Interim Joint Committee on Economic Development and Tourism

Minutes of the<MeetNo1> 1st Meeting

of the 2001 Interim

<MeetMDY1> September 20, 2001

The<MeetNo2> 1st meeting of the Interim Joint Committee on Economic Development and Tourism was held on<Day> Thursday,<MeetMDY2> September 20, 2001, at<MeetTime> 1:00 PM, in<Room> Room 149 of the Capitol Annex. Senator Katie Stine, Chair, called the meeting to order, and the secretary called the roll.

Present were:

Members:<Members> Senator Katie Stine, Co-Chair; Representative Thomas Kerr, Co-Chair; Senators Dick Adams, Walter Blevins, David Boswell, Ernie Harris, Alice Kerr, Vernie McGaha, Joey Pendleton, and Richard Roeding; Representatives Royce Adams, Rocky Adkins, Eddie Ballard, Carolyn Belcher, John Bowling, Scott Brinkman, Buddy Buckingham, Perry Clark, Howard Cornett, Brian Crall, Tim Feeley, Gippy Graham, J. R. Gray, Keith Hall, Jeffrey Hoover, Dennis Horlander, Stan Lee, Thomas McKee, Russ Mobley, Ruth Ann Palumbo, Tanya Pullin, Tom Riner, Brandon Smith, Johnnie Turner, Ken Upchurch, Charles Walton, Mike Weaver, and Robin L. Webb.

Guests:  Aldona Valicenti, Chief Information Officer for the Commonwealth; Secretary Gene Strong, Commissioner Bill Brundage, Cabinet for Economic Development; Dr. Paul Coomes, Professor of Economics, University of Louisville; Kris Kimel, President of Kentucky Science and Technology Corporation; Secretary Ann Latta, Commissioner Kenny Rapier, and Deputy Commissioner Bob Bender, Tourism Development Cabinet.  Other guests included: Tony Sholar, Kentucky Chamber of Commerce; Mark Kaser, Kentucky Wood Products; Jack Couch, Kentucky Council of ADD’s;  Bert May, KLC; D. Ray Gillespie, Kentucky Hotel Motel Association; L.D. Cobb, Cobb Associates; Bob Benson, City of Louisville; Bobby Marshall, UTU; Mike Ridenour, Lexington Chamber of Commerce; Chris Nolan, MMLK, and Ronny Pryor, Capitol Solutions, LLC.

LRC Staff:  Mary Yaeger, Committee Staff Administrator, John Buckner and Laura Taylor, Committee Analysts, and Jessica Graves, Committee Assistant.

Senator Stine welcomed all of the members, particularly the new members of the Interim Joint Committee on Economic Development and Tourism, and introduced the staff. 

Senator Stine then introduced Aldona Valicenti, Chief Information Officer for the Commonwealth, Governor’s Office of Technology (GOT).  Ms. Valicenti brought with her, Mark McChesnea, Acting Security Director.  Ms. Valicenti discussed the measures taken in the Commonwealth to secure state electronic data.  She gave the committee an overview of what GOT has been doing over the last year and a half to secure our computer systems.  The state has made major investments in security.  They now have an acting security director, and have increased their staff from four to eleven.  They protect the mainframe as well as many other servers in a secure facility.  The six buildings that deal with sensitive information are very well secured.  They have taken steps to avoid viruses, to implement more appropriate policies and  procedures, and to recover from disasters.  There are now tools in place that allow for the scanning of viruses at the time of an employee’s sign-in.  Security reporting is done on a daily  basis.  They are now doing a pilot on PKI which is a secure way of transferring data.  GOT protects the invisible infrastructure in the state with firewalls.  As traffic comes in, the firewalls protect and exclude certain traffic from passing through.  They have invested in anti-intrusion software and devices so that they are notified when someone is trying to “hack” into the system. 

Security awareness throughout the state has also been an issue of concern.  There are programs for contractors and new employees which explain what are and what are not acceptable practices.  Newsletters, security awareness posters, and an upcoming security summit are additional measures being taken. 

