The6th meeting of the Interim Joint Committee on Economic Development and Tourism was held on Thursday, November 18, 2004, at 1:00 PM, in Room 149 of the Capitol Annex. Senator Katie Stine and Representative Eddie Ballard, Co-Chairs, called the meeting to order, and the secretary called the roll.
Members:Senator Katie Stine, Co-Chair; Representative Eddie Ballard, Co-Chair; Senators Julie Denton, Brett Guthrie, Alice Kerr, Vernie McGaha, Joey Pendleton, Jerry Rhoads, and Damon Thayer; Representatives Royce Adams, Carolyn Belcher, Perry Clark, Tim Couch, Bob DeWeese, C.B. Embry Jr., Bill Farmer, Keith Hall, Mike Harmon, Mary Harper, Dennis Horlander, Thomas Kerr, Stan Lee, Thomas McKee, Brad Montell, Ruth Ann Palumbo, Brandon Smith, John Will Stacy, Tommy Thompson, Charles Walton, and Mike Weaver.
Guests: Joan Coleman, Vice President, Regulatory and External Affairs, BellSouth; Colonel David Casey, Director of Law Enforcement, Kentucky Fish and Wildlife Resources, Commerce Cabinet; Jay Hall, Executive Director, Office for Legislative Services, Governor's Office for Local Development; Paul A. Coomes, Professor of Economics, College of Business and Public Administration, University of Louisville.
LRC Staff: John Buckner, Committee Staff Administrator; Karen Armstrong-Cummings; Lou Pierce; and Dawn Johnson.
A motion to approve the October 21 minutes was made by Representative Ancel Smith, seconded by Senator Stine, and approved by voice vote.
Ms. Joan Coleman, Vice President of Regulatory and External Affairs for BellSouth discussed broadband deployment in Kentucky. Ms. Coleman thanked the committee for their support in the telecommunications industry. She stated that during the 2004 Regular Session the legislature took a progressive step in passing the Broadband Parity Act which has made a significant, positive impact across the state. Ms. Coleman explained that broadband is important to the state because, much like the highways opened up many areas of Kentucky to industry, broadband internet access opens the state to the world. She said broadband internet access is vital to Kentucky's growth and competitive future. A January connectKentucky report indicated broadband deployment would generate up to 14,000 jobs in various industries as well as create $5 billion in revenue over the next ten years. Additionally, it will provide choices for consumers for video, data and voice communications needs.
Ms. Coleman said the purpose of BellSouth's testimony during the 2004 Regular Session was to modify state regulations, to encourage broadband incentives and investments needed to compete globally. Nationally, the National Conference of State Legislatures (NCSL) and the American Legislative Exchange Council (ALEC) have issued policy statements regarding telecommunications, emphasizing the need for policy legislation that encourages fair and open competition regardless of the technology used, elimination of obsolete and burdensome regulations, and to promote innovation and investment. Ms. Coleman said the Federal Communications Commission (FCC) released a decision on November 12 on the Vonage case that preempted state regulatory agencies from regulating voice over internet protocol (VoIP). In the decision, the FCC emphasized the importance that states have a role in protecting consumers from fraud, enforcing fair business practices, and responding to consumers' inquiries and complaints. They also indicated a need to allow innovative services grow in the free market system to benefit consumers.
Ms. Coleman said the 2004 Broadband Parity Act is an excellent example of how a state can update laws to keep pace with the technological and market changes seen in telecommunications. Accessible high speed internet services is vital to consumers, entrepreneurs, and small and large business owners alike. She said Kentuckians, especially in rural areas, have access to broadband internet services now. Ms. Coleman said the Parity Act removed some of the unnecessary state regulatory barriers and encouraged companies like BellSouth to further expand their broadband service to an additional 109 locations. Referring to handouts, Ms. Coleman pointed out that BellSouth will have covered 100 percent of their territory with broadband service by mid-2005. Additional investment in cable, power, and wireless companies is also occurring. VoIP, telemedicine, distance learning, expanded work-at-home options and enhanced educational opportunities are more widely available now.
Ms. Coleman said competitors can still get broadband on a wholesale basis. She said House Bill (HB) 267 also helped expand the broadband market for internet service providers and competitive local exchange carriers. BellSouth's competitors have been able to continue to market their Digital Subscriber Line (DSL) by working with BellSouth in accessing their network. In addition, BellSouth recently reduced its wholesale and retail pricing, making DSL more affordable for wholesale as well as retail customers. Ms. Coleman said in September, BellSouth lowed the price for its flagship Fast Access DSL service by $7 per month for their customers.
