Call to Order and Roll Call
The third meeting of the Interim Joint Committee on State Government was held on Wednesday, September 22, 2010, at 10:00 AM, in the Visitor Center at Toyota Motor Manufacturing, Kentucky, Inc., Georgetown, Kentucky. The meeting was a joint meeting with the Interim Joint Committee on Local Government. Senator Damon Thayer, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Damon Thayer, Co-Chair; Senators Walter Blevins, Jr., Jimmy Higdon, Alice Forgy Kerr, Mike Reynolds, John Schickel, and Robin L. Webb; Representatives Eddie Ballard, Dwight Butler, John "Bam" Carney, Leslie Combs, James Comer, Jr., Tim Couch, Danny Ford, Jim Glenn, Derrick Graham, Mike Harmon, Melvin Henley, Charlie Hoffman, Mary Lou Marzian, Brad Montell, Sannie Overly, Tanya Pullin, Tom Riner, Carl Rollins II, Steven Rudy, Sal Santoro, Kent Stevens, John Tilley, Jim Wayne, and Brent Yonts.
Guests: Representatives Rocky Adkins and Fred Nesler; Kim Menke, David Carpenter, and Barbara McDaniel - Toyota Motor Manufacturing, Kentucky, Inc.; Dawn Bellis and Tim House, Kentucky Department of Housing, Buildings and Construction.
LRC Staff: Judy Fritz, Karen Powell, Bill VanArsdall, Sean Donaldson, Mark Mitchell, and Peggy Sciantarelli.
Senator Thayer and Representative Hoffman welcomed everyone to Georgetown —their legislative districts, as well—and thanked Toyota Motor Manufacturing, Kentucky, Inc. (TMMK) for hosting the meeting. Senator Thayer expressed appreciation to Local Government Committee co-chair Representative Steve Riggs and State Government Committee co-chair Representative Mike Cherry for agreeing to meet at TMMK in order to recognize Toyota for its important role in the community and the Commonwealth.
Approval of Minutes
The August 25 minutes of the State Government Committee were approved by voice vote, without objection (motion by Senator Higdon).
Old Business
Representative Pullin said it had been brought to her attention that some state parks may be using temporary employees, while full-time employees are being subjected to furloughs. She requested that committee staff look into this matter. Senator Thayer noted that the meeting folders for members of the State Government Committee include a September 21 letter from Mona Juett, Tourism, Arts and Heritage Cabinet, in response to the Committee’s previous request for information about the Department of Parks’ use of concessionaires. (Senator Thayer called on Ms. Juett to speak, but she had not yet arrived at the meeting and did not speak at the meeting.) Representative Graham asked that staff also obtain information about the Transportation Cabinet’s use of temporary employees. Senator Thayer instructed staff to inquire about the use of temporary employees in both cabinets and report back to the State Government Committee at its October meeting.
Administrative Regulation Review
The first item on the agenda was administrative regulation 815 KAR 8:100, a new regulation of the Department of Housing, Buildings and Construction. The regulation, relating to criteria for local jurisdiction HVAC programs, had been referred by the LRC to the Local Government Committee for review. Present from the agency were Dawn Bellis, General Counsel, and Tim House, Director of the Division of Heating, Ventilation and Air Conditioning. Mr. House explained the regulation, which establishes the requirements for local HVAC inspection and permitting programs to request and be approved to operate a program pursuant to guidelines established by the Board of Heating, Ventilation and Air Conditioning Contractors. There were no questions. Senator Thayer thanked the speakers and noted that a written report of the review will be submitted to the LRC.
Presentation by Toyota Representative
Kim Menke, Manager of Community and Government Relations, welcomed everyone on behalf of TMMK and its senior executives, Chairman Steve St. Angelo and President Wil James, who were unable to attend the meeting. He expressed appreciation for the support Toyota has received from the legislature, the current state government administration, and the Commonwealth in general. He thanked Senator Thayer and Representative Hoffman for being instrumental in personally recognizing Toyota team members in the Senate and House chambers during the previous session of the General Assembly. He expressed thanks for the passage of an amendment to the Kentucky Environmental Stewardship Act needed by Toyota relative to the manufacturing of the Camry hybrid vehicle in Georgetown. He thanked the legislature, too, for changes to the Kentucky Reinvestment Act that have been helpful to TMMK, including authorization for an advanced manufacturing facility on the Georgetown campus of the Bluegrass Community and Technical College (BCTC) when funding becomes available.
Mr. Menke’s “Toyota Update” slide presentation began after the showing of an introductory “plant tour” video. (Paper copies of the presentation were provided to the Committees.) Topics included Toyota growth and its impact in the United States; impact of the economic downturn on the U. S. auto industry and how Toyota has weathered the downturn; Toyota’s recall issues and activities; potential changes for the auto industry; TMMK leadership and milestones; Kentucky’s incentive package for Toyota and Toyota’s commitment to Kentucky; resident counties of team members; motor vehicle-related plants and suppliers; corporate gifts by TMMK; and the TMMK Environmental Education Center.