Representative Feeley asked Ms. Valicenti if we have the ability to trace e-mails back to the individual computer from where they originated.  This question related to a newspaper article about hate e-mail that traveled within state government. Mr. McChesnea explained that the suspects had been narrowed down to approximately three individuals.  He went on to explain that the e-mail came from outside state government, and that the three government computers were key distribution points.  Ms. Valicenti commented that there is a policy that explains proper use of the e-mail.  There have been notices sent out to all state employees regarding this policy. 

Senator Stine thanked Ms. Valicenti for attending, and then introduced Secretary Gene Strong from the Cabinet for Economic Development.  Secretary Strong introduced Dr. Bill Brundage, Commissioner of the New Economy, and Dr. Paul Coomes, Economics Professor, University of Louisville. 

Secretary Strong discussed the past and current strategic planning process.  In 1992, the General Assembly passed House Bill 89, which established the Economic Development Partnership Board.  It was designed to create continuity and stability in the Economic Development Cabinet and to encourage private sector involvement.  One of the first things mandated by House Bill 89 was the development of a strategic plan for economic development in Kentucky.  The mission of that plan was to create more and higher quality opportunities for all Kentuckians by building and expanding sustainable economy.  Secretary Strong said that it has been a successful road map for the Cabinet over the years.  The planning process has been instrumental in creating certain changes, including:

· The Foreign Trade Office within the Economic Development Cabinet;

· A regulatory expediting process in the Cabinet;

· Ongoing seminars throughout the state for businesses; 

· An increase in Kentucky’s employment over the last decade by 362,000 jobs;

· Growth in manufacturing;

· Growth in exports;

· Creation of the Regional Industrial Park Program; and

· Use of the Geographic Information System for marketing.

Secretary Strong introduced Dr. Paul Coomes, Economist from the University of Louisville, to update the committee on the current study that is being done to see how Kentucky compared with other states in economic development.  Dr. Coomes began by explaining that the full report on the study is approximately 68 pages and can be viewed on-line at www.thinkkentucky.com. 

The goals of the study were to look at the performance of Kentucky’s economic development regions since the Partnership Board was created in 1992.  The study used nine study regions for comparison. Dr. Coomes pointed out the following study conclusions:

· All nine regions have posted growth in business establishments and jobs;

· Earnings per job increased in every region;

· Every region except for the Mountain region gained population;

· The three most urbanized areas in Kentucky are Louisville, Lexington and Northern Kentucky;

· There has been strong growth in manufacturing (above the national average) with the exceptions of the Cumberland/Ashland regions;

· Average earnings per job is at least $3,000 below the national average;

· There is a relationship between educational levels attained and earnings; and

· Enrollment in public and private colleges in Kentucky has been fairly flat.

Dr. Coomes suggested that Kentucky’s economic development efforts should change.  His suggestions included:

· Creation of new incentive programs to attract human capital instead of physical capital;

· Acceleration of investments in research universities;

· Customized work force programs, because the regional economies are so different; and

· Strategy to counter the revenue drain to Indiana from casino gambling.

Secretary Strong said the Cabinet looks forward to coming to the committee during the next session with new ideas for improving the state of Kentucky’s economy.

            Senator Roeding questioned Secretary Strong about ways in which we could use incentives to help our existing Kentucky businesses.  Secretary Strong explained that the Cabinet is working hard to help many of the smaller and mid-sized businesses in Kentucky expand their markets.  He said we just opened an office in Santiago, Chili, and we believe that South America is going to be a good opportunity for Kentucky companies to increase their export markets.  Our export business in Kentucky has been growing almost twice as fast as the United States average.

            Representative Cornett asked: Will the law be relaxed in such a way that we can use some of the Coal Severance tax to expand our coal industry?  Secretary Strong explained that the Cabinet would be happy to look into the issue.  He also explained that the Cabinet for Economic Development has encouraged the use and mining of Kentucky coal by giving tax credits and making utilities and others eligible for programs that they had not been eligible for in the past.

