Call to Order and Roll Call
The 6th meeting of the Interim Joint Committee on Economic Development and Tourism was held on Thursday, November 17, 2011, at 1:00 PM, in Room 154 of the Capitol Annex. Representative Leslie Combs, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Alice Forgy Kerr, Co-Chair; Representative Leslie Combs, Co-Chair; Senators Jared Carpenter, Julian M. Carroll, Julie Denton, Denise Harper Angel, Ernie Harris, Jerry P. Rhoads, Katie Kratz Stine, and Jack Westwood; Representatives Julie Raque Adams, Royce W. Adams, Linda Belcher, Will Coursey, Jim DeCesare, Mike Denham, Myron Dossett, Ted Edmonds, Jim Gooch Jr., Keith Hall, Mike Harmon, Melvin B. Henley, Dennis Horlander, Wade Hurt, Dennis Keene, Thomas Kerr, Kim King, Adam Koenig, Donna Mayfield, Tom McKee, Terry Mills, Fred Nesler, David Osborne, Ruth Ann Palumbo, John Short, Fitz Steele, Wilson Stone, Addia Wuchner, and Jill York.
Guests: Larry Kranking, President and Chief Executive Officer, Coldstream Laboratories, Inc.; Gene Fuqua, Executive Director, Office of Commercialization and Innovation, Kentucky Cabinet for Economic Development; Barry Alberts, Interim Director, Muhammad Ali Center; Eric Gregory, President, Kentucky Distillers’ Association; and Mike Kuntz, Founder and Coordinator, Bourbon Chase Relay.
LRC Staff: John Buckner, Louis DiBiase, Karen Armstrong-Cummings, and Dawn Johnson.
Approval of Minutes
A motion and second by Representatives Hall and Keene to approve the minutes of the October 20, 2011, meeting passed by voice vote.
Biotech Firms, Attraction and Retention
Larry Kranking, president of Aveta Lifesciences and Coldstream Laboratories, gave a presentation that centered upon how site selection firms see Kentucky in comparison to other states, and what Kentucky should do to increase its ability to attract high-tech businesses. He began by stating that Site Selection magazine, in its November 2011 issue, ranked Kentucky 19th in the nation in terms of "business climate," with Texas being ranked 1st, Tennessee 8th, and Ohio 9th; in a survey of business executives, Kentucky was ranked 31st. He said that because Kentucky has so much to offer in terms of location, labor availability, and other factors, the marketing of the state to business must be called into question.
Mr. Kranking said that if information cannot be found on the internet, then it figuratively does not exist. Because so many states and localities are competing to recruit businesses, time constraints serve to place emphasis upon information being readily and easily accessible to business leaders. Therefore the state should make every effort to have needed information on every database possible.
The state should make every effort to seek foreign direct investment. 18 percent of new business facilities are foreign owned, with foreign direct investments worth over $1.7 trillion, resulting in the creation of 5 million jobs. Business sites should be "shovel ready" and business parks should be certified.
In regard to skilled labor, Deloitte's Manufacturing Institute survey found that there is a 600,000 person deficit of available skilled labor, with the number increasing in the next three years. A Tower and Watson survey found that 60 percent of US companies have problems attracting critical skilled employees. As a result, business location decisions are often based upon the availability of skilled labor.
A strong alliance between Kentucky's universities and the business community is critical to fostering high-tech firms. Research being conducted at the University of Kentucky and the University of Louisville gives Kentucky a world-class standing and attracts the best talent from around the globe, but recent budget cuts in higher education are causes for concern. He asked the question, "Stanford, Duke, UNC-Chapel Hill and North Carolina State are technology transfer powerhouses, but can Kentucky be a powerhouse?"
Mr. Kranking emphasized the need for Kentucky to "tell its story" in terms of what assets and attributes it can offer to businesses. He said that the quality of the region, low manufacturing costs, and a good business and work environment need to be emphasized. He praised the Cabinet for Economic Development for the variety of financial and incentive programs designed to assist small business owners, and he said that the Kentucky matches in both phases of the federal Small Business Innovation Research (SBIR) and Small Business Technology Transfer programs were working effectively in the state.
The availability of capital is a key for small business development. He said that banks are increasingly reluctant to provide lending to small businesses, and that angel investors are needed to help with start-up businesses. The state should consider ways to help small businesses secure lending.
In response to a question from Representative Keene about a declining number of international air connections in Kentucky, Mr. Kranking said that while it does have some impact on business location decisions, of equal importance is maintaining an adequate number of flights to major airline hubs such as Chicago and Atlanta.
Representatives Adams and DeCesare urged Mr. Kranking to visit and consider the research and development efforts at other universities throughout the state; particularly the National Institutes of Health grant awards at the University of Louisville and Western Kentucky University's efforts in applied research and development, respectively.
Gene Fuqua, Executive Director, Office of Commercialization and Innovation, Cabinet for Economic Development, addressed the committee about the cabinet's efforts to recruit and develop high-tech firms and to assist start-up companies. He noted that the entrepreneurial activity growth rate in Kentucky was the third fastest nationally in 2008-2010, and the fifth fastest nationally over the past decade. Kentucky has recently been the host to several major national conferences such as the MidAmerica Healthcare Venture Forum and the 2012 National Institutes of Health SBIR-STTR Conference, and these conferences are important to showcase Kentucky's resources and to lure business to the state. Kentucky has labored to develop its high tech infrastructure, with examples including numerous centers such as the Eastern Kentucky University Business and Technology Center, MetaCyte, LLC, Murray State University Innovation and Commercialization Center, and the University of Louisville Cardiovascular Innovation Institute, to name but a few, that are located throughout the state.
