The 2nd meeting of the Interim Joint Committee on Economic Development and Tourism was held on Thursday, September 18, 2003, at 1:00 PM, in Room 149 of the Capitol Annex. Senator Katie Stine, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Katie Stine, Co-Chair; Representative Thomas Kerr, Co-Chair; Senators David Boswell, Julie Denton, Brett Guthrie, Vernie McGaha, Daniel Mongiardo, Joey Pendleton, Jerry Rhoads, and Damon Thayer; Representatives Eddie Ballard, Carolyn Belcher, Kevin Bratcher, Buddy Buckingham, Perry Clark, Howard Cornett, Tim Couch, Ted "Teddy" Edmonds, C.B. Embry Jr, Bill Farmer, Mike Harmon, Mary Harper, Dennis Horlander, Stan Lee, Brad Montell, Dottie Sims, Ancel Smith, Tommy Thompson, Charles Walton, and Mike Weaver.
Guests: Secretary Gene Strong and Gene Fuqua, Cabinet for Economic Development (CED); Danny Fore and Dan Tobergte, Tri-County Economic Development Corporation (TRI-ED).
LRC Staff: John Buckner, Committee Staff Administrator; Laura Taylor, Committee Analyst; and Cecilia Perry, Committee Assistant.
Senator Stine welcomed all of the members to the meeting. With a quorum present, motion was made, seconded and passed to approve the minutes of the last meeting. Chairman Stine then introduced Secretary Gene Strong, Cabinet for Economic Development (CED).
Secretary Strong gave a progress report on the Economic Development Incentive Programs ranging from 1992 to present. Secretary Strong provided handouts to the members for his presentation which entailed some program statistics. He reported on how the incentive programs are impacting opportunities to grow businesses in Kentucky and also for new opportunities, in general, for businesses in Kentucky. Secretary Strong said that he thought the incentive programs have been effective and that they have allowed Kentucky to compete for business around the world. He reported major accomplishments of the past year and explained why certain projects have been lost or unsuccessful which were primarily related to the labor force or location disadvantages. He discussed the issues of unemployment in Kentucky and stated that the 90’s have been good to the state particularly from 1994 to date.
Representative Lee asked why companies were not taking advantage of the tax credit provided through incentive program agreements. Secretary Strong said that the reason most companies are not taking advantage of the tax credits provided is because they are not making the profit that they had anticipated.
Representative Lee asked how many companies were still around and operating that had taken advantage of the programs. Secretary Strong indicated that most of the companies were still active. He said that there were only 683 companies that have taken advantage of the programs. He reported that many of the programs were 10-year programs but one was a 15-year program. He said that many of the companies are comfortable with the programs and that the real benefit was the wage component of the programs. Additionally, he stated that the tax credits reported through June 6, 2003 were calculated in two ways: corporate tax credits or the job development assessment fee on employees. Secretary Strong stressed that the corporate income tax side was not a major portion of the revenue base in Kentucky.
Representative Buckingham asked if there were figures indicating how many manufacturing jobs have been lost over the last ten years. Secretary Strong estimated that three to six thousand jobs of this kind are lost every year since 1992.
Secretary Strong spoke on the Kentucky Economic Development Finance Authority (KEDFA) program because it has been the primary program until the new initiatives of the Office for the New Economy. He said KEDFA is operated as a low- interest loan portfolio. KEDFA is a fixed asset lender and they have a loss ratio of less than 2%. He touched on the bond programs, which are the real cash programs, and said that 73 bond projects have been completed in the last 11 years. He added that credit programs have been more popular than cash programs.
Representative Cornett asked why the mountain region is ranked lower when the region has more counties involved than other regions. Secretary Strong said that the ranking is directly related to the number of projects that have located or expanded in the region.
Representative Cornett asked about the steps taken by the Cabinet when approached by a company interested in coming to Kentucky. Secretary Strong said that their website is a great tool to use when researching what Kentucky has to offer. He state that while a lot of communication is long distance, if a company has certain criteria and is looking for specific sites, the CED’s policy is to show sites in every area of the state so the company can have a variety of choices. The Cabinet encourages the company to do site visits and when both feel they may have found an appropriate site, the local economic development agency is contacted and made aware of the potential client. The needs or demands of the company are reviewed. When a company narrows down the areas of interest, an incentive package is put together depending on what is applicable in specific areas.
Representative Cornett asked if someone from the Cabinet accompanies the potential business to the site. Secretary Strong confirmed that there was always someone from the Cabinet at the site because a project manager is assigned to each project.
Representative Sims asked if anyone has shown any interest in the land purchased by the state that is located in Glendale. Secretary Strong said that the Cabinet was constantly marketing that particular property in both the U.S. and also in international markets. When the state purchased that property, it was understood that it was a long- term proposition. He said for the property to be sold, the Kentucky General Assembly would have to approve the transaction.
Representative Weaver asked about the bid with the Hyundai plant and why they decided to build in Alabama instead of Kentucky. Secretary Strong said that the bid was very large and with bids of that particular size, Kentucky likes to protect its investments and does so by making performance based bids. The Cabinet asked the company to guarantee at least 1,800 jobs out of the 2,000 proposed initially. In the event that the company could not meet the performance objectives on a three year basis, the company would be required to pay Kentucky a pro-rata for not meeting the performance standards. Alabama did not have provisions or clawbacks in their bid to protect their investment.
Chairman Kerr thanked Secretary Strong and other members of the Cabinet for their presentation, then he introduced Danny Fore, President, and Dan Tobergte, Executive Vice President, from the Tri-County Economic Development Corporation (TRI-ED) out of the Northern Kentucky area.
Mr. Fore thanked the members for the opportunity to present. He stated that their experience in Northern Kentucky with the Commonwealth of Kentucky’s programs have been favorably inclined. The Northern Kentucky area has been successful in using the programs offered by the Cabinet and that they are essential in the role of economic development.
He supported Kentucky’s methods of performance-based incentives. He gave some brief background information on TRI-ED and discussed advanced manufacturing opportunities relating to incentive programs. He spoke on KIDA and KIJDA limiting the possibilities of attracting advanced manufacturing opportunities and asked if the committee would review and evaluate these programs to eliminate certain restrictions. He also asked the committee if they would consider additional bond grant funds to allow businesses to be more competitive.
Senator McGaha asked Mr. Tobergte if TRI-ED worked with programs offered through KCTCS. Mr. Tobergte said that they have worked with KCTCS and that their programs have been very helpful. Some companies are reluctant to use certain programs because they have other training venues which is where the Bluegrass States Skill Program tends to be more popular.
Senator Thayer thanked the members from TRI-ED for their presentation. Senator Thayer stated that Ohio uses their Tobacco Settlement dollars for direct grants because of their fewer tobacco farming initiatives. Kentucky is obligated to spend their tobacco settlement dollars on healthcare and tobacco impact counties.
Chairman Kerr thanked the presenters for their comments. The motion was made and seconded for adjournment. The Interim Joint Committee on Economic Development and Tourism adjourned at 2:41 p.m.