Mr. Menke said that May 2011 will mark the 25th anniversary of TMMK’s groundbreaking in Georgetown. The “first car” ceremony was held in May 1988. The total incentive package to bring Toyota to Kentucky—developed during the administration of Governor Martha Layne Collins—was $147 million. More than $62 million was used for training and education, including $7.2 million for a training center. In its initial commitment to Kentucky, Toyota spent $800 million to construct and operate the automobile assembly plant and employed 3,000 Kentuckians with an estimated annual payroll of $90 million. Twenty-five years after the groundbreaking, TMMK is the largest Toyota manufacturing facility outside of Japan, with 7.5 million square feet under roof. The total current investment in TMMK in Georgetown is $5.3 billion, and TMMK is designated the “mother plant” for North America. Production capacity is 500,000-plus vehicles per year. To date, TMMK has built 8.2 million vehicles in Georgetown. There are currently 6,800 team members who list their primary residence in 77 different Kentucky counties; with 80 percent living within 80 miles of Georgetown. The top five counties of residence are Scott, Fayette, Harrison, Jefferson, and Clark. The average annual payroll of the plant is $523,000,000. TMMK builds the Avalon, Venza, Camry, and Camry-Hybrid, and also machines and assembles engines and axles at the Georgetown facility.
Toyota spent $2.3 billion on parts, goods and services in 2009 with 90 Kentucky based suppliers that employ more than 24,000 people. Of that figure, approximately 9,000 employees work for companies dedicated solely to Toyota. Across North America Toyota has 350 suppliers in 33 states in the USA, and in Canada, and Mexico. Kentucky suppliers are also making compatible parts for shipping to other Toyota facilities. Nationwide, Toyota has a direct investment of more than $18 billion, employs 28,783 persons directly and another 163,880 persons indirectly, and produces more than 870,000 vehicles yearly. In addition to the Georgetown facility, Kentucky has Toyota’s North American headquarters in Erlanger, a parts distribution center in Hebron, and 23 Toyota dealers.
TMMK believes in being a good neighbor and giving back through volunteerism, community involvement, and philanthropy. Corporate gifts, including sponsorships, have increased each year since 1987 and now total $38 million. Toyota considers not only Georgetown, but the entire state of Kentucky, as its community. TMMK, in spreading the message that manufacturing and the environment can coexist, works with teachers to develop a curriculum for its Environmental Education Center so that students can learn about programs for composting, water recycling, and air purification. All the profits from the Visitor Center gift shop are deposited in a fund administered by the state to fund bus stipends for schools that otherwise could not afford field trips to the Center.
The United States auto industry sold about 17.4 million vehicles in 2000 and 16.2 million in 2007. Due to the downturn in the economy and job loss, vehicle sales decreased to 13.2 million in 2008 and to only 10.4 million in 2009. The industry is beginning to recover, and the seasonally adjusted annual rate (SAAR) for vehicle sales is expected to reach between 11.5 and 12 million in 2010. Toyota anticipated this decline in sales and has dealt with it in “The Toyota Way” that has been in place for the last 70 years—the basic premise being respect for people and striving for continuous improvement. TMMK experienced its first operating loss in FY 2009. Through everyone working together and “shared sacrifice,” costs were reduced, but because Toyota respects its team members, there were no layoffs. The impact of the sales decline was felt less in Kentucky than in Indiana and Texas facilities, where there were significant shutdowns in production. TMMK had to stop production only for a couple of weeks collectively. The “Cash for Clunkers” program stimulated sales in August 2009, and overall sales are going up. After experiencing three major recalls in 2009 and 2010—floormats, accelerator pedal, and ABS software—and subsequent congressional hearings, Toyota has been able to identify the problems and act to resolve them. Those actions included stopping vehicle sales; implementing additional safety features; pursuing scientific investigation through independent testing; working with the National Highway Traffic Safety Administration (NHTSA) and National Aeronautics and Space Administration (NASA) engineers; creation of a Safety Advisory Panel; and development of SMART teams (Swift Market Analysis Response Team) as part of a customer satisfaction/repair campaign. More than 8.5 million vehicles had to be examined. Inspections of 4.7 million vehicles have been completed, including 80 percent that potentially had sticky accelerator pedals. In addition, Toyota Motor Corporation created a Special Committee for Global Quality to ensure a swift reaction to the problems. As a result, Toyota is refocusing on its customers and will become stronger. Regulatory changes in the auto industry are also expected.
In conclusion, Mr. Menke said that TMMK is grateful for the continued support of its customers and the community and is determined to continue earning their trust. He said Toyota has learned from its mistakes and is taking major steps to avoid them in the future. He also encouraged everyone to join the plant tour and invited them to visit again at any time.
Representative Denham said that a number of his constituents work at TMMK, and he expressed appreciation for the employment opportunity that Toyota has given Kentuckians. In response to a question from Representative Denham, Mr. Menke said that the best thing about doing business in Kentucky is the people and their creativeness. Staying competitive is probably the biggest challenge; it requires looking at the cost of doing business in this state and how the cost compares with other competitors and surrounding states.
