Call to Order and Roll Call
The 1st meeting of the Interim Joint Committee on Economic Development and Workforce Investment was held on Thursday, June 15, 2017, at 10:00 AM, in Room 154 of the Capitol Annex. Senator Alice Forgy Kerr, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Alice Forgy Kerr, Co-Chair; Representative Jim DeCesare, Co-Chair; Senators Perry B. Clark, Rick Girdler, Denise Harper Angel, Ernie Harris, Jimmy Higdon, Stephen Meredith, Wil Schroder, Reginald Thomas, Mike Wilson, and Max Wise; Representatives Lynn Bechler, McKenzie Cantrell, Daniel Elliott, Al Gentry, Toby Herald, Dennis Horlander, Joni L. Jenkins, James Kay, Kim King, Russ A. Meyer, Jason Nemes, Jason Petrie, Steve Riley, Rob Rothenburger, Wilson Stone, Russell Webber, and Addia Wuchner.
Guests: Lynn Allen, CEO, Bluegrass International Fund; Brad Cowgill, Board Member, Bluegrass International Fund; John Bevington, Deputy Commission for Business Development, Cabinet for Economic Development; and Caroline Boeh Baesler, Executive Director/General Counsel, Office of Legal Services, Cabinet for Economic Development.
LRC Staff: Carla Montgomery, Andrew Manno, and Sasche Allen.
Bluegrass International Fund
Lynn Allen, CEO, and Brad Cowgill, Board Member, of the Bluegrass International Fund (BIF), spoke about their company, which uses global investors to fund developmental projects which in turn create local jobs. Mr. Cowgill, a founding member of the Bluegrass International Fund, stated that the committee should become more familiar with the successful federal program called EB-5 that the BIF utilizes to allocate individual wealth from foreign countries to large development projects within the United States. Since 2008 the EB-5 Program has allowed for approximately $19.8 billion of individual investments into projects across the country, which have been mostly through public/private partnership projects. He said that foreign investors are eager to invest and participate in the EB-5 program within Kentucky, but the state has not previously had a licensed regional center to act as liaison between the individual candidates for investor visa status and worthy construction projects in the state. The Bluegrass International Fund was created specifically for this purpose.
Ms. Allen explained the Employment Based Visa Program, or EB-5, was created by Congress in 1990 but it was not until most recent recession around 2008 that the program began to grow, especially in states on the east and west coasts. However, states such as Texas, Florida, Michigan and Arkansas have begun to establish licensed regional centers to take advantage of the EB-5 program. She highlighted the fact that Kentucky does not have large banking centers, foundations or private equity and mezzanine funds. Therefore, BIF believes the EB-5 program will bring much needed low-cost capital to statewide projects, creating jobs in rural and distressed urban areas.
A foreign investor has the option to invest $500,000 or $1 million, but the $500,000 must be in a targeted employment area. A targeted employment area is a location that reflects an unemployment rate of 150 percent of the national average. Another type of targeted employment area is a rural targeted employment area, which is a location outside of a major town with a population of 20,000 or more. Each investment must create 10 or more jobs. According to Ms. Allen, the EB-5 program offers a lower cost of funds with an interest term of five to six years, which enables the project to stabilize and produce returns. In exchange for their investment, the foreign investors, who are evaluated under the Department of Homeland Security, may receive visas for themselves, their spouses and children under the age of 21 after it has been proven that the project has produced the required 10 or more jobs. Despite the investment, the investor does not hold ownership on any completed project. The total project cost is comprised of the 30 percent EB-5 loan, the 20 percent sponsor equity and the 50 percent senior loan. The money is received by BIF from the investor and then loaned to the developers of the project.
There have been numerous projects across the country that have used the EB-5 program because the program can lend against alternative revenue streams, replace taxable bonds, and replace higher cost equity or mezzanine. The program works well with federal, state and local sources. Entities that have used this program include the University Of Pennsylvania School Of Medicine, the University of Maryland, the University of Miami and several charter schools. After considering these and other successful projects, one of BIF’s goals is to work with investors that want to transform Kentucky’s state parks into productive tourist destinations. The company also has ideas to use the EB-5 program to improve the former State Fairgrounds and Exposition Center in Louisville. BIF’s mission is to create large scale and sustainable economic growth with total project costs of at least $30 million and a loan minimum of $10 million. Ms. Allen closed by mentioning several partnering economic development organizations throughout Kentucky that help BIF identify potential projects throughout the state.
Answering a question from Representative Kim King, Ms. Allen said that BIF would be able to assist with the development of new state parks and improvements of existing state parks. Responding to a follow up question also regarding state parks, she said potential partnerships could be with a public entity or private developer.
Responding to Senator Wil Schroder, Ms. Allen said that BIF uses census tracts to determine unemployment rates of targeted employment areas. Mr. Cowgill added that the EB-5 program can be used anywhere in the state, but the federal regulations have certain stipulations that distinguish a targeted employment area from a non-target employment area. He said Kentucky is ideal for this program due to the amount of areas that would qualify as a targeted employment area.
