The 2nd meeting of the Interim Joint Committee on Economic Development and Tourism was held on Thursday, September 17, 2009, at 1:00 PM, in Room 154 of the Capitol Annex. Representative Eddie Ballard, Co-Chair, called the meeting to order and the secretary called the roll.
Present were:
Members: Senator Alice Forgy Kerr, Co-Chair; Representative Eddie Ballard, Co-Chair; Senators, Julie Denton, Ray S. Jones II, Katie Kratz Stine, and Jack Westwood; Representatives Linda Belcher, Kevin D. Bratcher, John "Bam" Carney, Leslie Combs, Will Coursey, Mike Denham, Myron Dossett, Ted Edmonds, Kelly Flood, Jim Gooch Jr., Keith Hall, Mike Harmon, Melvin B. Henley, Joni L. Jenkins, Thomas Kerr, Martha Jane King, Adam Koenig, Tom McKee, Tim Moore, David Osborne, Ruth Ann Palumbo, Don Pasley, Dottie Sims, Ancel Smith, Fitz Steele, Ron Weston, and Addia Wuchner.
Guests: Larry Hayes, Secretary and Holland Spade, Executive Director, Office of Legal Services, Kentucky Cabinet for Economic Development; Barry McNees, Developer, Lexington Distillery District Project; Eric Gregory, President, Kentucky Distillers’ Association; and Cheryl Hatcher, Chief Sales and Marketing Officer, Department of Travel and Tourism, Kentucky Tourism, Arts and Heritage Cabinet.
LRC Staff: John Buckner, Committee Staff Administrator; Karen Armstrong-Cummings; Louis DiBiase; Dawn Johnson.
A motion by Representative Pasley and seconded by Representative Smith to approve the minutes of the July 30 and 31, 2009, meeting passed by voice vote.
Secretary Larry Hayes and Holland Spade of the Kentucky Economic Development Cabinet discussed Kentucky’s economic development strategy and the provisions of House Bill 3 passed during the 2009 Special Session. Ms. Spade gave an overview of the new cabinet programs created by HB 3: the amended Kentucky Reinvestment Act (KRA), the Kentucky Business Investment (KBI) Program, the amended Kentucky Enterprise Initiative Act, the Tax Increment Financing (TIF) Loan Support Program, and the Railroad Access Funds. Ms. Spade said immediately following the special session the cabinet filed an emergency regulation as well as a standard regulation that included application guidelines for the KBI and the KRA. She noted that fact sheets and a comparison chart of the different programs are available on the cabinet’s webpage.
Ms. Spade said that with the new economic development tools in place, informational meetings are being held throughout the state by regional agency representatives with existing businesses as well as others who are involved in bringing new projects to the state.
Ms. Spade said that eleven new KBI projects and one KRA project have received preliminary approval from the Kentucky Economic Development Finance Authority (KEDFA) Board, and there are also several potential KRA projects in progress.
She said, the Emergency Small Business Jobs Stimulus Act is not applicable until tax year 2012; however, a company would use 2010 as its base year and would need to create and maintain at least one new job for an entire year and purchase equipment in 2011. Therefore, the cabinet is now marketing the program and drafting administrative regulations. Cabinet representatives are meetings with stakeholders for informational purposes and to determine the best implementation methods.
Referring to the TIF Loan Support program, Ms. Spade explained that it is not a loan program. She said the program creates a supplementary reserve account to help sell bonds related to a particular TIF project. The program is only applicable to five signature projects. All projects involve the sale of bonds and the tax increment is used to repay debt service on those bonds. The program was created to help make those bonds more marketable by creating an additional supplemental reserve for payment of the debt service. She noted that the Cabinet is currently working with other agencies on an implementation method for the program.
Ms. Spade said another feature of HB 3 was the railroad access program. While highway construction contingency funds have been available through the Transportation Cabinet for awhile, the new program makes some railroad crossings and spurs eligible for those funds. The project must be related to specific economic development projects consistent with current road use. The Economic Development Cabinet is now working with the Transportation Cabinet to formalize the request process. Funds will not be available until July 2010.
Representative Moore questioned whether TIF projects were living up to expectations. Secretary Hayes responded that the TIF projects are relatively new and performance studies might be premature but the cabinet will look into it. Representative Moore said he was interested in the impact of HB 3 thus far. Secretary Hayes said there has been much interest in the HB 3 programs.
Secretary Hayes noted the success of Toyota Motor Manufacturing and the state’s ability to invest in existing businesses such as Ford Motor Company. He said with the current state of the economy, the programs created in HB 3 will allow the state to be more opportunistic. He noted that cabinet representatives worked with General Electric Company while in competition with Indiana to create 300 new jobs in Louisville’s Appliance Park.
Secretary Hayes also noted that the film tax credits provided for in HB 3 contributed to increasing filming in Kentucky of the movie “Secretariat” by three weeks.
