The 2nd meeting of the Interim Joint Committee on Economic Development and Tourism was held on Thursday, October 17, 2002, at 1:00 PM, in Room 149 of the Capitol Annex. Representative Thomas Kerr, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Representative Thomas Kerr, Co-Chair; Senators Walter Blevins, Julie Denton, 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, Jesse Crenshaw, Tim Feeley, Gippy Graham, J. R. Gray, Keith Hall, Jodie Haydon, Dennis Horlander, Stan Lee, Thomas McKee, Ruth Ann Palumbo, Tanya Pullin, Brandon Smith, Johnnie Turner, Ken Upchurch, Charles Walton, Mike Weaver, and Robin L. Webb.
Guests: Gene Fuqua, Executive Administrator, Jim Navolio, Commissioner, Department of Business Development, Thomas Bailey, Director, Site Evaluation/GIS Division, Cabinet for Economic Development; Bobby Clark, Board Chair, Betsy Nowland-Curry, CEO, Kentucky Commission on Small Business Advocacy; Craig Greenberg, Attorney, Frost Brown Todd LLC.
LRC Staff: John Buckner, Committee Staff Administrator, Laura M. Taylor, Karen Armstrong-Cummings, Committee Analysts, and Cecilia Perry, Committee Assistant.
Representative Kerr called the meeting to order and welcomed all of the members and guests.
Motion was made, seconded and passed to approve the minutes of the last meeting.
Representative Kerr introduced Gene Fuqua, Executive Administrator, Cabinet for Economic Development. Mr. Fuqua discussed Resolution 02-1 which involved the last legislative session and the Department of Coal County Development being abolished and reverting all the activities of the department to the Secretary of the Cabinet for Economic Development. This resolution was done as a mechanism to put commission employees in place in the Department of Regional Development and continue the program. Mr. Fuqua then offered to answer any questions that the members might have.
Representative Smith commented on the abolishment of the program and asked what happened to the money that was left in the coal severance fund accounts. A county in his district had not been successful in accessing this money and wanted to know if other members of the committee had similar difficulties.
Gene Fuqua said he would research the coal severance fund accounts and report back to the committee at a later date.
The committee voted on the reorganization plan discussed in Resolution 02-1 and . unanimously voted to concur with the reorganization plan.
Representative Kerr then introduced Commissioner Jim Navolio, Department of Business Development, Cabinet for Economic Development. Commissioner Navolio discussed the cabinet’s marketing initiative and current projects that have been implemented. Business Development helps to design projects to reach business leaders outside the state. The cabinet has decided to devote a limited amount of resources toward print advertising. The cabinet elected to place ads in site location publications in a more opportunistic fashion. For example, when Site Selection Magazine elected Kentucky second (2nd) in the nation in 2001 for job creation per capita, they ran an advertisement in that same issue. The cabinet recently implemented a direct mail campaign designed to reach individuals such as plant managers at existing Kentucky manufacturing locations, executives at the headquarters of companies that have Kentucky locations, executives at fast growing companies as identified on the INC 500, site location consultants and a variety of other business leaders. The cabinet participates in various tradeshow events to obtain direct contact with people in many different industries. Their most cutting edge marketing tool involves the Economic Development Information System (EDIS). This system is the internal, fully functional, GIS system used for industrial site map production and analysis. It also performs web based tool functions with a detailed site building and community information network available 24 hours a day, 7 days a week.
Commissioner Navolio introduced Tom Bailey, Director, Site Evaluation/GIS Division, to provide a short demonstration of the website (www.thinkky.com, click on EDIS logo) and its capabilities. Mr. Bailey explained the many functions of the GIS system. He demonstrated their sites, building and community information pages and walked through a standard search for individuals interested in the website.
Commissioner Navolio stated that only 17 communities (Bowling Green [Warren County,] Elizabethtown [Hardin County], Morganfield [Union County], Hopkinsville [Christian County], Boyd, Greenup, McLean, Henderson, Bardstown [Nelson County], Hancock County, Dawson Springs [Hopkins County], Mt Sterling [Montgomery County], Lexington [Fayette County], Campbellsville [Taylor County], Frankfort [Franklin County], Owenton [Owen County], Paducah [McCracken County], and Grant County) have linked their local websites to the community information page, which was very discouraging to the cabinet. Commissioner Navolio asked committee members to help encourage their local communities to participate in the efforts of this website.