Ms. Coleman said the Parity Act is a great start for Kentucky but there is still work to do. With new technologies evolving everyday, they must be proactive in helping citizens reap the rewards of the information age. Ms. Coleman said despite recent moves by the FCC, nationally, laws and regulations governing telecommunications are woefully outdated--some dating back to 1934. The 1996 Telecommunications Act, the most recent national policy statement, was 128 pages long but only mentioned the internet twice, barely mentioned wireless, much less VoIP. She said consumers benefit when they, not regulators, choose providers in the highly competitive communications market. She said laws should encourage innovation and adoption of new technologies. BellSouth hopes that Congress will address these issues next year.
Representative Ballard asked how many communities do not have broadband service. Ms. Coleman said she was unsure but across the state cable broadband providers cover approximately 57 percent.
Representative Belcher said that last year (HB) 627 called for the establishment of a broadband task force and asked what the status of this is. Representative Ballard said, to his knowledge the task force has not been appointed. Representative Belcher pointed out that the first report is due December 1. Representative Ballard added that the task force was not assigned to the committee but he would inquire as to the status.
Representative Hall asked if broadband costs were reduced for wholesalers. Ms. Coleman said yes, by approximately $5 per line depending on the service.
Representative Hall asked if competition was being hurt by the Parity Act. Ms. Coleman said the competition is stronger than ever. She said BellSouth covers a small portion in the state while cable companies continue to grow.
Representative Hall asked what percentage of the long distance, DSL, and phone service market BellSouth has. Ms. Coleman replied regionally, BellSouth has 40 percent of the long distance market but did not know the percentage for Kentucky. She said they have approximately 50,000 DSL lines in the state and about 120,000 broadband lines.
Representative Hall asked if there were any complaints of blocking service such as sharing remote terminals (RTs), from subscribers who purchase from BellSouth. Ms. Coleman said no, subscribers have the same access to RTs. They provide access to according to BellSouth's federal tariff. She said they are negotiating, based on the Parity Act, amendments to their contracts that change the way they provide DSL service to subscribers, making it consistent with the federal tariffs already in place. They have been unable to negotiate agreements with these parties but they are continuing to move forward due to negotiation requirements. Representative Hall said a major concern when passing the Parity Act was that the legislature would impede competition and become monopolistic therefore he hoped the spirit of cooperation still exists. Ms. Coleman clarified that, of the 235,000 broadband lines in Kentucky, BellSouth has approximately 50,000.
Mr. Lee Murphy with the Kentucky Internet Service Providers Association (KISPA) asked to comment on the Broadband Parity Act. He said KISPA is composed of approximately 70 independent companies. He said they have been the driving force behind the internet since its inception. They were the first to offer electronic bulletin boards and the first to offer 14.4, 19, 336, and 56K dial-up access in Kentucky. He said HB 627 created a task force that gave KISPA a seat at the table to discuss the problems of broadband in Kentucky. Unfortunately the task force was never created. He said there are still broadband parity issues throughout the state in getting wholesale access to lines and pieces of the network that BellSouth owns. Mr. Murphy stated that although BellSouth's representative said there was a reduction in wholesale pricing, his rate increased from $32.50 to $35. All KISPA is asking for, Mr. Murphy said, is that the task force be created and KISPA be a part of it. He said now that HB 627 has passed they no longer can turn to the Public Service Commission (PSC) to resolve issues. He said BellSouth asking that competitors not have to be given open access to their network has filed an issue with the FCC. He said it is very difficult for small business to go to Washington to lobby or go to the FCC, file comments and then follow them up. He said this was KISPA's main concern and why they fought for HB 627 on behalf of small businesses. Mr. Murphy said KISPA is asking the committee to look at why the task force has not been created and to make sure they have a seat on the task force as promised.
Representative Ballard said he and Senator Stine would make a formal request as to why the task force has not been created.
Representative Rocky Adkins asked how long it takes BellSouth to process a request for RT access. Mr. Murphy said a lot of times, after developing a business plan for an under-served area then investing in equipment they request access from BellSouth who in turn begins servicing that area before they are given access. Responding to Representative Adkins' question, Mr. Murphy said in the past, independent companies turned to the PSC to voice a grievance but HB 627, as it was passed, took away that ability. Representative Adkins said the task force should be formed to discuss these and other issues. Mr. Murphy stated that they are not seeing parity and many small providers have invested their life savings in their network deployments. He stated that most of these small companies provide high paying jobs and benefits to their employees who could be hurt if the company goes out of business.
Representative Ballard asked if this has had an economic impact on KISPA members. Mr. Murphy stated they have refocused their broadband deployment more on wireless technology than on DSL because it is more difficult for them to purchase DSL. He said although they can get to the customer's house cheaper they must pay a more expensive loop to return it back to them, so overall it is not cheaper. He said they have received no wholesale discount.
