The 1st meeting of the Interim Joint Committee on Licensing and Occupations was held on Tuesday, June 19, 2007, at 10:00 AM, at the Home Builders Association of Northern Kentucky office in Erlanger, Kentucky. Senator Gary Tapp, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Gary Tapp, Co-Chair; Representative Joni L. Jenkins, Co-Chair; Senators Julian M. Carroll, Perry B. Clark, Denise Harper Angel, Ray S. Jones II, Dan Seum, and Damon Thayer; Representatives Tom Burch, Larry Clark, Ron Crimm, Jon Draud, Tim Firkins, Dennis Horlander, Dennis Keene, Reginald Meeks, Tim Moore, David Osborne, Ruth Ann Palumbo, Carl Rollins II, Sal Santoro, Ron Weston, and Susan Westrom.
Guests: Jim Stegman, President, Home Builders Association of Northern Kentucky, Dan Dressman, Executive Vice President, Home Builders of Northern Kentucky; Bayne Welker, Consignors and Commercial Breeders Association; Chris Lilly Executive Director, Office of Alcoholic Beverage Control; Mac Stone, Director, Division of Value-Added Plant Production, Department of Agriculture; Cheryl Hatcher, Deputy Commissioner, Department of Tourism; David Reichert, General Counsel, Office of Housing, Buildings and Construction; and Ralph Wirth, Chair, Kentucky Board of Home Inspectors
LRC Staff: Vida Murray, Bryce Amburgey, Tom Hewlett, and Susan Cunningham.
Senator Tapp asked those present to bow their heads for a moment of silence in remembrance of Senator Julie Denton's sister, Cheri Sorley, who had passed away unexpectedly.
Senator Thayer, Chairman of the Northern Kentucky Caucus, welcomed the committee members to Northern Kentucky and thanked the Home Builders Association of Northern Kentucky for hosting the meeting. Additionally, Senator Tapp said he appreciated the jobs provided by the construction industry across Kentucky.
Jim Stegman, President of the Home Builders Association of Northern Kentucky (HBANKY) and owner of Stegman Construction in Newport, Kentucky, told the committee there were 1,260 association members, employing 10,000 people in the region. He said the HBANKY has served a 10-county area since 1955. Mr. Stegman told members that the Enzweiler Apprentice Training program was an evening program for the carpentry, electrical, and HVAC trades. Classes are marked in quarters beginning in September, and ending in March, and are conducted in the HBANKY facility. Mr. Stegman said that the program was the oldest locally run program in the nation and the only one of its kind in the region. The training provided by the program is recognized and certified by the National Association of Home Builders. The Office of Housing, Buildings and Construction has approved the HBANKY electrical training program. The electrical program is unique in that the program's graduates are able to take a licensing exam upon completion of the course, by-passing two years of work in the field. Mr. Stegman told committee members that the program's job placement rate is ninety-five percent. Dan Dressman, Executive Vice President, HBANKY, said that the building industry pays for itself as well as providing economic impact for local governments. He noted that a five-year study was conducted of five northern Kentucky counties in three subject areas; taxes, jobs, and new income to the area. The study showed that, after 20 years, new home construction that cost $310 million will generate $343 million in revenue. Mr. Dressman said that after the new homes are occupied there is a ripple effect for services such as education, fire and police protection, utilities, parks and recreation, and roads. He stated that the new construction generates new jobs and local income from property taxes. He added that there are also other socioeconomic benefits to new home construction.
Senator Tapp recognized Senator Richard "Dick" Roeding, who was in the audience. Senator Tapp then asked for a motion to approve the minutes from the November 17, 2006, meeting. There was a motion and second and the minutes were adopted by voice vote.
Next on the agenda Bayne Welker, Consignor and Commercial Breeders Association, was present to answer questions regarding a report submitted by Alex Waldrop. Mr. Waldrop's report was an update on the Sales Integrity Task Force (compromise to HB 388) meetings. The report said that the 36 member task force had formed three separate committees: 1) Licensing of Agents; 2) Ownership Disclosure; and 3) Medication Disclosure. Also, three advisory subcommittees were organized to provide the task force with additional expertise: 1) legal advisory; 2) veterinary advisory; and 3) a bloodstock agent advisory subcommittee. Alex Waldrop, President of the National Thoroughbred Racing Association, was chosen as the task force moderator and spokesperson. The report added that the three committees met in a closed meeting in May at Keeneland and that two of the committees met a second time two weeks later in Lexington. The report stated that all committees are expected to meet throughout the summer until a consensus is met. The report concluded that all parties involved are determined to reach a consensus with specific, enforceable changes to attract new buyers to the horse industry. Attached to Mr. Waldrop's report was a list of task force members. Mr. Welker added that he believed the task force was making progress.