Secretary Hayes said the Cabinet is restructuring and has already cut staff from 126 to 96 employees by streamlining the agency functions. The Secretary said he intended to keep an open line of communication with the legislature on the Cabinet’s progress.
Responding to Senator Kerr’s questions, Ms. Spade listed the five TIF-eligible signature projects: the Western Kentucky University project, Museum Plaza in Louisville, Ovation in Newport, the Center City project, and Nucleus in Louisville.
Responding to Representative Hall’s question, Ms. Spade explained that under KBI, the timeframe for project approval varies based on how quickly the company’s application progresses.
Responding to Representative McKee’s question, Ms. Spade said that under HB 3 a small business is defined as having 15 employees or less.
Referring to the downturn in the economy, Representative Denham asked in what area would newly-created jobs be developed. Secretary Hayes said jobs would come from businesses that are currently in Kentucky, such as the automotive industry, which includes its supplier base, existing manufacturers, and recruitment projects.
Next, Barry McNees, Developer of the Lexington Distillery Project gave an overview of the history of the area and the master plan for its revitalization. One of two Lexington TIF projects currently being considered by KEDFA, it represents the first TIF application for mixed-use development of a blighted area. The area has experienced population decline, has a greater than fifty percent poverty rate, and has lost most of its commercial base. The 300,000 surviving square feet of the original distilleries has been placed on the National Register of Historic Places. He noted that the local community is in full support of the project. The project received preliminary approval in February 2009 and secondary approval will be considered at the next KEDFA board meeting.
Mr. McNees said he is working with the Kentucky Heritage Council on receiving historic tax credits. Because this is a blighted area, he has also been working with Community Venture Corporation on new markets tax credits. Mr. McNees cited some of district’s success stories, which include Buster’s, Lexington’s largest non-arena live music venue that has 40 full and part-time employees; Lexington’s first downtown doggie-daycare center for active professionals, which employs 2 full-time and 6 part-time employees; a theatre props and scenery manufacturing business employing 8 full-time and 67 part-time/seasonal employees; as well as business space for four local artists. He noted that thus far this has been accomplished without any infrastructure investment. Mr. McNees said one area of concern is an item built into the legislation that requires an independent consultant’s report. He recommended that the analysis be done before receiving preliminary approval rather than afterwards. Mr. McNees said the distillery project currently does not qualify for state’s revolving fund which would be beneficial to this type project.
Mr. McNees said this type of project draws progressive individuals and businesses. Four years in the making, the project is meant to provide interest in the Lexington community and be a springboard for other economic activity. He said the last remaining building of the Tarr Distillery and the James E. Pepper Distillery buildings are unique industrial architecture and merit preservation.
Representative Palumbo said this type project--the incorporation of art, history, residential areas and entertainment in blighted areas --was the idea behind the original TIF legislation.
Representative Edmonds said this is an ideal TIF project with unlimited potential that he supports.
Eric Gregory, President of the Kentucky Distillers’ Association (KDA), and Cheryl Hatcher, Chief Sales and Marketing Officer, Department of Travel and Tourism, Kentucky Arts and Heritage Cabinet, provided an update on the Kentucky Bourbon Trail. Mr. Gregory gave a brief history of Kentucky bourbon and the KDA. He said high-end bourbons (small batch, single barrel bourbons) are driving the recent bourbon revolution. Bourbon is a signature industry in Kentucky that supports 3,200 direct jobs with a payroll of $244 million. Spin-off jobs include barrel production, bottling, grain suppliers, hospitality industry jobs, trucking, and more. He said the total economic impact was 9,848 jobs with an annual payroll of $442 million. The bourbon industry contributes $124 million in taxes annually. Every bottle of spirits produced in Kentucky and sold contributes to seven different taxes: the ad valorem, the aging barrel tax, local and state taxes, the case tax, the state exise tax, the federal excise tax, the state wholesale tax and the state sales tax. This is nearly 60 percent of the price of every bottle of spirits sold. Bourbon is one of the United State’s leading exports. Total exports for 2008 were $1.1 billion.
Mr. Gregory said several distilleries are expanding to meet increasing tourism needs. Projects include $7 million in renovations and upgrades at Jim Beam Distilleries, expansion of the visitors’ experience at Claremont, $36 million to increase distilling operations at Wild Turkey, $4 million expansion of the Burnheim Distillery at Heaven Hill, and the addition of a new $3 million visitor’s experience and gourmet sandwich shop at Maker’s Mark.
Mr. Gregory said he supports the Lexington Distillery District Project as well.