In response to a question from Representative Riggs, Mr. Menke said that NHTSA did its own investigation into unintended acceleration and driver error and did not find that the equipment operated incorrectly. As the data comes in, the facts speak for themselves. He said that one of Toyota’s fundamental principles is respect for people and that laying blame on operator error does not help anyone. As a proactive measure Toyota is now placing greater emphasis on educating customers about their car’s systems and features.
Senator Thayer said that the gas pedal issue turned out to be much ado about very little and gave Toyota’s competitors and some people in Washington, D.C. and labor unions an opportunity to unfairly criticize Toyota. He said he is proud of the integrity that Toyota displayed in responding to the challenge and believes the Company will become stronger as a result. He added that he owns a Toyota and is gratified to see the loyalty of other Toyota vehicle owners.
Representative Hoffman spoke about TMMK’s commitment to Kentucky and the Georgetown community and how citizens have rallied in support of the Company. He also thanked TMMK for keeping the legislature informed. In response to a question from Representative Hoffman regarding future expectations relating to U. S. auto production, Mr. Menke said that a minimum of 12 million vehicles need to be produced each year in order to provide enough new vehicles and replace ones that need to be retired. The industry, of course, would like to see that number higher than 12 million but that it will probably take quite a while to reach above the 16 million mark of 2007. One benefit of the economic downturn and higher standard of customer expectation is that all automakers are producing better quality vehicles.
Senator Kerr expressed appreciation for the jobs that TMMK provides to her constituents in Fayette County.
House Majority Floor Leader Rocky Adkins, a guest at the meeting, said that because of TMMK’s commitment to the AK Steel Corporation in Ashland, the steel mill is now back in full production, employing 1,400 people. It has also reopened a line that was closed for a number of years, resulting in an additional 140 jobs. On behalf of AK Steel—and on behalf of the coal miners of eastern and western Kentucky that help businesses stay competitive through the availability of low-cost energy—he thanked TMMK for its positive impact on the state’s economy. Senator Thayer thanked Representative Adkins for attending and for his comments.
In response to a question from Representative Ford, Mr. Menke said that when operating at maximum capacity during 2006-2007, there were about 7,200 team members at TMMK; through attrition that number is now down to 6,800. Regarding staying competitive, TMMK looks at surrounding states for good ideas that might be applied at the Georgetown facility. It is also essential to maintain an adequate “work ready” workforce to replace team members who are expected to retire, now that the facility has been in operation nearly 25 years.
Senator Webb said that when she was a young legislative staffer she did legal analysis relating to bringing Toyota to Kentucky and that she is happy to have been involved in the project. She thanked TMMK for its continuing support of important heritage and cultural issues, even during lean budget times.
Senator Higdon thanked TMMK for its generosity to its suppliers and for the positive impact it has had on the standard of living in his district. He said that Mercer, Nelson, Taylor, and Washington Counties each have at least one Toyota supplier and that there are several in Marion County.
Representative McKee thanked TMMK for what it does not only for central Kentucky but also for the economy of the entire country. In response to a question from Representative McKee regarding Toyota’s venture into professional racing, Mr. Menke said that the updates received from Toyota’s racing division have always been very positive, even during the economic downtown, and that he expects support for it to continue.
Senator Schickel expressed gratitude to TMMK for the jobs it provides in Georgetown for residents of Boone, Gallatin and Kenton Counties, as well as at the worldwide headquarters located in northern Kentucky and the parts plant in Hebron.
Senator Blevins said he was in the legislature in the 1980s and had supported bringing Toyota to Kentucky. He thanked TMMK for what it has done for the Georgetown community and the benefits it has brought to the entire state.
In response to a question from Representative Stevens regarding the generational composition of TMMK’s workforce, Mr. Menke said he did not have the age breakdown but that TMMK strives to have a diverse workforce with a good distribution across all the generations. In response to a request from Representative Stevens, Mr. Menke said he would be glad to provide information about the generational breakdown and how many workers fall into the Generation Y age group.
Representative Tilley spoke about Japanese companies and other businesses in Christian and Trigg Counties that have partnered with Toyota. He said that Toyota has played a huge part in bringing other Japanese companies to Kentucky and that communities all around the Commonwealth are affected in a positive way by TMMK’s presence in Georgetown.
Representative Graham commended TMMK’s Barbara McDaniel for her leadership while serving with him on the state YMCA Board of Directors. He said she exemplifies Toyota’s educational efforts and philosophy of community service.
Representative Carney said that TMMK helps the economy in his district also. He stated that there should be more emphasis on career and technical training in the public school system. In response to a question from Representative Carney, Mr. Menke said he believes preparing students for work in the auto industry, as well as other industries, directly out of high school would help and that TMMK has been working with Project Lead the Way and similar programs that are reaching into the middle schools to expose students to potential opportunities in manufacturing and other areas of business. He said they have developed a pilot mentoring program that pays high school graduates to work part-time alongside a team member and attend classes at TMMK.
Senator Thayer thanked everyone for attending and said that the meeting has achieved his goal to increase appreciation for the wide footprint and positive impact of Toyota in the Commonwealth. He invited members to stay for the lunch being hosted by TMMK and then enjoy a guided tour of the facility.
Business concluded, and the meeting was adjourned at 12:00 noon.