Senator Tapp said that he appreciated the task force working together. Senator Thayer remarked that Kentucky was the leading exporter of thoroughbred bloodstock in the world, with people coming to Keeneland and Fasig-Tipton sales to purchase thoroughbreds to race and breed. Senator Thayer said that he was hopeful that the industry concerns would be resolved with new regulations and policies that can be instituted at and monitored by the sales companies rather than by a government agency. Mr. Welker said that sales of other breeds are being considered. Representative Draud asked if there was a timetable to reach resolution. Mr. Welker said the task force expected to reach a consensus by the middle of September with a full, final report being issued prior to the December 31 deadline. Representative Clark said that the transparency of the task force was just as important as the transparency of horse sales and that he was concerned that the task force meetings were closed to the public. He added that he understood that it was difficult to deal with issues that were better said behind closed doors, but the process should be open. Representative Clark added that he was somewhat insulted, being a co-signer of the compromise, that all the meetings were closed. Mr. Welker said that when the task force was closer to reaching a consensus the press would be invited to meetings.
Next on the agenda Ralph Wirth, Chairman of the Kentucky Home Inspection Licensing Board; Terry Slade, Director of Building Code Enforcement, and David Reichert, General Counsel, Office of Housing, Buildings and Construction gave the committee an update on the home inspectors licensing program. Mr. Wirth said SB 34, passed in the 2004 Regular Session, required home inspectors in Kentucky to be licensed by July 1, 2006. He said the board first met in August 2005 to draft regulations that have since been promulgated. He added that the initial licenses are approaching their first renewal. Terry Slade told members that he serves as proxy for Floyd Van Cook, Executive Director of Housing, Buildings and Construction, on the home inspector board and that he has been working closely with the home inspectors board since 2005. He told members there was a provision in the bill for an alternative license that would grandfather people who had been performing home inspections prior to the legislation's passage and could document the number of home inspections performed. Mr. Slade said that two national exams have been approved for the home inspectors. He added that there were 10 pre-licensing providers, including A-Pass-Weikel Institute in Lexington, Louisville, and Northern Kentucky and Professional Learning Institute for You, in Louisville. The rest of the companies were from out of state. Mr. Slade said that alternative licensees must have 15 hours of continuing education by their first renewal. He told members there are six providers with over 100 courses approved to meet continuing education requirements. There have been 367 home inspectors licensed to date. Beginning January of this year 180 licenses have been renewed. Mr. Slade said that in 2008, the licenses will begin a two year renewal with twice the fee and twice the continuing education requirements.
Representative Clark asked if the Kentucky Community and Technical College System (KCTCS) had been contacted about offering the home inspector's curriculum, adding that because there are multiple campus locations it would be cheaper for inspectors to have the required training. Mr. Wirth said the KCTCS could submit an application. Representative Clark suggested that the college may not be aware of the program and suggested that Mr. Wirth initiate contact with Mike McCall, president of KCTCS. Senator Tapp asked if there have been complaints or ethics violations. Mr. Wirth replied that the board had established a Compliance Review Committee to evaluate complaints. Mr. Slade said that during the first of 2006 the board did receive calls; however, if the inspection occurred prior to July 1, 2006, it was out of the jurisdiction of the board. Senator Tapp asked if a home inspector was required to write in his or her report what might happen in the future if a defect is not corrected. Mr. Wirth said that home inspectors should only report what is deficient in the home at the time of the report and not on life expectancies. Representative Keene asked if lenders were requiring home inspections as part of the loan. Mr. Wirth responded that lenders were not. Senator Carroll asked what the relationship was between the Office of Housing, Buildings and Construction and city governments and if there was a model local ordinance for cities to adopt. Mr. Slade said the office does encourage local governments to establish building codes, stating that more than half the state's local governments do not have a local program. He added that the office certifies building inspectors only and that the Division of Building Code Enforcement is only involved with alterations or additions to existing buildings. Mr. Slade said that the State Fire Marshal's office was responsible for existing buildings that are not being changed. Mr. Slade added that there is a sample adoption ordinance in the beginning of both the Kentucky Building Code and the Kentucky Residential Code that city attorneys can use to draft a similar document.