Addressing Representative Adkins comments on access to the network, Ms. Coleman said unbundled network elements, the pieces of the network that BellSouth still has, are under the PSC's jurisdiction. Regarding DSL, she said any ISP will receive the service as soon as it is requested. Based on that information Representative Adkins asked if the independent providers could still file a complaint to the PSC. Ms. Coleman said the unbundled network elements are still under the PSC's jurisdiction. She said as far as access to BellSouth's broadband network, the wholesale DSL product has been reduced.
Representative Hall stated he was a supporter of HB 627 because he wanted to provide better broadband services for his constituents in eastern Kentucky previously had poor DSL services.
Representative Belcher asked Ms. Coleman to clarify the statement that BellSouth has requested relief through the FCC. Ms. Coleman stated BellSouth is working through the FCC on issues of outdated regulations that have not kept up with technology and worldwide competitiveness. She said they are providing evidence of the additional regulatory costs that BellSouth has at the federal level which adds about $3.50 to each customer's DSL line. For clarification, Representative Belcher asked if BellSouth is requesting relief of having to provide access to competitors. Ms. Coleman said they want to eliminate, at the FCC level, requirements that keep them from negotiating specific terms and conditions as well as price with different service providers to respond to their individual needs. She said it takes over two years to get a product to market due to fulfilling requirements to provide all services to every customer even though an ISP might not want that service. Mr. Murphy added that on the FCC level is a pending U.S. Supreme Court case (Brand X) which would require cable companies to provide open access to competitors the same as telephone companies do. He said BellSouth entered an amicus brief in support of cable companies not allowing open access and then filed a forbearance issue asking that they not be forced to provide open access because cable companies are not forced to.
Next, Colonel David Casey, Director of Law Enforcement with Kentucky Fish and Wildlife Resources gave the committee a brief overview of Kentucky's boat motor regulations and guidelines. He said there are 145 wildlife boating officers across the state. In most areas they are the only police on the water. He said boat registrations are at an all time high of 176,000 and the U.S. Army Corp. of Engineers reports 120 million lake visits in Kentucky. This year there was an all time low of nine fatalities statewide. Colonel Casey said their primary mission is safety. He said the National Transportation Safety Board continues to have recreational boater safety on its ten most wanted list for safety improvements. Two out of every five people that die in a boating accident involves being under the influence of alcohol. Boating citations, drinking in public, alcohol intoxication, and boating under the influence (BUI) are all down from recent years. Colonel Casey said their education programs and enforcement efforts appear to be working well.
Colonel Casey said, in 1998, Representative Royce Adams sponsored HB 1 creating a mandatory boater education course for youths between the age of 12 and 17 to operate a vessel over ten horse power. In 1998, the first BUI legislation was passed and in 2000 the penalties were doubled. Colonel Casey noted that a physical injury such as a broken arm while in the water can be life-threatening. While boating officers contact in enforcement settings approximately 150,000 people a year, they issue citations to less than 10,000. The other 140,000 contacts are used to inform people about laws and safety concerns.
Representative Ballard said several constituents contacted him about the horsepower of some motors being intentionally mislabeled as 150 horsepower instead of 200. Colonel Casey said that regulation was passed several years ago and Lake Beshear and Lake Malone are the only two lakes that have 150 horsepower limit. He said enforcement officers look at serial numbers if they are in doubt and issue a citation if the operator is over the limit. Representative Ballard inquired as to the penalty amount to which Colonel Casey replied it is a minimum of $50 in court costs.
Senator Kerr asked how alcohol intoxication violations are handled with houseboats. Colonel Casey said it is illegal to drink in a public place and, while trying not to impede on a person's recreation time, if they are in the open on public water they cannot consume alcoholic beverages. Inside the living compartment of a houseboat is considered a domicile therefore alcohol can be consumed there. He said generally officers do not cite a person for drinking in public unless they are doing something to draw attention to themselves.
Senator Kerr asked about officer credentialing. Colonel Casey said their officers are Police Officer Professional Standards Certified. All recruits go through the 16-week basic law enforcement training at Eastern State University. Afterwards, they attend a nine week wildlife and boating officer training course and another ten weeks with a field training officer.
Representative McKee asked if the same rules apply to a personal water craft (PWC) as to a boat. Colonel Casey said they are considered boats and are registered as such. Regulations are more strict on PWC including requiring a life vest, having a kill-switch attached to the operator and not operating at night.
