductions in tourism, cancellation of business expansions/new operations, and cancellation of public events (such as concerts and NCAA tournament games)—all due to opposition to the legislation. Assuming a similar business impact in Kentucky, the Kentucky economy is 38% of the size of the North Carolina economy (Kentucky GDP was $194 billion in 2015 while North Carolina GDP was $509 billion), so the impact on the Commonwealth would be $117 million per year (38% of $308 million).

Click Here to View the 2017 Results for Business Publication.