Representative Kerr asked Commissioner Navolio for a copy of his presentation notes to distribute to the members including the list of the communities that had linked to their website. Commissioner Navolio said he would be glad to provide the group with that information.
Representative Pullin asked Commissioner Navolio if his department assisted our Kentucky businesses in export involving trade finance expertise. Commissioner Navolio responded that the cabinet’s Department of Community Development is responsible for assisting export efforts.
Representative Pullin asked Commissioner Navolio if his department was responsible for the Kentucky trade mission to China. Commissioner Navolio said his department was not responsible for activities of that nature.
Representative Palumbo asked Commissioner Navolio how the public knows to access the GIS website. Commissioner Navolio responded that all the cabinet’s advertising efforts recognize the website. Directing people to the website is part of the cabinet’s marketing campaign. The website might not be beneficial to the general public but would be to a developer who is looking for sites to expand on.
Representative Adkins referred to the 17 communities that had linked the cabinet’s website and asked if the department was taking the initiative to contact the economic development directors around the state to make them aware of the website. Commissioner Navolio stated that the cabinet had marketed the website in every publication to increase public awareness. He said without a full-time economic developer, there is a chance that communities have not heard about the website.
Representative McKee suggested that direct contact with county judges could help with public awareness. Also, he commented on the number of industrial parks that have developed in the last five years and asked if Kentucky is about to saturate that market. Commissioner Navolio said that the cabinet recently did an absorption study which provides information such as what has been absorbed in the industrial land market in the last 10 years. He added that he would provide the committee with the study.
Representative Kerr thanked the presenters from the cabinet for their reports.
Representative Kerr then introduced Bobby Clark and Betsy Nowland-Curry with the Kentucky Commission on Small Business Advocacy to give an update on activities of their organization.
Mr. Clark reported on the federal regulatory burdens placed on Kentucky small businesses. He pointed out that the regulatory impact of federal regulations for a small business with fewer than 20 employees translated roughly into $7000 dollars per employee. Mr. Clark further explained that Kentucky small businesses are spending 9.1 billion dollars annually to comply with federal regulations. The Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) required every federal agency within one year of the passage of this act to adopt a policy for the waiver and reduction of penalties for small businesses under the appropriate circumstances. Mr. Clark asked the committee to help with a state waiver reduction penalty policy for small businesses. He also asked the committee to consider a resolution that would involve contacting state agencies that regulate small businesses and asking for feedback on the what effect a state waiver policy would have on their department. Mr. Clark also touched on a recent report that was published by the SBA in June 2002 that contained negative comments regarding Kentucky’s efforts to mitigate regulatory burdens on small businesses. Mr. Clark additionally commented on the building and implementation of a small business portal designed to serve as an online help desk for small business owners.
Representative Palumbo said that she did not agree with the some of the comments in the report published by SBA. Mr. Clark agreed with Representative Palumbo and he further explained that SBA used criteria from the Kentucky statutes that had an impact analyses on small businesses. He added that if the section of KRS Chapter 13A pertaining to the state’s regulatory impact analysis had included, specifically, the impact on small businesses, it might have prevented the negative comments in SBA’s report.
Representative Palumbo asked if he would include his recommendation in the annual report to help focus on the specific needs of small business. Mr. Clark agreed to include his recommendations in the commission’s annual report.
Representative Palumbo stated that people in her district, particularly small businesses owners, inquire about programs designed to provide funding at the state level to help with the expansion of their businesses. She asked if such a program was in place, and if not, would a program need to be implemented.
Mr. Clark said 75% of all new jobs are created by small businesses and under current Kentucky law, many of the programs offered by the Economic Development cabinet limits businesses to 10-15 employees in order to qualify for certain programs. Most businesses in Kentucky have fewer than 10 employees. Mr. Clark requested that the cabinet explore the idea of setting aside a percentage of Economic Development incentive funds to target towards a pilot project to help small business owners.
Representative Palumbo asked that he also make that inclusion in his annual report. Mr. Clark agreed to make that inclusion and stated that there would be a section targeted to that need.
