Call to Order and Roll Call
The 5th meeting of the Interim Joint Committee on Labor and Industry was held on Thursday, October 15, 2015, at 11:00 AM, at the Jim Beam American Stillhouse in Clermont, KY. This was a joint meeting with the Interim Joint Committee on Economic Development and Tourism. 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; Senators Perry B. Clark, Carroll Gibson, Ernie Harris, Jimmy Higdon, Reginald Thomas, and Mike Wilson; Representatives Lynn Bechler, Linda Belcher, Regina Bunch, Denver Butler, Jeffery Donohue, Jim DuPlessis, Dennis Horlander, Joni L. Jenkins, Mary Lou Marzian, Charles Miller, Jerry T. Miller, Terry Mills, Tom Riner, Jim Stewart III, James Tipton, and Brent Yonts.
Guests: Deputy Secretary Beth Brinly, Education and Workforce Development Cabinet; Clay Lamb, Staff Attorney, Office of Legal and Legislative Services, Education and Workforce Development Cabinet; Melanie Roberts, Judge Executive, Bullitt County; Jerry Summers, Director of Community Relations, Beam Suntory; Kristen Meadors, Director of Governmental and Regulatory Affairs, Kentucky Distillers Association; Randy Strobo, Downey Strobo PLLC; Johnny Miller, President, Earthwell Energy Management Incorporated; Chris Woolery, Program Coordinator, How$martKY; Josh Bills, Program Coordinator, Energy Efficient Enterprises; and Eric Dixon, Coordinator of Policy and Community Engagement, Appalachian Citizens Law Center.
LRC Staff: Carla Montgomery, Adanna Hydes, and Sasche Allen.
Approval of Minutes
A motion by Senator Wilson and a second by Representative Belcher to approve the minutes from the September 15, 2015 meeting carried by voice vote.
Consideration of Referred Administrative Regulation
The following referred administrative regulation was on the agenda for consideration: 787 KAR 2:040 & E - establishes the membership criteria and operating guidelines for local workforce development boards, requires interlocal and partnership agreements for local workforce development areas, and establishes the process for the identification of regions and designation of local workforce development areas under the Workforce Innovation and Opportunity Act, 29 U.S.C 3122, et seq. A motion to accept the referred administrative regulation was made by Representative Yonts, seconded by Representative Marzian, and accepted by voice vote.
Welcome
Representative Belcher welcomed legislators and guests to Bullitt County and mentioned the various attractions of the area. She invited committee members to come back and visit in the future.
Melanie Roberts, Judge Executive, Bullitt County, welcomed members and thanked the co-chairs for allowing her to speak. She thanked Representatives Webber, Belcher, and Tipton for their service to the local community. Judge Roberts informed the members that next year the area will attain Work Ready status. The community has secured a location at the local college to offer certified production technician classes.
Kentucky’s Signature Industry Update
Beam Suntory
Jerry Summers, Director of Community Relations, Beam Suntory, gave an overview of the company, which is a division of Suntory Holdings and employs over 900 people in the state. Suntory Holdings is the third largest spirits company in the world, with 37,613 employees, $20.4 billion in sales, and 36 percent of its business being alcohol sales. Key markets include the United States, Japan, and Australia. Key brands include Pinnacle Vodka, Cruzan Rum, Knob Creek, and Makers Mark.
Beam Suntory is the #1 seller of bourbon and the #1 seller of Jim Beam in the world and sells to 130 different countries. The Jim Beam Distillery in Clermont sits on 420 acres and was built in 1934 as James B. Beam Distillery. In 1968 it was purchased by American Tobacco and in 1987 James B. Beam Distillery purchased National Distillers, becoming Jim Beam Brands Company. The Clermont complex distills, warehouses, processes, bottles, and ships case products worldwide. The complex has 30 barrel warehouses, while the Franklin County location, Frankfort Old Grand Dad Plant, has 13 warehouses, and the Nelson County location, Booker Noe Plant, has 27 warehouses. The Franklin County location is the largest in the supply chain network, producing 14 one million cases a year and over 1300 different products.