Replying to Representative Jason Petrie, Ms. Allen said that recently there has been negative attention drawn towards the EB-5 program because the United States Citizenship and Immigration Services, who is responsible for screening investors, set a relatively low bar for participants of the program. This led to gerrymandering of the targeted employment area definition and the program as a whole. However, Ms. Allen explained that BIF has been working with Senator McConnell, Senator Paul, Senator Cornyn and Senator Grassley to help pass sweeping reform in September 2017. As a result, this reform would make Kentucky even more attractive to investors because the targeted employment area definition would no longer be able to be gerrymandered. Mr. Cowgill added that the eligibility criteria for a project were permitted by the original legislation to be set by the states and not by the federal government, but with reform there will be stricter controls on the federal level for defining a targeted employment area.
Answering a question from Representative McKenzie Cantrell, Ms. Allen described the type of investors that apply for employment based visas. She said they are mostly entrepreneurs in their native countries that want to escape political or religious oppression, or may have the desire for their children to attend American schools and universities. They make investments with the ultimate incentive of receiving a green card. She further explained that the investors give BIF a minimum of $500,000, which is placed in an escrow account for up to 18 months while the United States Citizenship and Immigration Services screens investors. Once the investor is approved, the investment is released to the developer. Investors come from places such as China, Egypt and Brazil.
Senator Stephen Meredith commented that he was unsure of the potential of the EB-5 program due to things like high project costs and gerrymandering of unemployment rates, which would not work to the advantage of rural areas of Kentucky. He said more concentration should be given to workforce participation rates by county in the state, as the unemployment rate can be misleading. Mr. Cowgill responded by stating that although the program would not be fitting of all projects in Kentucky, it could have a positive effect on economic growth for the state as a whole. Because there is a limited number of employment based visas issued, Kentucky would be able compete with projects across America for investments among the limited number of individuals that qualify to invest funds under the EB-5 program. Ms. Allen reiterated that BIF expects for reforming legislation to be passed in September 2017 to eliminate gerrymandering. She also noted that the Kentucky Community and Technical College System facilities in rural areas can benefit from the program.
Replying to Representative Addia Wuchner’s question regarding potential funding for a workforce training, Ms. Allen said that as of right now the EB-5 program just finances the construction of facilities, but the most attractive investments in the market for investors are generally education related projects such as community colleges and charter schools. Mr. Cowgill said that BIF is involved with projects that are both public and private in nature, and whether it be a university project or local or state project, those entities are permitted to create their own restrictions. The federal program does not have workforce education requirements.
Responding to Co-Chair Alice Forgy Kerr, Ms. Allen suggested contacting BIF if there is a project in the committee members’ districts that may be in need of help with financing.
Cabinet for Economic Development Update and Goals
John Bevington, Deputy Commission for Business Development, and Caroline Boeh Baesler, Executive Director and General Counsel, for the Office of Legal Services, gave a presentation highlighting some of the recent accomplishments and progress of the Cabinet for Economic Development. Ms. Baesler said that Governor Matt Bevin’s goal is to transform Kentucky into the hub of engineering and manufacturing in the U.S. Governor Bevin and the Cabinet Secretary Terry Gill have made numerous international trips to look at new opportunities and solidify existing relationships with foreign companies that have located to Kentucky as well as prospective companies. Since January 2017 trips have been made to Japan, Germany and Switzerland. There have been talks with Chinese, Japanese and Taiwanese delegations. Ms. Baesler also acknowledged the business friendly legislation that was passed in the 2017 Session that will allow the Cabinet to achieve the Governor’s vision and draw international attention and interest in the state.
Mr. Bevington discussed the Cabinet’s goals that were laid out at the beginning of the year. The first goal is to surpass the highest level of announced capital investment, $5.1 billion, in the state’s history and announce more than 17,000 new jobs. Secondly, the Cabinet would like to move the Commonwealth into the top quartile of business-friendly state rankings. The third goal is to establish a more integrated workforce delivery system within the Cabinet, including talent attraction and retention. Lastly, the Cabinet is working towards building out the state’s entrepreneurial community.
The Cabinet’s first goal has already been met by reaching $5.8 billion in investments and announcing 17,000 new jobs. Expectations still have to be set however by continuing to develop an aggressive and targeted marketing campaign, branding Kentucky as an engineering and manufacturing hub. Toyota has announced a $1.3 billion investment to improve its Georgetown location and has solidified 7800 jobs. Amazon announced a $1.5 billion investment to locate its first global air hub in Northern Kentucky and an addition of 2700 jobs. Braidy Industries has made a $1.3 billion investment and will add 550 jobs. The Cabinet also wants to increase foreign direct investment by 20 percent annually over the next 3 years. Kentucky’s total foreign direct investment includes nearly 500 companies from 34 nations employing more than 100,000 people. Mr. Bevington also noted formalizing and enhancing an ongoing existing industry outreach process.