Representative Adams asked about the education process that keeps small businesses aware of new regulations while also directing them on how to comply with those regulations. Mr. Clark said that reaching the small business community was one of their biggest challenges. The commission believes that the on-line portal will ultimately serve small businesses effectively and efficiently therefore keeping them updated on current regulations. The commission is seeking legislation to help a small business waive penalties in such instances that they were unknowingly not in compliance with current regulations.
Representative Brinkman asked how the commission planned to advertise the on-line portal and will they be implementing a user fee or membership fee for its utilization.
Mr. Clark said that the commission will consider a user fee but doesn’t want to create any barriers. To advertise the portal, they plan to work directly with all of the Chambers of Commerce around the state to help reach their targeted audience. Also we have contacted state agencies to help us in our advertisement campaign.
Representative Feeley commented that the Secretary of State’s Office sends mailings to every business in Kentucky annually and what a perfect opportunity that would be for the commission. Mr. Clark said that they have been in touch with the Secretary of State’s Office and plan on also working with them in advertising the portal as well as the role of the commission.
Representative Kerr thanked Bobby Clark and his staff for coming and for their report to the committee.
Representative Kerr then introduced Craig Greenberg, Attorney, Frost Brown and Todd LLC to give an update on the implementation of the Kentucky Investment Fund Act Amendments contained in HB 525 and also about other state venture capital initiatives.
Mr. Greenberg said that the provisions of the Kentucky Investment Fund Act do not exclusively focus on venture capital in Kentucky. One major part of expanding the venture capital community throughout the Commonwealth was a sweeping amendment to the Kentucky Investment Fund Act making it more effective. It would provide a greater incentive for investors to invest in new economy and old economy projects with Kentucky small businesses. Briefly, the Kentucky Investment Fund Act provides a 40% state tax credit for investors in venture capital funds that are committed to investing in small Kentucky businesses. The Act has some criteria to ensure that the investment funds are credible, are used to further the purpose of the Act, and maintains focus on Kentucky businesses. Another important amendment to the Act was the expanded ability for all investors that have Kentucky tax liability to participate and reap benefits from this program. There are other venture capital initiatives that the Office of the New Economy are promoting throughout the state as well as Commonwealth Seed Capital, LLC, Innovation and Commercialization Center Network, Natural Products Center, Coal County Investment Fund and Federal programs (SBA).
Representative Kerr asked if portfolio companies are the qualified businesses in which the fund has invested. Mr. Greenberg said that he was correct.
Representative Kerr asked Mr. Greenberg to define “alter ego”. Mr. Greenberg said that the “alter ego” issue is recognized before the investment is made. The “alter ego” looks to encourage arms length investing in other small businesses.
Representative Kerr asked if it was possible to take unfair advantage of this program. Mr. Greenberg said that it would be very difficult for an individual to take unfair advantage of this program.
Representative Kerr asked if there were any individuals who are actively soliciting investments. Greenberg said he was aware of several venture capital funds that are in the process of fund raising right now. There is a lot of excitement concerning the opportunity to apply for tax credits.
Representative Kerr asked if there were $3 million in funds and there is $6 millions dollars eligible for consideration, is it a prorated 50% or is it on a first-come, first-serve basis. Mr. Greenberg said there was a set of criteria that is currently being developed by the Office of the New Economy and the Economic Development Cabinet that takes the purpose of this Act and further clarifies how the credits are to be allocated.
Representative Feeley asked if the $3 million dollar credit is predicated on passing a state budget. Mr. Greenberg said that the $3 million dollar provision is contained in HB 525, which has already been enacted, therefore the credit is in place irrespective of the passage in the budget.
Representative Feeley asked if KEDFA has any geographic limitations concerning this program. Mr. Greenberg state that investments are available anywhere in the state.
Representative Kerr thanked Mr. Greenberg for his presentation.
Senator Roeding addressed the committee about the possibility of an economic development tourism attraction, the Hofbrauhaus, locating in Northern Kentucky. He commented that a letter from the Tourism Cabinet stated that the Hofbrauhaus did not meet the qualifications of the Tourism Development Act, therefore he proposed to write a bill that would enlarge the use of the Act so Kentucky could entertain more economic development opportunities. Senator Roeding asked members of the committee to look at such a bill favorably.
With no further business, the meeting adjourned at 2:47 p.m.