Call to Order and Roll Call
The1st meeting of the Interim Joint Committee on Agriculture was held on Wednesday, June 14, 2017, at<MeetTime> 10:00 AM, at the Kentucky Exposition Center in Louisville, Kentucky. Senator Paul Hornback, Chair, called the meeting to order, and the secretary called the roll.
Members:Senator Paul Hornback, Co-Chair; Representative Richard Heath, Co-Chair; Senators C.B. Embry Jr., Dennis Parrett, Damon Thayer, and Stephen West; Representatives Matt Castlen, Myron Dossett, Derrick Graham, David Hale, Mark Hart, Angie Hatton, James Kay, Kim King, Suzanne Miles, Sannie Overly, Jason Petrie, Rick Rand, Rob Rothenburger, Wilson Stone, Walker Thomas, James Tipton, Tommy Turner, and Susan Westrom.
Guests: Jason Rittenberry, President and CEO, Kentucky Venues, Karen Williams, President and CEO, Louisville Convention and Visitors Bureau, Secretary Don Parkinson, Tourism, Arts and Heritage Cabinet and Secretary William Landrum, Finance and Administration Cabinet, Ryan Quarles, Commissioner, Kentucky Department of Agriculture, Dr. Mark Lynn, Chair, Kentucky State Fair Board, and members of the Kentucky State Fair Board.
Co-Chair Hornback and Co-Chair Heath wanted members to know that they are planning to work on agricultural tax reform by inviting commodity groups to meetings and setting priorities for tax reform.
Overview of Facilities and Tour
Jason Rittenberry, President and CEO, Kentucky Venues, explained that Kentucky Venues is Kentucky State Fair Board’s (KSFB) new public brand to promote all venues and events. Kentucky Venues operates the Kentucky International Convention Center along with the Kentucky Exposition Center. It owns and operates five in-house events as opposed to the events that come in and rent the facility for trade shows and conventions. The largest in-house shows are the National Farm Machinery Show, All-In Hoopfest, Kentucky State Fair, World Championship Horse Show and the North American International Livestock Exposition. Based on square feet, the Kentucky Exposition Center (KEC) is the sixth largest convention center in the United States. The Exposition Center has to compete with Orlando, Los Vegas, and Chicago.
Mr. Rittenberry stated that the downtown Kentucky International Convention Center is undergoing a $207 million renovation that should be completed in 2018. After the Convention Center reopens, it will have accommodations to attract 25 percent more conventions, meetings, and tradeshows. There are already 50 events scheduled from 2018 through 2022.
Mr. Rittenberry said that the Exposition Center and the Kentucky International Convention Center generated an economic fiscal impact of $260 million in 2016. Kentucky hosts approximately 300 events attracting 2.3 million visitors annually. Tax revenues generated from the events total about $36.4 million per year (state 28.9 percent and Louisville 7.5 percent).
Mr. Rittenberry said that agriculture and agribusiness is important to the State Fair Board and Kentucky Venues. The three in-house agriculture events, the National Farm Machinery Show, the State Fair, and the North American International Livestock Shows provide approximately $50 million annually in an economic impact. The three events draw over a million attendees. The National Farm Machinery Show has been held for 52 years, the North American International Livestock show for 44 years, and the Kentucky State Fair for 113 years.
Mr. Rittenberry stated that the major industry is in the category of conventions and trade shows. Some of the biggest are Mid-American Truck Show (45 years), Recreational Vehicle Industry Association (35 years), National Street Rod Association (30 years), Green Industry Expo (27 years), International Construction and Utility Equipment Expo (30 years), VEX Robotics World Championship (three years), and Recreational Vehicle Industry Association (35 years).
Mr. Rittenberry stated that the Kentucky Exposition Center and the Kentucky International Convention Center provide a million-plus square feet under roof, but the number of acres that is on site is what sets the facilities apart from other convention centers. The conventions and trade shows drive economic impact which allows Kentucky Venues and the State Fair Board to continue promoting agriculture. Agriculture shows are not always profitable; conventions and trade shows make it possible to continue promoting agriculture. Kentucky Venues is always looking for new events, but it is important to make needed improvements in order to maintain older events and entice new events.
Mr. Rittenberry explained that the KSFB is seeking financial assistance. He explained that when the University of Louisville moved to the YUM Center in 2010, the KSFB began losing $20 million in revenue annually. The loss of revenue has prevented the KSFB from making repairs and upgrading the facilities. There is an immediate need for funding in order to make improvements to the facilities so the KSFB can maintain operations and the present business. The KSFB faces competition with newer facilities and larger cities courting the shows and events. Mr. Rittenberry stated that the KSFB has not had a maintenance fund since 2010. The lack of a maintenance fund has resulted in crumbling infrastructure, the Class A exhibit space is tired and worn out, and restrooms need updating. The top four priorities are $6 million for the maintenance pool, $3.5 million for entrance gate and parking booth upgrades, $5 million for the Freedom Hall Phase 1 renovation, and $7 million for the South Wing interior update. The renovation of Freedom Hall would have the biggest financial impact by bringing in more shows and events.
Mr. Rittenberry said that clients have given feedback on the facility’s condition. One tradeshow exhibitor has said it would move unless major upgrades take place at the Exposition Center. Other comments have concerned the lack of floor ports in the East Hall, improper working condition of equipment, outdated restrooms, traffic congestion, and unsatisfactory meeting room conditions.
Mr. Rittenberry said that without making noticeable improvements to the Kentucky Exposition Center, there is a potential risk of losing additional long standing conventions and trade shows that have been in Kentucky for over 25 years. If that happens, there would be a large economic impact to the Commonwealth which would mean losing direct spending revenues, bed tax revenues, sales tax revenues, plus the reputation of the KEC would be tarnished throughout the industry.