            Representative Bowling questioned Dr. Coomes regarding the riverboat casinos.  Dr. Coomes explained that Indiana had placed their boats in very strategic locations.  It was estimated that in excess of one hundred million dollars is collected annually from Kentucky residents by the state of Indiana.

            Representative McKee commented on the role of the Agriculture Development Board as a part of economic development.  He asked Secretary Strong whether the state is overbuilding industrial development parks and whether they will be able to find tenants for the properties. Secretary Strong commented that the regional parks were developed in rural areas as a result of the lack of economic development in these areas and the program has been working well.  But he believes that there will not be more than one or two more built.  Also, with the help of technology, potential tenants for these industrial parks can get on-line ( www.thinkkentucky.com ) and look at all the industrial sites in Kentucky that might meet their needs.  The access to this information is of great benefit to the process of getting tenants in these industrial parks.

            Representative Walton questioned Secretary Strong regarding his promotion of Kentucky’s natural resources over the years and any sort of uniform plan to utilize Kentucky’s abundance of coal. Secretary Strong explained that there is now the Kentucky Coal Council in the Governor’s office.  Their goal is to look at how to utilize and help market coal resources here in Kentucky.  The Energy Advisory Board is looking at the possible development of additional power plants in Kentucky, he said.  Coal is one of the reasons that Kentucky has been as successful as it has been in the 1990’s in attracting business as we have the lowest industrial power costs in the country.  Representative Walton requested information from Secretary Strong regarding the direction that the Kentucky Coal Council is going with coal in Kentucky.

            Representative Buckingham questioned the panel regarding the high taxation of businesses in Kentucky.  Secretary Strong explained that through utilizing the incentive programs Kentucky has been able to minimize the actual cost of taxation for new or expanding businesses. Dr. Coomes added that statistics show that on average, Kentucky does not tax corporations and businesses highly compared to other states.  Kentucky does, however, tax personal income and retail sales highly.  Different areas of the state have different tax burdens, some very low and others very high, Dr. Coomes said.  Our tax structure is attractive if you want to build a plant; however, it is not so attractive to human capital, new economy, entrepreneurs, businesses, risk takers, and scientists, he added.

            Senator Adams commented that in his brief time in the General Assembly, he believes that Kentucky has overlooked the coal industry.  Specifically, he mentioned Representative Ballard’s bill in the 2001 Regular Session that did not get through the Economic Development Committee but was supported by Kentucky coal associations and the coal producers in the state.  He would hope that the Cabinet revisits that bill and can support it in the 2002 Regular Session.

            Senator Stine introduced Commissioner Bill Brundage, Office of the New Economy, Cabinet for Economic Development for his presentation.  Commissioner Brundage began by explaining that he believed that within the next thirty days the new strategic plan for the state will be completed.  He also mentioned that it will address requirements in House Bill 572, and that he believes it will be one of the better plans in the nation.  The goal statement for the strategic plan is to “create a globally competitive innovation process sustained by an entrepreneurial climate and fueled by world-class resources resulting in a continuously higher standard of living for all Kentuckians.”

            Commissioner Brundage pointed out that the characteristics of the new economy are:

· Speed;

· World-wide scale;

· Wealth and economic value dependant upon knowledge capital; and

· Human capital over raw materials.

The primary difference between this new economy and the industrial economy is that in this new economy we invest our resources in the intellectual pool rather than the physical plant.   It is driven by knowledge and innovation, and science plays a very critical role in it as well.  Science is the fuel of the new economy and the resulting technologies are the engine that drives it.