In 1999, the KDA formed the Kentucky Bourbon Trail based on tourism efforts in California’s wine country and Scotland’s Whiskey Trails. Mr. Gregory said there are eight participating distilleries. The most recent to join was Tom Moore Distillery in Bardstown, October 2008. Other KDA members are Buffalo Trace, Four Roses, Heaven Hill, Jim Beam, Maker’s Mark, Wild Turkey, and Woodford Reserve. He noted that visitors responded well to the centralized location of the trail making it easy to complete in a long weekend. More than 1.5 million people from the United States and 25 countries have visited the trail in the last five years--350,000 last year alone. Mr. Gregory pointed out that participation in the bourbon trail has never decreased.
Mr. Gregory said the trail celebrated its 10-year anniversary May 2009 and issued a new logo and brochure. Particularly successful is the passport program which was launched August 2007 and was revamped June 2009. In the past two years, more than 2,500 visitors have completed the bourbon trail. He noted that visitor feedback has been overwhelmingly positive. Recently, there have been feature stories in the Washington Post, Los Angeles Times, Southern Living, New York Times, U.S.A. Today, Delta Sky, Associated Press and Conde Naste’s Traveler. The September 2009 issue of Southern Living featured a six-page article on the bourbon trail. Also in their September 2009 issue, Conde Naste Traveler magazine named the Bourbon Trail one of the top 50 worldwide drives of a lifetime.
Cheryl Hatcher added that in the last two months, 1,000 bourbon trail passports have been turned in. She said the local, regional and national press coverage has helped the trail’s popularity. The United Kingdom office reports that bourbon and the bourbon trail is the main reason the UK press write stories on Kentucky.
Ms. Hatcher said many partnerships are forming with community tourism organizations. Some projects include Lexington’s “Bourbons in the Bluegrass” campaign, “Wine and Spirits Tour” in Franklin, Woodford and Anderson County, Bardstown’s new promotion, “Sample Our Spirit” and Louisville’s “Urban Bourbon Trail” featuring historical landmarks and bars. Ms. Hatcher said along with the Department of Travel and Tourism, many restaurants, tour companies, specialty shops, and Kentucky publications are successfully marketing Kentucky’s bourbon and the Bourbon Trail. She said October 2009 marks the inaugural “Bourbon Chase,” a 3,000 runner relay race beginning in Bardstown and ending in Lexington.
Ms. Hatcher noted that “the Kentucky Experience” at the 2010 World Equestrian Games will be held in a 25,000 square foot facility that will feature bourbon distillers and allow for purchasing of “flights” of Kentucky bourbon, wine and ale.
Mr. Gregory noted that the Legislative Research Commission created a Bourbon Trail Caucus, which has over 50 members. He said the KDA will seek assistance in promoting the Bourbon Trail and will probably reintroduce the 2008 regular session “Tasting Law” designed to modernize Kentucky’s bourbon tasting laws to allow for more marketing. The KDA will also promote streamlining the tax structure and reducing the tax burden on the bourbon industry. He noted that the KDA also supports local option elections for alcohol in state parks. He said all members of the KDA support promoting responsible consumption and share an increased commitment to fight underage drinking and drunken driving.
Mr. Gregory said only Kentucky has a bourbon trail. It is a unique bourbon experience featuring bourbon history, tours, tasting and more. He said increased tourism means more visitors and more jobs and revenue for local communities and the state and will keep Kentucky competitive in the global economy.
Chairman Ballard asked if other distilleries may join the KDA in the future. Mr. Gregory said the Medley Distillery in Owensboro is investing approximately $25 million in renovating its facility. The KDA is working with the distillery in possibly joining the trail in the future. He also noted that Dr. Pierce Lyons with Alltech is creating single malt bourbon and the KDA is discussing his possible addition to the trail in the future.
Representative Flood asked if exported bottles of bourbon were also taxed at 60 percent. Mr. Gregory said he did not have the exact number but said he did not think so. He will follow up with the information.
Representative Wuchner noted that several producers from California will be making a short documentary on cooking with bourbon. Mr. Gregory added that cooking with bourbon has increased in popularity.
Representative Denham asked if membership in the bourbon trail lead to certain types of grants. Mr. Gregory replied no but there are matching funds from the Tourism, Arts and Heritage Cabinet through the KDA by promoting the Kentucky Bourbon Trail. Responding to Representative Denham’s question, Mr. Gregory said Maysville is not part of the Bourbon Trail but visitors have expressed interest in seeing historical sites while participating in the tour. He said his agency is about to launch a website that will feature historical markers and other bourbon related places of interest for visitors. He said Maysville has a unique bourbon shipping past that could be featured. Representative Denham asked about the qualifications for joining the Bourbon Trail. Mr. Gregory said it is only open to distilleries but the membership standards committee is looking at ways to involve local convention and visitors’ bureaus and other entities to be “friends of the bourbon trail” or “associate members” of the bourbon trail. The Bourbon Trail is a registered trademark of the KDA.
There being no further business, the meeting adjourned at 3:10 PM.