Startup business plays a critical role in job creation. He noted that virtually all net new jobs have been created by startup companies since 1977. The cabinet employs both incentive-based strategies and other funding mechanisms to assist startup businesses, and since 2006, the SBIR matching program has resulted in 12 high-tech firms locating in Kentucky. Kentucky lacks in sufficient venture capital, however, ranking 42nd in 2010, and efforts are underway to increase the availability of seed capital.
The Cabinet for Economic Development is making numerous and varied efforts to develop and assist entrepreneurial activity in the Commonwealth. The high-tech pool has 48 active companies, with over $15 million awarded, resulting in a projected 960 high-tech jobs having an average annual salary of over $66,000. These awarded have gone to 19 counties throughout the state. The Kentucky New Energy Ventures Fund has awarded $3.19 million to 28 Kentucky companies involved in renewable and alternative energy, with 18 of the awards going to firms located in rural counties. The Cabinet has sponsored a competition in business plans to develop entrepreneurial talent at public universities. Last April, an all-time high of 20 student teams from all 8 public universities competed, with some going on to national and international competitions. One team, TNG Pharmaceuticals and the University of Louisville, won over $800,000 in 2011 after winning the Rice University Business Plan Competition and the Global Championship at the Venture Labs Investment Competition.
The Muhammad Ali Center
Barry Alberts, Interim Director, and Jeanie Kahnke, Vice President of Public Affairs and Communications, Muhammad Ali Center, gave a presentation about the Ali Center, its mission and goals. The center was built to preserve and share the legacy and ideals of Muhammad Ali, and in that sense it is more than a history museum for Ali's boxing career. The center encourages visitors to come away from their experience knowing more about themselves and what they can do to positively impact their communities by seeing how Muhammad Ali was able to change lives through his efforts.
The center was built through a $10 million contribution by the state, $48 million in private donations, 50 percent of which was from out-of-state donors, and a $22 million in-kind funding by the city of Louisville. The center has 93,000 square feet, a 3-floor state-of-the-art exhibit hall, galleries, classrooms, an auditorium, a library, and a retail store. It has received over a half million visitors, 50 percent of whom are from out of state, and the center hosts over 300 events annually. The center has also won numerous awards, including the "Best Museum Environment, 2006" award, and the "Best New Attraction in North America, 2006" award.
In response to a question from Representative Stone, Mr. Alberts explained that the center cannot support itself from revenues earned by admissions, rentals, and sales, and that as with most non-profit museums, it relies on outside funding.
Kentucky Bourbon Trail
Eric Gregory, President, Kentucky Distillers Association, discussed the background of the Kentucky Distillers Association and the impact of bourbon production in Kentucky. Kentucky produces 95 percent of the world's bourbon, and in response to rapidly escalating demand, production has increased by more than 50 percent since 1999. Driving market demand is premium, small batch bourbon. Currently there are more than 5 million barrels of bourbon aging in warehouses in Kentucky, which is the biggest total inventory since 1982. The 2011 tax assessed value is $1.5 billion.
Bourbon production in Kentucky is directly responsible for 3,200 jobs having an annual payroll of $244 million. The distilling industry has a high job multiplier (3.29), which ranks 4th among the 244 manufacturing industries in the Commonwealth. This means that bourbon production is responsible for a total economic impact of 10,000 jobs having an annual payroll of $442 million. Additionally, $125 million annually is generated in state and local taxes. There are seven different taxes on every bottle of bourbon produced in Kentucky, and nearly 60 percent of every bottle of spirits goes to taxes. Kentucky bourbon is exported to 126 countries, with England, Germany, Australia, Japan, France, and Spain being top importers of the product.
Bourbon tourism is growing rapidly in Kentucky. Maker's Mark spent $54 million to enhance its visitors' experience, increase distillation capacity, and supplement its warehouse. Wild Turkey spent $50 million to double distilling capacity, and Jim Beam spent $28 million to increase bottling, which resulted in 120 new jobs. Four Roses recently completed a $2 million office building and expansion of its visitors' center and gift shop.
Kentucky's Bourbon Trail, which was created in 1999 and modeled after wine country tours in California and whisky trails in Scotland, has had visitors from all 50 states and 52 countries. It has received nearly 2 million visits in the last 5 years, and over 9,000 visitors have completed the "passport" tour of all participating distilleries. The demographics of Bourbon Trail tourists show that 50 percent have annual household incomes greater than $80,000, 61 percent are 21-54 years old, and 85 percent come from out of state. Fifty-one percent stayed three or more days, and 70 percent stayed in a hotel or bed and breakfast.
Mike Kuntz testified about the Bourbon Chase Relay along the Bourbon Trail. It was the third year for the event, and it has sold out each time. The relay is a 200 mile race that links all distilleries along the Bourbon Trail, starting at Clermont and ending in Lexington, and teams of 12 runners literally race through the night. Over 1,000 volunteers staffed the race. There were 262 teams from 44 states and 3 countries, and over $140,000 was raised this year to benefit local charities. The 2012 race is September 28-29, with registration opening January 2. The race is so popular that it is expected to sell out within days.
There being no further business, the meeting adjourned at 3:00 PM.