Next on the agenda was an update on SB 82 regarding small wineries (passed during the 2006 regular session) and other alcoholic beverage issues. Chris Lilly, Executive Director and Chairman of the Board of Alcoholic Beverage Control (ABC), said the U. S. Supreme Court case Granholm v. Heald was entered on May 16, 2005. The ruling declared that in-state and out-of-state wineries must be treated equally under the Commerce Clause of the United States Constitution. The Court held that states cannot mandate differential treatment of in-state and out-of-state economic interests that benefit the former and burden the latter. The Twenty-first Amendment gives states a wide scope of power to regulate alcoholic beverages; but states cannot differentiate between in-state and out-of-state operators. Huber Winery in Indiana filed suit in federal court to overturn Kentucky's law that did treat in-state and out-of-state wineries differently. While the Huber case was pending, the 2006 General Assembly passed SB 82, which leveled the field for in-state and out-of-state wineries. SB 82 allowed Kentuckians to appear in person at an out-of-state small farm winery and have the winery ship to them up to two cases of wine per visit. SB 82 also amended the statute regarding self-distribution, indicating that no farm winery could distribute directly to a retailer but would have to go through a wholesaler. When Huber dropped out of the case, an Oregon winery named Cherry Hill picked the case up and became the primary plaintiff. The Court ruled that Kentucky's previous law was unconstitutional, but upheld the changes made by SB 82 with the exception of the in-person purchase requirement, which it voided. The case is now under appeal in the 6th Circuit. Mr. Lilly said most states are changing their laws to conform to the Granholm decision and that suits have been filed with one court upholding the in-person requirement.
Mr. Lilly said that currently ABC is enforcing the small farm winery license, the 50,000 gallon or less production limit, the two case per order limit, and small farm wineries are not allowed to ship into territories where package sales are not allowed. Mr. Lilly cited KRS 243.155, allowing any in-state or out-of-state small farm winery to apply for a license that authorizes the licensee to ship to a consumer wine produced by a small farm winery if the wine is shipped by a common carrier in an amount of up to two cases. Mr. Lilly said that it is hard to police out-of-state small farm wineries' shipments into Kentucky. Maine and Tennessee District Courts have rejected challenges, with the Maine court stating that the alcoholic beverage is contraband when in the possession of minors and that there is no way to reliably police mail order transactions. The Tennessee court held that the total ban on the sale of alcohol was evenhanded and that states were not obligated to see that all market participants, no matter how geographically remote, have the same opportunities as in-state producers.
Mr. Lilly said that alcoholic beverages are taxed in bulk at the wholesale level, but there is no sales tax on package sales. He said there is, however, a sales tax for by-the-drink sales. Regarding wine, Mr. Lilly said that KRS 243.720 provides a 50 cent per gallon tax, and wholesalers of distilled spirits and wine pay that tax each month. Small farm wineries may pay quarterly. There is no wholesaler to collect that tax for out-of-state shipments. Only when the winery holds an out-of-state license can ABC require payment. There is an 11 percent wholesale tax for large wineries.
Senator Tapp asked how many small farm winery license applications had been received. Virginia Davis, Program Manager Analyst, said that two licenses had been issued to out-of-state wineries and six other wineries in California have applications pending. Senator Seum asked if he could legally order a case of wine from California online. Mr. Lilly said it was legal if the winery was a small farm winery with a Kentucky license. Senator Thayer asked how long the 50,000 gallon limit has been in place as criteria for a small farm winery and if this is the limit imposed by other states. Mr. Lilly responded that SB 82 went into effect January 1, 2007, and that other states have size restrictions, some as high as 125,000 gallons. Senator Carroll said that he was pleased that the winery industry was growing in Kentucky. Representative Draud asked if ABC knew how many tobacco farms had converted to small farm wineries. Mr. Lilly said that the Department of Agriculture would have those figures and went on to say that he did know that a number of tobacco farmers were now growing grapes as opposed to tobacco.