            The Commissioner stated that education is extremely important, and Kentucky has a lot of work to do in that area.  Kentucky’s position in the new economy will be improved by building a knowledge-based economy with such tools as the Kentucky Education Reform Act, Postsecondary Reform, “Bucks for Brains”, and finally, the Kentucky Innovation Act.  Kentucky is on its way to building a strong infrastructure.  The state has been divided into four regions, Western, South Central, North Central, and Eastern for purposes of developing new strategies and programs.  Each region has its own strategic planning committee so that the entire state moves forward into the new economy.  Part of the infrastructure being built will help create new technology based firms, help existing companies adopt technology to make them more competitive, and recruit new research and development companies.  Commissioner Brundage said the key elements to successful new economy creation for Kentucky are:

· Research and Development:

· Human Health and Development;

· Biosciences;

· Information Technologies and Communications;

· Materials Science and Advanced Manufacturing; and

· Environmental and Energy Technologies.

· Commercialization:

· Innovation and Commercialization Centers;

· Regional Technology Service Centers;

· Commercialization Investment Fund

· Incubators; and

· Commonwealth Seed Capital Fund.

· Workforce:

· Kentucky Department of Education;

· Kentucky Community Technical College System;

· Council for Postsecondary Education;

· Private Colleges; and

· Workforce Development Cabinet.

With the proper use of these tools, Kentucky will be successful in the new economy.

            Representative Walton asked Commissioner Brundage if he was familiar with Experimental Program for Competitive Research (EPSCoR) and whether or not Kentucky has used that to its full capacity.  Commissioner Brundage explained that Kentucky is beginning to do very well, and that the goal is to be the first state to graduate from EPSCoR.

            Representative Adkins asked Commissioner Brundage about Kentucky’s ranking 51^st in Research and Development funding.  Commissioner Brundage explained that we are ranked 51^st as it relates to federal dollars spent per capita. Representative Adkins commented that he believed that Kentucky has made a wise decision to open an office in Washington, D.C. to fight for the federal funding that Kentucky needs.  Energy resources have also been a big issue, and he believes that Kentucky could not be in a better position as Kentucky already has a research and development office.  Commissioner Brundage stated that and Energy Consortium has been created between the University of Kentucky, Murray State University, and the University of Louisville, as well some private firms that are looking at coal, the nuclear field, agriculture, and the environment.  Commissioner Brundage explained that they are requesting matching funds from KEDFA in order to implement that Energy Consortium.

            Senator Stine introduced Kris Kimel, President of the Kentucky Science and Technology Corporation.  Mr. Kimel stated that all of the programs that the Kentucky Science and Technology Corporations is responsible for under House Bill 572 are now operational.  There were a number of programs funded under the Kentucky Innovation Initiative such as:

· The Kentucky Science and Engineering Foundation:

· Investments in R & D and commercialization activities at the Universities and Colleges;

· The Commercialization and Entrepreneurial Programs:

· The Commercialization Fund;

· The Rural Innovation Fund; and

· R & D Voucher Program;

Much of the funding for these programs was not available until July 1, 2001, and they were able to find a way to jump start some of those programs and get them up and running.  He provided a website for information on all of the programs including applications for funding:  www.KSTC.com.

            Senator Stine introduced Secretary Ann Latta, Tourism Development Cabinet.  Secretary Latta presented information regarding the Kentucky Tourism Development Act, which was the first of its kind in the nation.   She explained the main provisions of this Act as follows:

· Developers of approved tourism projects may recover 25% of the cost of the project;

· Refunds come from 6% sales tax paid by visitors to the attraction on admission tickets, food and gift sales and lodging costs; and

· Developer has ten years to reach the 25% threshold.

The first attraction to be built under this Act was the Newport Aquarium.  In its first year of operation more than one million tourists visited that attraction.  The annual economic impact of tourism in Campbell County rose from $12 million to $84 million dollars.  The Kentucky Speedway was the second project  to open.  Tourism expenditures in Gallitan County increased by 681% in the year 2000. 

Secretary Latta also discussed the Small Loan Program for Tourism Businesses in the state of Kentucky.  She said it included a pool of $1.5 million.  To qualify, a project must be a tourism related business and they would provide low-interest loans of up to 50% of the fixed project costs.  Currently there are seven applications pending. 

