Call to Order and Roll Call
The 6th meeting of the Interim Joint Committee on Appropriations and Revenue was held on Monday, November 25, 2013, at 1:00 PM, in Room 154 of the Capitol Annex. Representative Rick Rand, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Bob Leeper, Co-Chair; Representative Rick Rand, Co-Chair; Senators Walter Blevins Jr., Tom Buford, David P. Givens, Sara Beth Gregory, Denise Harper Angel, Ernie Harris, Stan Humphries, Ray S. Jones II, Alice Forgy Kerr, and Christian McDaniel; Representatives John Carney, Leslie Combs, Jesse Crenshaw, Ron Crimm, Robert R. Damron, Mike Denham, Bob M. DeWeese, Myron Dossett, Kelly Flood, Richard Henderson, Martha Jane King, Jimmie Lee, Reginald Meeks, Marie Rader, Jody Richards, Steven Rudy, Sal Santoro, Rita Smart, John Will Stacy, Fitz Steele, Jim Stewart III, Tommy Turner, Jim Wayne, Addia Wuchner, and Jill York.
Guests: Secretary Thomas O. Zawacki, Education and Workforce Development Cabinet; Commissioner Beth A. Brinly, Department of Workforce Investment; Mr. Clifford “Rip” Rippetoe, President and CEO, and Mr. Anthony Leachman, Chief Financial Officer and Vice President of Finances, Kentucky State Fair Board; Mr. Jeff Ziarko, Director of Government Relations, Enhanced Capital; Mr. David Ferguson, Chairman and Senior Managing Director, 3DR; Mr. Harry Freibert, CPA, President, Freibert Bigg PLLC; President, Kentucky Society of CPAs; Ms. Vivian Stobaugh, Controller, Associated Pallet, Inc. and Premium Hardwoods, Inc.
LRC Staff: Pam Thomas, John Scott, Charlotte Quarles, Eric Kennedy, Jennifer Hays, and Sheri Mahan.
Sector Strategy Program
Secretary Thomas O. Zawacki of the Education and Workforce Development Cabinet and Commissioner Beth A. Brinly of the Department of Workforce Investment discussed the Sector Strategy Program. Secretary Zawacki discussed Kentucky’s educational gap and the new educational requirements needed to attract and keep new jobs in the state.
Commissioner Brinly discussed in further detail the talent development sector strategies being utilized by the cabinet. The cabinet is partnering with industries to match training to specific industry needs to address skills gaps in the workforce. Sector strategies can attract businesses, improving the sustainable economic outlook for the state. The state is currently partnering with five sectors to provide those industries with an appropriately trained workforce. These are: automobile/aircraft manufacturing; distribution and logistics; research and development business services; heath care/social assistance; and energy creation/transmission. The commissioner provided several examples of successful targeted skills training.
Secretary Zawacki discussed the benefits gained by utilizing sector strategies. Using these strategies, the state can attract new jobs, stimulating economic growth and prosperity. Employers gain an innovative industry sector driven by a skilled workforce. The workers gain highly marketable skills and have better career opportunities.
In response to a question from Representative Rand, Commissioner Brinly said that the cabinet has been working with local school districts to establish college and career readiness centers. The cabinet has also received federal career pathway grants to assist in technical job readiness training. Secretary Zawacki discussed the need for more education counselors in high schools.
Kentucky State Fair Board financial status
Mr. Clifford “Rip” Rippetoe, President and CEO and Mr. Anthony Leachman, Chief Financial Officer and Vice President of Finances of the Kentucky State Fair Board discussed the financial status of the Fair Board. Mr. Rippetoe stated that the board anticipates a $16 million loss over the next biennium. The board will request a total appropriation of $48.9 million for FY 14–15, and $51.2 million for FY 15–16. This total amount will include a general fund request for $6.2 million in FY 14–15, and $4.8 million in FY 15–16.
In response to questions from Senator McDaniel, Mr. Rippetoe said that moving the University of Louisville basketball games to the YUM! Center negatively impacted receipts at Freedom Hall. The calculation for the reimbursement owed to the Fair Board by the Louisville Arena Authority will be made in January. It is unclear if a payment will be forthcoming. The Fair Board is fourth in line for repayment if the YUM! Center ever makes a profit.
In response to a question from Representative Meeks, Mr. Rippetoe discussed the future reopening of Kentucky Kingdom.
New Markets Tax Credit Program
Mr. Jeff Ziarko, Director of Government Relations of Enhanced Capital, and Mr. David Ferguson, Chairman and Senior Managing Director of 3DR Laboratories, discussed the New Markets Tax Credit Program. Mr. Ziarko provided an overview of Kentucky’s New Markets program, which was enacted in 2010 with credit allocations awarded in 2011. The program consists of $62.5 million of allocation or investment authority that must be used in low income or high poverty areas. Community Development Entities (CDEs) receive allocations of tax credits that are used to raise private sector capital. Investors earn 39 percent tax credits for investing in CDEs which are claimed over seven years beginning in year three. CDEs must have allocation agreements in force with the U.S. Treasury and a service area that includes Kentucky.
Mr. Ziarko discussed specific results for Kentucky’s New Markets program. Over $60 million of private sector investments in 10 projects have qualified. Investments are supported by $24.3 million in tax credits, with a maximum of $5 million being claimed per year. As a direct result of the program, 207 new jobs have been created, 358 jobs have been maintained, and 624 construction jobs were created. Projects have included investments to help small businesses grow and new real estate/facilities development. New investments have increased state and local tax revenues. Mr. Ziarko provided a map of New Markets Eligible areas of Kentucky. Mr. Ferguson discussed his experience utilizing the New Markets Tax Credit Program.
Limited Liability Entity Tax
Mr. Harry Freibert, President of the Kentucky Society of CPAs, Ms. Vivian Stobaugh, Controller of Associated Pallet, Inc. and Premium Hardwoods, Inc., and Mr. Charles George, legislative liaison with the Kentucky Society of Certified Public Accountants, discussed a proposal to amend the Limited Liability Entity Tax (LLET). One deduction allowed when determining Kentucky gross profits is related to costs of goods sold. This term is defined in KRS 141.0401. Pursuant to that definition, the Department of Revenue has been disallowing all costs except for direct materials and direct labor. Its interpretation disallows costs that are normally understood to be costs of goods sold for federal income tax purposes. When costs are allowed at the federal level but not allowed at the state level, compliance issues may arise, which may impact Kentucky’s business climate. This group proposes to align Kentucky’s cost of goods sold definition for the LLET with that of the federal definition for the federal income tax.
In response to a question from Senator Buford, Mr. George said that it is not known exactly what the fiscal impact will be if changes are made to the LLET.
Being no further business, the meeting was adjourned at 3:30 p.m.