Call to Order and Roll Call
The 2nd meeting of the Interim Joint Committee on Economic Development and Tourism was held on Thursday, July 17, 2014, at 10:00 AM EDT, at Lure Lodge, Lake Cumberland State Resort Park, Jamestown, Kentucky. The meeting was a joint meeting with the Interim Joint Committee on Labor and Industry. Senator Alice Forgy Kerr, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Alice Forgy Kerr, Co-Chair; Representative Keith Hall, Co-Chair; Senators Perry B. Clark, Chris Girdler, Denise Harper Angel, Ernie Harris, Jimmy Higdon, Dennis Parrett, and Mike Wilson; Representatives Lynn Bechler, Kevin D. Bratcher, Larry Clark, Jeffery Donohue, C.B. Embry Jr., Jim Gooch Jr., Mike Harmon, Richard Heath, James Kay, Dennis Keene, Kim King, Martha Jane King, Brian Linder, Tom McKee, Terry Mills, Ruth Ann Palumbo, John Short, Arnold Simpson, John Will Stacy, Fitz Steele, Wilson Stone, and Russell Webber.
Guests: Stephen Eastin, Park Manager, Lake Cumberland State Resort Park; Bill Jasper, President, Kentucky Marina Association; Jerry Harden, President, Stardust Cruisers; Bob Stewart, Cabinet Secretary and Elaine Walker, Commissioner, Department of Parks, Kentucky Tourism, Arts and Heritage Cabinet; and Carolyn Mounce, Executive Director, Somerset-Pulaski Convention and Visitors Bureau.
LRC Staff: John Buckner, CSA, and Dawn Johnson.
Approval of Minutes
A motion by Representative Harmon and second by Representative McKee to approve the minutes of the June 19 meeting carried by voice vote.
Importance of Houseboating and Water Sports to Kentucky’s Tourism Industry
Senator Girdler thanked committee members for passing legislation designating Kentucky as “The Houseboat Capitol of the World.” The first houseboat was built in Somerset in 1953. Lake Cumberland is one of the state’s most important economic engines, as important to the region as Toyota Motor Manufacturing to central Kentucky. It receives more visitors than the Grand Canyon and Yellowstone National Park.
Stephen Eastin, Park Manager of Lake Cumberland State Resort Park, welcomed members to the park. He explained that due to recent flooding the park has experienced significant renovation in areas, and he commended the staff for their success repairing and renovating the park so quickly.
Secretary Bob Stewart, Kentucky Tourism, Arts and Heritage Cabinet, said the staff at Lake Cumberland State Resort Park and several other state parks recently experienced various weather-related problems including flooding and burst pipes. He noted their professionalism and hard work in dealing with a multitude of issues.
Secretary Stewart explained that regional and statewide tourism is an economic engine for Kentucky. In 2013, visitors spent $12.5 billion in Kentucky, supporting over 175,000 jobs and resulting in nearly $3 billion in payroll and $1.3 billion in tax revenue, with $168.7 million in local taxes and well over $1 billion in state taxes. Also in 2013, the southern Kentucky Lakes and Rivers Region generated $300 million in visitor spending, primarily due to Lake Cumberland.
State advertising primarily focuses on Kentucky’s water and natural resources when developing advertising materials. Some out-of-state markets include Cincinnati, Chicago, Charlotte, Nashville, and Birmingham. Traditionally, the primary markets were north of Kentucky, but new trends indicate southern visitors coming to the state in increasing numbers. This year the state parks system is celebrating its 90th anniversary, which many parks are integrating and promoting in their activities. Kentucky has more shoreline than Florida and more fresh-running water than any state except possibly Alaska. Secretary Stewart said the cabinet has modestly relaunched international marketing efforts. During a recent trade mission to the United Kingdom, holiday Virgin Airlines promoters were interested in houseboating as an activity that would appeal to their clientele. Houseboating is a great marketing piece for the state.
Commissioner Elaine Walker, Department of Parks, said that Kentucky is the only state to have 17 resort parks. The parks system has faced some challenges, such as a 23 percent reduction in full-time staff and a delay in needed improvements. Parks employees have performed excellently when faced with challenges. Commissioner Walker thanked the committee for appropriating more funds for the parks system. The cabinet will be good stewards of the additional funds. Investments are being made in critical infrastructure needs, such as mattresses, televisions, and Wi-Fi to provide internet access at the parks.
Senator Girdler recognized Representative Larry Clark for his oversight of local option legislation during the 2014 legislative session that will help Kentucky’s state parks compete with other resort areas. Kentucky’s marketing budget is $3 million annually, compared to nearby areas like Gatlinburg which allocates $3.5 million per year and Pigeon Forge’s $8.5 million marketing budget. Tennessee’s statewide promotional budget is $14 million.
Bill Jasper, President of the Kentucky Marina Association, said he operates State Dock, which has a fleet of 90 rentals of which 60 are houseboats. It is the largest fleet of houseboats in one location in the United States, with approximately $4 million in houseboat rentals yearly. There are three issues affecting the tourism marina industry--the first, taxation on documented boats. Until two years ago, this tax was largely unenforced. Counties had the option to waive the 1.5 cent per $100 tax. With the economic downturn, school boards decided to levy a tax. In 2010, the tax rate in Pulaski County was eight cents per $100; in 2014, it is 66 cents per $100. There are disparities among counties, however most counties are increasing their tax rates. The result has been empty boat slips at marinas. Neither Tennessee nor Florida has a property tax, and Indiana and Ohio’s rates are low. After Florida went from a high to low property tax, its boating industry has flourished. A different tax structure would be more beneficial—taxing the purchase of used boats, for example. Registration fees and personal property taxes are very low in many other states. Some taxing authorities retroactively assessed taxes and penalties five years back.