The Beam Suntory Global Innovation Center, located in Clermont, houses the company’s trade/on premise testing and customer engagement areas, which is responsible for efficient and fast prototyping and testing of new product formats. It provides a dynamic environment to attract talent, catalyze teamwork, and reinforce a bold entrepreneurial spirit. The Beam on 4th facility in Louisville accommodates the company’s global business services including payroll, human resources, procurement, master data, and expense accounts. The Jim Beam American Stillhouse, a $20 million investment, at the Clermont distillery opened in 2012, has 135,000 visitors a year, offers a craft distillery tour, and has an onsite restaurant. The Jim Beam Urban Stillhouse, a $5.2 million investment, opened October 1, 2015 in Louisville at 4th Street Live and is a craft distillery that offers customers the opportunity to do tastings and purchase merchandise. Due to Alcohol Beverage Control regulations, the facility is only allowed to offer one tasting a day, thus it requires customers to show their driver’s licenses upon entering to avoid allowing two tastings on the same day.
All Kentucky distilleries market KY Bourbon Tourism as well as the Kentucky Tourism Arts, and Heritage Cabinet, the Kentucky Bourbon Trail, local convention and visitor centers, the Kentucky Travel Industry Association, the Kentucky Bourbon Festival, and the Kentucky Distillers Association. Mr. Summers elaborated on the 245 Tourism Corridor, which the Jim Beam American Stillhouse and the Clermont Distillery is included in. Other tourism venues in the area which are included in the 245 Tourism Corridor he discussed are the Bernheim Forest, Forest Edge Winery, Four Roses, and the R.J. Corman Dinner Train that passes through the area. The 245 Corridor makes up 60 percent of tourism in Bullitt County, and there is currently a redesign of Highway 245 underway.
Mr. Summers discussed what changes and support are needed for Kentucky tourism. ABC regulations need to be updated and distillers need to be treated more fairly. He stated that distilleries should be treated the same as breweries and wineries as far as how much alcohol can be sold to customers. Members were urged not to sweep state tourism funds due to the limits that can be placed on marketing abilities of all state tourism activities as a result. He requested continued support for the Highway 245 redesign with that infrastructure being needed for tourism throughout the state and as the entrance into bourbon tourism for central Kentucky. He highlighted the positive programs and efforts of the employees of Beam Suntory such as its Operation Homefront and United Way Campaign. In 2014 over 400 employees were involved in civic, charitable, and community activities.
Addressing Representative DuPlessis, Mr. Summers said that Kentucky can stay competitive by having a fair playing field compared to other states but the ABC laws and regulations need to be changed to do so.
Kentucky Distillers Association – Keeping Kentucky Competitive
Kristen Meadors, Director of Governmental and Regulatory Affairs, Kentucky Distillers Association (KDA), gave a presentation entitled “Keeping Kentucky Competitive”. The KDA was founded in 1880 in Louisville and has the objective of promoting, protecting, and uniting Kentucky’s signature bourbon and distilled spirits industry. Currently, the goal is to strengthen the state’s rightful place as the true and authentic home of bourbon due to other states presently attempting to lure away lucrative distilling operations and opportunities. At this time, the KDA has 27 member companies, which is the most it’s had since prohibition. According to Ms. Meadors, Kentucky produces 95 percent of the world’s bourbon here in the Commonwealth. When KDA partnered with the University of Louisville to do an economic impact study, KDA found that bourbon is a $3 billion industry and has a workforce that has doubled in the last two years with well over 15,000 employees in the state. The number of distilleries has tripled in Kentucky and there is $1.3 billion in capital investment. In 2014 there were 1,306,375 barrels of bourbon produced in Kentucky, which is a 170 percent increase in production since 1999. There are currently 5.7 million barrels of bourbon gently aging in the state, making it the highest inventory of bourbon in Kentucky since 1975. The 2015 tax assessed value of aging barrels is $2.1 billion, up $223 million from 2014 and double the amount since 2006.