Karen Williams, President and CEO, Louisville Convention and Visitors Bureau emphasized the strong partnership with Jason Rittenberry. Client survey information was an important tool in expanding the Convention Center downtown. She said that KEC is lucky to have host the five top trade shows in the United States. The Mid-American Truck Show, which has been at the KEC for 45 years, submitted an unfavorable post-convention review. From 2010 through 2017, the KEC scored the lowest remarks. The Mid-American Truck Show decided to move its trade show to Atlanta because of limited space and deterioration of the facilities. Other trade shows are also at risk of not renewing their contracts. She reiterated Kentucky’s competition with large metro areas in other states. Each of those buildings has been expanded and renovated within the last five to 10 years and each building has reserved $10 million to $20 million in a fund for depreciation. Losing business will be detrimental to the heads and beds tax, sales tax, and the 1 percent lodging tax.
Mr. Rittenberry explained that the request for $6 million is based on the industry standard of $5 per square foot for annual maintenance on a building.
Mr. Rittenberry stated that there are large projects that can be done at the KEC with the P3 legislation such as an agribusiness center that would be dedicated to agriculture year-round and a large hotel connected to the Kentucky Exposition Center.
Secretary Don Parkinson, Tourism, Arts and Heritage Cabinet, stated that the cabinet could use about $300 million for parks, KEC, and other maintenance projects. He said that it is important to start with renovations and maintenance at the KEC.
Secretary William Landrum, Finance and Administration Cabinet, explained that the Commonwealth owns four convention centers. All of the conventions centers are dealing with competition for events and trade shows, and therefore it was imperative to maintain and renovate the KEC. The Broadbent Arena roof is now being upgraded through funds from hail damage insurance.
In response to Senator Parrett, Ms. Williams said that the Future Farmers of America (FFA) Convention will likely not return to Louisville. FFA membership has grown to 300,000 members in the United States and internationally. At the last FFA Convention in Louisville, members were having to get rooms as far away as Frankfort. The FFA room block is approximately 32,000 and Louisville has about 18,000 rooms. In Indianapolis, the radius for hotel rooms is within 20 miles.
In response to Representative Stone, Mr. Rittenberry said that Levy Food Service owns, manages, and maintains the health and food safety requirements and building codes on all the food and beverages operations on site. KEC’s own venues are older and thus require more maintenance and improvements, but they are held to the same standards and codes. Required American Disability Act (ADA) changes affect the budget.
In response to Representative King, Mr. Rittenberry said that he would give committee staff the attendance numbers for trade shows and other events. The 2.3 million attendance includes both venues—the downtown Convention Center and KEC.
In response to Representative Overly, Mr. Rittenberry said that overall Kentucky Venues is about 4.8 percent net income from operations, or about $45 million in revenues. Factoring depreciation, Kentucky Venues loses about $5 million annually.
Mr. Rittenberry told Representative Overly that Kentucky Venues is paying off the bonds. The state has been taking care of the debt service. He stated that he would provide staff with a report regarding the current bonds that are in place for improvements.
Representative Overly stated that she would like to know how many years are left on the bonds and what the state is paying toward past maintenance agreements. Looking at the six year plan, she would like to know the total request, if it is a single proposal, if it is a single proposal to update the entire venue, whether it would have a staggered term, and how the proposal would be presented to the General Assembly.
Mr. Rittenberry said that a handout shows the list and total amount of all the deferred maintenance issues that have been deferred over the past seven or eight years. The list does not take into account building anything new. The total is about $28 million, and the handout lists each item of deferred maintenance, totaling $28 million.
Co-Chair Hornback requested that information be provided to staff showing the debt service and the state’s timeframe.
In response to Senator West, Mr. Rittenberry stated that raising entry fees or gate fees varies on the type of entry and the type of event that is happening. For a spectator paid event, Kentucky Venues can increase the prices and has been doing so. The purchase price of each ticket has a facility maintenance fee component, and KEC has been using that fee for maintenance of small projects. The larger trade shows and convention fees are set more by what the competition is charging per square foot. The rent can be reduced based on other revenues they bring in, such as for food and beverages.
In response to Representative Rothenburger, Mr. Rittenberry stated that the Kentucky State Fair Board is considering building the agribusiness center as a P3 project.
Dr. Mark Lynn, Chair, Kentucky State Fair Board stated that, three years ago, the Kentucky State Fair faced a $9 million a year shortfall, and the current shortfall is $4.5 million. From an efficiency standpoint, the KSFB has done everything it can to cut that number. The KSFB members are superb and have a passion for making things better.
Commissioner Ryan Quarles, Kentucky Department of Agriculture, echoed the comments of Dr. Lynn regarding the Kentucky State Fair Board members and Mr. Rittenberry. The members are active and show up for events and meetings. Kentucky needs to protect the reputation of having some of the largest agricultural shows, trade shows, and the Kentucky State Fair. He said that KDA administers county fair grants of about $450,000 a year. The application deadline is October 1.
Secretary Landrum stated that, when presenting a request for funding, it is necessary to provide the estimated costs and how the project is going to be paid for. The P3 legislation is a great tool in helping to move forward with projects and enables the Finance and Administration Cabinet to partner with a private developer, and if over 50 percent of the funds is provided by the developer and the amount does not exceed $25 million, the cabinet can move forward. However, if the amount exceeds $25 million, the contract must be presented to the General Assembly for approval during session. The cabinet recommends reviewing that stipulation as it discourages a private investor from waiting around for approval. Through the P3 legislation, the cabinet wants to ensure that the requirement for deferred maintenance is eliminated.
In response to Senator Parrett, Secretary Landrum said the vetting process for potential investors on a P3 project includes evaluation committees.
There being no further business, the meeting was adjourned.