Reaching the second goal the Cabinet has set will include convening CEO business forums, aligning staffing with current demands, and enhancing the use of technology for internal and external clients. In doing so, the Cabinet has held its first business roundtable with executives from varying industries. It is currently rebuilding staff in critical areas such as project management, research, financial incentives, graphic design and legal. Ms. Allen explained that attaining this goal will involve Governor Bevin’s Red Tape Reduction Initiative, which helps in creating a more business friendly environment by reviewing and eliminating certain administrative regulations.
Mr. Bevington expressed that the Cabinet’s third goal may be the most difficult due to the challenges of developing, attracting and retaining a skilled workforce. Efforts include developing comprehensive resource delivery plans based on state and regional markets, expanding registered apprenticeships into the KY FAME chapters, and creating workforce services team to provide and coordinate workforce resources for business and industry clients. He further explained that the Cabinet has a strong objective of growing the KY FAME program, started in 2015, into programs in logistics, healthcare and other regional demands. The program currently has a graduation rate of 89.2 percent and recently saw 232 students graduate with no student debt. The Education and Workforce Development Cabinet will assist the Cabinet on this aspect. Another component of this goal will consist of connecting transitioning military personnel, veterans and spouses to career opportunities.
The final goal of building the state’s entrepreneurial community is a continuing focus that the Cabinet previously set for itself. The Cabinet will be reviewing all its programs and resources that focus on small businesses and entrepreneurship. Programs will be streamlines and reduced in areas where there may be overlapping to increase efficiency. Current small business programs will be assessed to maximize the state’s return on investment. Local programs will also be reviewed to ensure talent is being retained and new skill sets among Kentucky workers are being cultivated.
Representative Kim King inquired about a photo in the Cabinet’s presentation that showed the Mercer Chamber of Commerce Director.
Representative Dennis Horlander mentioned the Skills Team USA robotics program and suggested the Cabinet work with the program. Mr. Bevington followed up by highlighting the Cabinet’s partnership with the Innovation Network.
Representative Jason Nemes expressed his concerns regarding the potential threat to Braidy Industries due to developing lawsuits challenging Kentucky’s recent passage of right to work legislation. Mr. Bevington stated that Craig Bouchard, Chief Executive Officer and Chairman of the Board of Directors for Braidy Industries, does recognize the potential risks created by the lawsuit but will continue to move forward with the project while assessing the situation. He also noted that Braidy Industries would not have announced its project in Greenup County if right to work legislation would not have been passed.
Replying to Representative Addia Wuchner, Mr. Bevington said that most participants of the KY FAME program, about two thirds, enter out of high school, but there are some participants that are older workers trying to improve skills.
Responding to Senator Jimmy Higdon, Ms. Allen said that although Secretary Gill and Governor Bevin have had their first roundtable meeting with industry executives, they are planning to have more roundtables with large industry employers from across the state. They are leaving meeting agendas and topics to industry executives.
After Representative Al Gentry inquired about workforce opportunities for individuals with disabilities, Mr. Bevington stated that the Cabinet will be working with employers to determine employee demands. He recommended Representative Gentry contact Josh Benton, the Executive Director of Workforce Development, for more specific programs that may focus on individuals with disabilities. Ms. Allen mentioned the Governor’s recently announced task force will be reviewing areas such as the workforce delivery system and increasing workforce participation.
Answering a question from Representative Lynn Bechler, Mr. Bevington said that the Cabinet’s overseas offices play a dual role of being a direct liaison to companies that may be considering project development in Kentucky and also being a marketing tool for the state. In response to another question from Representative Bechler, Mr. Bevington said that the Veterans and Military Training Center in Hopkinsville is still being developed by Kentucky in partnership with Tennessee.
Senator Mike Wilson voiced the need to change the world’s image of Kentucky and the need to attract workers to the state. He also gave an overview of the positive workforce training initiatives in his district and discussed the SCK Launch Initiative.
Responding to Senator Wil Schroder, Mr. Bevington said that although autonomous vehicles are not a currently a concern of the Cabinet, it may be an opportunity to take advantage of job retraining of current truck drivers.
Replying to Co-Chair Jim DeCesare, Mr. Bevington agreed that the Cabinet is continuing to work with local chambers and economic development organizations. Co-Chair DeCesare also discussed future plans of the committee concerning economic development legislation and programs.
Ms. Baesler, at the request of the co-chairs, said Braidy Industries would begin construction the first quarter of 2018 and hiring in the third or fourth quarter of 2017. She also announced that she would be leaving the Cabinet of Economic Development at the end of June 2017.
With no further business to come before the committee, the meeting adjourned at 11:50 A.M.