The KDA also operates the Kentucky Bourbon Trail and the Kentucky Bourbon Trail Craft Tour. The Kentucky Bourbon Trail was created in 1999 with the goal of giving visitors a first-hand, intimate, and educational experience into the art and science behind crafting bourbon. Then in 2012 the Kentucky Bourbon Trail Craft Tour was launched to showcase the state’s micro-distilleries, becoming the first of its kind in the world. There are nine locations on the bourbon trail and nine on the craft tour. Many of the locations are sited in the “amber triangle”, which is between Lexington, Louisville, and Bardstown. A record 627,032 people visited the bourbon trail last year, which is a 10 percent increase from 2013. An additional 96,471 people traveled the craft tour in 2014, a 56 percent increase from the previous year. Over the past five years there has been an average growth of 62 percent, with visitors coming from all 50 states and over 50 different countries and territories. A person can have a Kentucky Bourbon Trail Passport stamped upon each visit to a location on the bourbon trail. There have been more than 75,000 people to complete their passports by visiting all nine locations. About 85 percent of the visitors to the bourbon trail have come from outside of Kentucky and 31 percent made multiple trips to complete the bourbon trail experience.
According to Ms. Meadors, Kentucky is falling behind and is now ranked eighth in the U.S. in operating distilleries behind California, Washington, New York, Colorado, Texas, Michigan, and Oregon. Other states have adapted quickly in changing their laws and reducing their fees to attract the next generation of distillers, jobs, and investment. Rhode Island permanently exempted wine and spirits from its 7 percent sales tax. Colorado enacted legislation to allow distillery pubs. New York increased marketing funds and allowed distillery restaurants and sales by the drink. Washington dropped all limits on sales, allowed distilleries to participate in special events, and raised production limits. In 2005, Washington had zero distilleries and now has 110 based on its legislative changes. She expressed what the KDA believes the legislature can do through legislative changes to ensure that Kentucky continues to attain its historic bourbon monopoly. These changes included allowing distillers to sell by the drink, expanding bottle limits for visitors, increasing sample sizes, authorizing local option precinct elections for distilleries, and permitting the sale of antique spirits at retail. Ms. Meadors pointed out that currently distilleries cannot serve or sale by the glass, there is a bottle size limit of 3 liters that can be sold to visitors, and the sample size is only one ounce. She provided a chart comparing the alcohol privilege between wineries, breweries, and distilleries in the state.
The presentation was summarized by Ms. Meadors giving the members some of the benefits of changing and introducing new legislation, such as allowing out-of-state tourists purchasing their favorite new spirit at their local package store, bar, or restaurant once they return home, modernizing all three tiers of the alcohol industry, and keeping Kentucky competitive with other states. After doing an economic analysis with the University of Louisville’s Urban Studies Institute, the KDA found that by modernizing the laws and regulations, there is a potential of more than $2 million in annual revenue. She also pointed out that making these changes wouldn’t cost anything, however, by not making these changes there is a loss of revenue, jobs, and potentially the state’s current monopoly.
Senate Majority Caucus Chair Senator Seum spoke briefly about Bullitt County and expressed his belief that the 6 percent retail sales tax that was put on liquor in Kentucky, making the current total sales tax 17 percent, should be repealed.
Responding to Representative Clark, Ms. Meadors pointed out the slide of her presentation that listed the KDA’s prioritized list of legislation, allowing distillers to sell by the drink being number one. She also said that KDA would do research on comparing the sales of out of state distillers to those of Kentucky and make that available to the members.
Addressing Representative Webber, she stated that the amount given of $978 that the average visitor spends when traveling along the Kentucky Bourbon Trail is an all-inclusive amount that includes costs such as lodging, gas, food, and rental car charges. Also, on average 40 percent of visitors request to purchase more than the 3 liter maximum.
After a comment from Representative McKee, Ms. Meadors confirmed that 40 percent of all grains purchased for production are from Kentucky growers. KDA is trying to increase that percentage. It was also pointed out that the new distillery being built in Shelby County will use 100 percent Kentucky grown grain.
Replying to Representative DuPlessis, Ms. Meadors pointed out that passing new legislation would not only help the larger distilleries but the smaller craft distilleries as well. She noted that it is difficult for certain distillers to compete with those distillers that are in close proximity in other states who are allowed to host special events and serve and sell alcohol by the drink. These distilleries are losing potential clients who would like to host special events at their locations but choose not to because of the strict regulations.