Mr. Jasper said that boat owners faced taxation without representation by being taxed for schools, libraries, and services they are unable to use. While boaters cannot live on a Corp of Engineers-maintained lake, they are taxed as residents even though they are from out-of-state. Marinas on the Tennessee side of Dale Hollow Lake are full while Kentucky marinas are not. To help resolve this problem, the Kentucky Marina Association asked that a task force be developed to address the tax issue. Based on a study by the University of Michigan, one boat, not including rentals, contributes $21,310 to the local economy.
Mr. Jasper said another important issue affecting the marina business and tourism is the school year. The school calendar has changed such that many school years begin the first week of August and end the first half of May. The summer season does not begin until June and extends through August. Business is lost because the family vacation season is cut short. Because older children must return to school during the summer season, businesses cannot hire school-aged teens. In 2013, houseboat vacations dropped from 316 in July to 184 in August—a decline of 42 percent. Ohio only saw a 5 percent decline. Somerset closed its water park due to a lack of summertime employees.
Mr. Jasper expressed concern about proposed legislation that would require marinas to make costly repairs to replace much of their equipment to address electrical shock hazards in marinas. He said there are other ways to address safety issues. A majority of the problem is with older boats that are not properly wired.
Responding to Representative Steele’s question, Mr. Jasper said boats documented with the Coast Guard pay a tangible property tax while those registered with Kentucky pay the state tax. Companies pay personal property tax at the regular rate on all business property. He said boats in his marina are 60 percent documented and 40 percent registered.
Jerry Hardin, President of Stardust Cruisers, gave an overview of the houseboat company located in Monticello. Stardust cruisers have been shipped worldwide. There is a misunderstanding about average houseboaters. They are average middle class working households that use houseboating as their getaway. The dramatic increase in personal property tax has had a big impact on boat owners. The recession has been hard on the leisure business. Input costs in boat construction have increased dramatically. The $250,000 houseboat is almost impossible to build today with the increased costs. Companies also have trouble attracting and retaining skilled labor. It is very difficult to find qualified, drug-free employees. His company has been working with Somerset Community College to create a manufacturing training program. Kentucky’s sales and personal property taxes affect new boat sales, making new ownership unaffordable for most families.
In 2006, there were 10 boat manufacturers with over 1,000 employees in Kentucky. This year there are two with approximately 150 employees. The two companies are joining forces to better manage costs. In 2006, 60 to 75 percent of houseboats produced stayed in Kentucky. The average price was about $290,000. Today, the average price is approximately $425,000 due to input and commodity cost increases and availability. Kentucky’s tax policies are causing people to drive through Kentucky and boat in Tennessee. In Knoxville, there is a waiting list to get a marina slip, while 25 to 30 percent of slips in the Lake Cumberland area are empty. Mr. Hardin said his company generally does not take trade-ins due to the increased expense of having to pay sales tax during resale. In 2013, Stardust sold one boat in Kentucky. All other production went elsewhere. To protect his company’s credibility, he tells buyers of the pending personal property tax which affects his ability to sell houseboats. Mr. Hardin asked that the legislature study the tax issue as local tax authorities are not seeing the big picture by taxing out the industry.
Representative Health said he had three recreational vehicle dealers express the same concerns about charging sales tax on trade-ins.
Responding to Senator Parrett’s question, Mr. Jasper said the Marina Association is fearful that mentioning changing the tax structure may lead to both a sales tax and property tax increase. The state would make much more money if it only collected sales tax, and businesses would not be put at a disadvantage.
Responding to Senator Parrett’s question, Mr. Jasper said with the water increase in Lake Cumberland houseboat rentals have increased by approximately 5 to 7 percent while slip rentals have not increased. Activity on the lake has increased; however, the weather last year was exceptionally poor.
Carolyn Mounce, Executive Director, Somerset-Pulaski Convention and Visitors Bureau, spoke about tourism expenditures in Pulaski County. Last year, visitors spent $117 million, which was a decrease of 1.5 percent from 2012. Visitation to tourist destinations decreased. Lake Cumberland visitations in 2014 for Memorial Day and July 4th weekends were 630,550.
Ms. Mounce reviewed tourism expenditures for the surrounding five counties of Lake Cumberland. After dam renovations began, they had to combat the untrue notion that Lake Cumberland was dry. The state and surrounding areas spent a lot of money addressing this issue. Ms. Mounce agreed with previous comments about the negative effects of the current school calendar on local tourism. Many out-of-state tourists have different school calendars and are affected when attractions close early. Ms. Mounce reviewed the demographics of area visitors.
In regards to tourism advertising Ms. Mounce said budget cuts have significantly affected tourism. Kentucky’s tourism regions were normally allocated $111,000 for marketing and advertising from the state. These funds were matched with $137,000 locally. In 2014, funding was cut 69 percent. The region asked the state to use some of the allocation to advertise and perform marketing research. For the last three years, Kentucky has not been at boat and travel shows due to budget cuts while surrounding states continue to participate. Kentucky convention and visitors bureaus assist the state by distributing Kentucky’s Official Visitors’ Guide. Due to funding cuts, local tourism regions have been unable to market events, thus affecting the number of visitors. Tourism is the purest form of “Made in America” that aids economic recovery. Tourism will never be exported, so it should be funded to compete with surrounding states.
There being no further business, the meeting adjourned at 11:46 AM EDT.