Mac Stone, Director, Division of Value-Added Plant Production, Department of Agriculture, told members he was representing the Kentucky Grape and Wine Council. Also present from the council were Dennis Walter, Chair, owner of StoneBrook Winery; Lowell Land, owner of Acres of Land Winery; Harkness Edwards, representing grape producers; and Roger Leasor, owner of Liquor Barn in Lexington. Mr. Stone told the committee there were three levels of wineries; some with a tasting room only, some with tasting rooms with regional flair, and others that are in the volume business. Mr. Stone said that the Cost Share Program, established in SB 82, is up and running with $100,000 per year and that each winery could apply for funds for advertising. Mr. Stone said that the fund is split into six-month periods so that all wineries would have equal access to the fund. He said that 23 have qualified for approximately $2,000 each and have utilized funds. Mr. Stone said that some wording mistakes were made in writing regulations for advertising and that there will be some language changes made to specify terms. Mr. Stone noted that the distribution funds, $75,000, are also split twice a year so that new wineries do not have to wait a full year to apply for funds. He said that there is a $12 per case fee that the wholesaler is reimbursed to pick up the wine at the winery and deliver it to retail outlets doing business with the winery. Because wholesalers are not required to promote, market, or get wine into retail establishments, most wineries use full distributorship so that the distributor will warehouse and market their product. The winery is still responsible for promoting tastings. Three wholesalers have offered their services, one has taken clients, and one has applied for funds. Mr. Stone said the department felt that the regulation language may be too restrictive for wholesalers to participate. He also said that another issue was pricing. The wholesaler has to deliver at the price that it pays the winery for the product. Retailers typically have a different pricing structure, and wineries must then offer tastings at the retail price. Mr. Stone said that the diversity of the board has allowed for a resolution to get wine to consumers. Mr. Stone added that there was also $200,000 in a fund for marketing.
Cheryl Hatcher, Deputy Commissioner, Department of Tourism, said the partnership between the Department of Tourism, the Department of Agriculture, and the Grape and Wine Council is very encouraging and exciting. Ms. Hatcher distributed a packet that included proposed timelines and budget estimates. She also passed around posters with brand designs from the agency's advertising company. She said that the department was developing a Web site with a home page rollover map of the nine marketing regions in the state. She said this provides an easy way for consumers to find the vineyards. Mac Stone added that another aspect of the marketing program was developing wine trails. Mr. Stone said the Department of Agriculture has created a Web site (www.marketmakerky.com) that is a resource for retailers to identify agricultural foods that are grown locally. He said wine has just been added to the site. Mr. Stone said the department was working with Sharon Turner of the Beverage Journal, which is the "handbook" for the beverage industry. Mr. Stone said the council had formed several committees including; legislative, marketing, wholesale and distribution, research, and subsidy committees. Mr. Stone said that SB 82 reduced the incentive to buy Kentucky grapes, and the council was sensitive to this issue. He said productions levels were lower than they should be, however, funding for the viticulturist and enologist at the University of Kentucky would lead to better growing practices and he expected the quantities per acre to increase. Mr. Stone said the grape growers now rival tobacco growers. In conclusion, Mr. Stone stated that the council was trying to have meetings at various locations in the state to be more accessible to wine makers and grape growers. He said there have been marketing training programs to help the wineries. He added that the council is planning to have competitions to help vintners improve the quality of their wine. He said the council will be modifying regulations to change semantics in advertising, and will be adjusting the distribution regulations. He said there also needs to be a clarification regarding tastings at festivals.
Senator Tapp requested that the Department of Agriculture and the Department of Tourism come back during the interim to give the committee another report on the resolution of communication issues. Senator Tapp asked if the applications for cost sharing are easy to fill out and if the money allotted to the distributor needed to be adjusted. Senator Tapp also suggested that Kentucky Educational Television (KET) could be contacted for marketing. Mr. Stone said the department thought the application was friendly to the wineries, adding that there was some confusion during the initial period. Mr. Stone agreed KET would be a good marketing tool. Senator Carroll asked what percentage of grapes were imported to Kentucky for production. Mr. Stone replied that all Kentucky grapes were converted into wine in the past year. He added that consumer demand was often for varieties of wine for which the grapes do not grow well in Kentucky due to soil, climate, moisture, and temperatures. Mr. Stone said the University of Kentucky viticulturist was working to address those issues. Representative Burch asked what was the average size of a winery. Mr. Stone said there were approximately 120 grape growers and 40 wineries. Senator Harper-Angel pointed out that there is an existing horticultural exemption that the wineries could apply for to substantially reduce property tax assessments. Mr. Stone said he appreciated the information. Representative Clark recognized the hard work of both the departments and the council.