Representative Stone mentioned that in his district of Simpson County efforts were made with grain cleaning in order to sell products to Kentucky distilleries, strengthening the partnership between the bourbon and agriculture industries here within the state.
Following a request from Representative Kay, Ms. Meadors gave details regarding the Bourbon Chase, which is a 200 mile overnight relay race through the state’s historic distilleries with teams of 12 runners that starts at the Jim Beam Clermont complex and ends in Lexington.
2015 House Bill 229 AN ACT relating to economic development.
Representative Marzian and Senator Thomas along with Randy Strobo, Downey Strobo PLLC; Johnny Miller, President, Earthwell Energy Management Incorporated; Chris Woolery, Program Coordinator, How$martKY; Josh Bills, Program Coordinator, Energy Efficient Enterprises; and Eric Dixon, Coordinator of Policy and Community Engagement, Appalachian Citizens Law Center spoke about HB 229 (2015), which would “create new sections of KRS Chapters 278 to require retail electric suppliers to use increasing amounts of renewable energy; require retail electric suppliers to take energy-efficiency measures and implement energy-efficiency programs that increase energy savings over a period of time; provide for alternative compliance plans for public utilities who fail to meet renewable energy or efficiency requirements; define renewable energy; specify reporting requirements to the Public Service Commission regarding progress in diversifying energy sources and energy savings; require the Public Service Commission to develop tariff guidelines for purchase of renewable power.”
The proposed legislation is modeled after similar policies in 29 other states and is supposed to drive investment and new jobs while keeping energy bills affordable. According to the material given to members provided by the Kentucky Sustainable Energy Alliance, the bill will create jobs, save money, and curb pollution; expand renewable energy generation to 12.5 percent by 2025; shrink overall electricity demand by 10.25 percent by 2025; encourage in-state investment, creating jobs for Kentuckians; and offer flexibility, oversight, and accountability. With this legislation there is a projection of 28,000 net new jobs for workers over the next decade, an average decrease of electric bills of 8-10 percent at the end of ten years, and no requirement for state tax dollars. Other states have created their own policies to promote renewables and efficiency with clean energy being one of the fastest growing job markets in the U.S.
Co-Chair Short pointed out that Kentucky has the third lowest energy rate in the country, and the cost of 100 kilowatts of power in California is $236 compared to Kentucky, which is $98 for the same amount of power, noting that California utilizes several different types of renewable and alternative energy such as hydroelectric, wind, and solar powers. He said that he had just returned from an energy conference in Washington D.C. where one of the presenters said solar energy is one of the biggest injustices to low income people that could ever be done. Co-Chair Short affirmed that solar power is the most expensive form of energy in the U.S. and other forms, such as hydro power, can have adverse effects on the environment.
Representative Marzian stressed the possible job creation in the state if this bill were passed and voiced that these positions would be good paying jobs with benefits for all of the members’ constituents.
Senator Thomas expressed his support for the bill, saying that Kentucky cannot avoid considering alternative energy sources, and he has done extensive research with the Tennessee Valley Authority (TVA). According to Senator Thomas, TVA provides power to one third of the state, and presently about 34 percent of its energy sources come from coal. In 2020, that will decrease to 23 percent. Currently, about 15 percent of its energy sources come from hydroelectric power, but that will increase to 27 percent by 2020. Today’s water companies will be tomorrow’s energy companies. Although he supports the coal industry, Senator Thomas said that, as of June 2015, there were only about 9,000 coal jobs across the Commonwealth and that the price of coal in some other states is significantly lower than that of Kentucky. He expressed that, in the future, an all-of-the-above approach should be taken when considering different forms of energy for the state while providing jobs and a cleaner environment for the citizens of Kentucky.
Other Business
1. The Interim Joint Committee on Economic Development and Tourism will meet on November 19, 2015 at Shelby Valley High School in Pikeville, KY at 11:00 AM.
2. The Interim Joint Committee on Labor and Industry will not meet in November.
There being no further business, the meeting was adjourned at 12:45 PM. Following the meeting, members were given the opportunity to take a bus tour of the Jim Beam facilities.