The legislature created a seven member panel called the Kentucky Tourism Development Finance Authority to be appointed by the Governor to oversee all of the tourism financial programs.  It replaces functions that were previously carried out by the Kentucky Economic Development Finance Authority.  For the first time, Kentucky now has financial programs designed specifically for tourism businesses and the final authority on those programs is concerned only with the business of tourism.

            Secretary Latta mentioned that the primary focus of the Tourism Development Cabinet is usually on budget matters, however bills that she believes will be coming before the 2002 Regular Session are:

· Language to continue the Tourism Development Act; and

· A proposal by the Kentucky League of Cities to repeal the tax on out-of-state tour buses traveling in the state.

Senator Kerr commented to Secretary Latta about the importance of tourism in Kentucky, especially in light of the recent terrorism events in the United States.  Secretary Latta stated that tourism has been impacted all across the country.  There are 173,000 Kentuckians that earn their livelihood from tourism, and thousands of businesses across the state are dependant on tourism and it has already had an impact.  The Tourism Cabinet has been making some moves forward. Secretary Latta stated that she had been in contact with the Kentucky Tourism Council to discuss things that might be done to help the tourism industry in Kentucky.  Safety is an important issue that tourists will be looking for more than ever.

Senator Roeding asked Secretary Latta about the tax on the out of state tour buses.  Secretary Latta explained that it does not effect in-state tour buses; however, there are out of state tour buses that avoid Kentucky specifically because of the tax.

Representative Cornett was recognized to invite everyone to Letcher and Pike  Counties to visit Pine Mountain in September and October while the leaves are changing, and the Mountain Heritage Festival is going on.

Representative Adams asked Secretary Latta about destination oriented or transient oriented advertising.  Secretary Latta explained that advertising has been directed in the last year to areas that are approximately a two hour drive from Kentucky.  The new campaign will be aimed at Kentuckians for the first time.  She believes that Kentucky is prepared to deal with the rise in automobile travel and that this advertising campaign will help.

Senator Stine introduced Deputy Commissioner Bob Bender and Commissioner Rapier.  In 2000 and 2001, budget studies were to be done to determine the economic feasibility of additional state park facilities at General Burnside, Noland Lake, Herrington Lake and in Lewis County.  Those are complete and the findings of those studies should be public around the first part of October.  In the 1998-2000 budget there were seven projects approved, other than golf courses.  The wastewater plant in Greenbo, the campground at Noland Lake, the campground at Paintsville Lake, the head dock replacement at the Barren River, and the water lines at Cumberland Falls were completed.  Two others are under construction, and they are the lodge at Lake Barclay, and the repairs on the Jefferson Davis monument. 

The Department of Parks administered several major projects in 2001.  They included: the HVAC upgrade at the Barren River which is completed and the marina electrical upgrade at Kentucky Dam.  In design is a Dale Hollow Conference Center, re-roofing of the Boonesborogh Fort, and the removal of contaminated salt from Natural Bridge. 

There were seven golf courses funded during the last session.  Four of those are under construction:

· Old Kentucky Home;

· Dale Hollow;

· Mineral Mound; and

· Pennyrile.

The bid date for the Grayson golf course is September 27, 2001.  Yatesville and Kincaid Lake golf courses bid dates are both in October, 2001.  The completion of those seven golf courses is scheduled for May, 2003.

            Senator Roeding questioned Commissioner Rapier regarding the golf courses and whether or not Kentucky will be making a trail so that tourists can travel through the state from one to another.  Commissioner Rapier explained that they are working on the idea of having trails from golf course to golf course.  Secretary Latta commented that she believes that the “Kentucky Trail of Champions” will be far better than the Robert Trent Jones trail in Alabama, simply because there is such a wide variety and varied degrees of difficulty in our golf courses.

            The motion was made and seconded for adjournment.  The Interim Joint Committee on Economic Development and Tourism adjourned at 3:45p.m.