Next on the agenda Chris Lilly told committee members that the Louisville Metro ABC office had denied a liquor license for Molly Malone's because it was located less than 700 feet from another ABC licensee, in contravention of KRS 241.075. The ABC measured the distance using a different method than Louisville and found the distance to be over 700 feet. Thus, ABC granted the license. The Louisville office appealed this in court, asking that its measurement stand. The court agreed with Louisville, saying the statute was special legislation and therefore unconstitutional. Further, the statute divided Jefferson County into two classes; a downtown area, and a combination business and residential area, without showing that the classification was for a natural or distinctive reason, or part of the organization or structure of the local government. The court ruled that the General Assembly did not set out a reasonable distinction that had a rational basis. The court also found that there was no rational basis to presume that the evils associated with a concentration of liquor businesses in a mixed use area compared to downtown are any different in Louisville Metro than in Lexington, Covington, Newport, Paducah, Owensboro or Bowling Green. The court also determined that the legislature has made no finding that the benefits from the concentration of liquor businesses in those areas would outweigh the detrimental effects. Despite this ruling, the court upheld ABC's granting of the license for different reasons. Louisville has appealed the decision, and the appeal is in the briefing stage. Mr. Lilly said he felt that the state had not adequately explained its rationale in the previous hearing.
Mr. Lilly also gave the members an overview of the Office of Alcoholic Beverage Control, explaining its mission and giving a brief history of the office. He said that the board was established in 1944 with a chairman, a distilled spirits administrator, and a malt beverage administrator. The board had full authority to issue, deny, suspend, or revoke alcoholic beverage licenses. Mr. Lilly said the General Assembly has added a variety of alcohol sales licenses, such as golf course precinct elections (there have been 18 elections through 2007). There are also limited restaurant elections for restaurants with 100 seats that receive 70 percent of sales from food (there have been 38 elections) and winery elections. Mr. Lilly said applications for new licenses take 30 to 60 days to process, and that there has been in increase in the number of licenses issued due to the establishment of new license types. Mr. Lilly stated that an Education Branch was created in 1998 with the Server Training in Alcohol Regulations (S.T.A.R.) program implemented in 2002. The program has 18 instructors to train sellers and servers of alcohol on laws and liabilities. There is a four and one half hour tested class that provides a three year certification. In 2006 alone, 4,657 individuals were trained. The program also provides information to schools and community groups on the dangers of underage drinking. Mr. Lilly said that the Enforcement Division investigators have full police powers, are strategically located throughout the state, and work closely with the Education Division. Programs in the Enforcement Division are: 1) Cops in Shops, where an investigator poses as a store clerk, 2) Operation Zero Tolerance, where decoys test whether a licensee will sell to an underage person, and 3) Targeted Enforcement Details at major events, such as Keeneland, the Kentucky Derby, and the Barbeque Festival. Inspectors are not required to have a warrant or probable cause to enter a licensee's premises for an inspection. Mr. Lilly said the Cops in Shops visits had dropped in number recently due to federal funding changes; however, there were still approximately 1,400 citations issued through May of this year. The Operation Zero Tolerance compliance in 2004 was 83 percent. In 2006 the number of visits was doubled causing the compliance rate to go down. In 2007 the percent went above 90 percent.
Mr. Lilly said he also wanted to bring a particular product to the attention of the committee. He reported that energy drinks containing alcohol are sold in grocery stores and convenience stores. As an example, Mr. Lilly noted that one such drink, Tilt is sold in a 16 ounce can and contains eight percent alcohol, which would be 16 proof. This would be equivalent to approximately 1.5 beers. The alcohol is mixed with the other components of an energy drink such as caffeine. One of the problems that arise from the sale of these drinks is that those containing alcohol are not easily distinguishable from those that do not.
Senator Carroll asked if the board was defending its original position in the Louisville alcohol license case. Mr. Lilly replied that the court is currently requiring ABC to issue the license and that ABC is not a party in Louisville's appeal. Senator Tapp asked for suggestions from the board on regulating the energy drinks. Mr. Lilly said that the Federal Alcohol, Tobacco, Trade, and Tax Board has regulations over labeling requirements and that the board is looking at new rules regarding print font sizes. He added that the industry has acted quickly to train employees to recognize the difference in the labels.
Senator Tapp told committee members that future meetings in Louisville, at Keeneland, and at the Shriner's Hospital in Lexington were being considered.
The meeting adjourned at 12:35 p.m.