Senator Stine reviewed the Report of the Interim joint Committee on Economic Development and Tourism: A Committee Study of the Lexington/Big Sandy Railtrail (2004 House Concurrent Resolution 8) for final approval. She said specifically the committee was charged with proposing solutions to overcome barriers to the trail's development, to look for potential funding sources to complete the trail, to set a projected date for completion, and to offer recommendations on entities best suited to implement a strategy to complete and administer the trail. After extensive discussion at the July 21 meeting the committee issued the following: 1.) The Special Task Force on Feasibility of Rails to Trails conducted a thorough study in 1998 and no further study of the subject is required by legislative committee. 2.) The 1998 Special Task Force issued 12 specific recommendations and the committee finds they were reasonable and necessary. 3.) The committee finds that 2000 HB 221 provided necessary and appropriate statutory authority and mechanism. 4.) The committee finds that 2000 HB 221 adequately addresses liability concerns expressed by owners of property surrounding the railtrail through which it passes. 5.) The committee finds that HB 221 enacted a railbanking law that is operating adequately. 6.) the committee recommends that the General Assembly consider legislation to require the development and dissemination of a manual in a timely manner to govern and assist entities who would like to participate in the railtrail program. 7.) The committee was impressed with the work of the Rails-to-Trails Conservancy which published the Secrets of Successful Rail-Trails: An Acquisition and Organization Manual for Converting Rails into Trails." 8.) The committee finds there is a general lack of understanding of state railbanking laws and the rail-to-trail development process among local government and interested private groups and the committee encourages the Railtrail Development Office to better publicize its program through meetings with local government and interested private groups. 9.) Duties and responsibilities of the Railtrail Development Office are extensive and require fulltime staffing by the Department of Local Government. The committee commends the Department of Local Government's renewed emphasis upon local economic development and encourages the Department to consider tourism development as an important component of economic development, particularly in rural communities. 10.) The committee finds that the appropriate mechanisms are in place and the committee recommends that the Railtrail Development Office take a leadership role in the process by bringing together elected officials from each affected county, private groups that have an interest in the development of this trail and representatives from state agencies that have statutory responsibility for various components of the Commonwealth's Railtrail Development Program. 11.) The committee finds that the development of the Lexington/Big Sandy Railtrail to be a meritorious project. 12.) The committee finds that the development of a statewide network of railtrails is a meritorious endeavor.
Commenting on the report were Jay Hall, Executive Director of the Office for Legislative Services for the Governor's Office for Local Development (GOLD) along with Miralee Smith-Caley, Director, Division of Grants. Mr. Hall said GOLD sees a great deal of value in the rails-to-trails program, not only through tourism but also quality of life issues by promoting healthier lifestyles. He said since the committee's July 15 meeting GOLD has reorganized, moving the rails-to-trails program under the Division of Grants and consolidating it with the recreational trails and land and water grants programs. This was done to use multiple funding for the projects and because the rails-to-trails program has not been funded since HB 221 passed in 2000. Several federal funding sources that flow through the state have been used for the program. Addressing the committee's report, Mr. Hall said they would like to have a meeting with all agencies involved in the rails-to-trails initiative to develop a strategy, issue a manual, and to evaluate funding resources such as the TEA-21 Recreational Trails Land and Water Fund, Federal Public Lands Highway Discretionary Fund, and the Brownfields Redevelopment Initiative. They would also like to develop a strategy to disseminate this information to local governments.
There being no further discussion, motion was made by Senator Thayer and seconded by Senator Kerr to approve the report by voice vote. Motion carried.
Next, Paul Coomes, Professor of Economics with the University of Louisville provided an overview of his report: Kentucky's Economic Competitiveness; A Call for Modernization of the State's Fiscal Policies which was funded by the chambers of Fayette County, northern Kentucky and Jefferson County. Campbell County Judge Executive Steve Pendry, chairman of Triad, the economic development agency for Kentucky's three northernmost counties began, stating the report was not about urban versus rural interest. He said the state ranks almost last in nearly every economic performance area. He said economic development should be about creating wealth so everyone in the state benefits. He said Dr. Coomes' analysis helps explain why Kentucky ranks so low and what can be done to compete with surrounding states.
Professor Coomes explained that urban economies must be the engines for prosperity but Kentucky is failing. He said Louisville has been bypassed by Nashville and Indianapolis over the past 30 years. Professor Coomes explained that contrary to popular belief, Kentucky is now an urban state, not rural. Kentucky now has nine metropolitan areas containing 2.4 million residents with over half of Kentuckians living in a metropolitan area. He said micropolitan areas, which have at least 20,000 residents and are regional employment centers, contain about 700,000 people. Sixty-one counties are either in metropolitan or micropolitan areas containing 3.1 million residents.
Professor Coomes said that although about 3.5 million manufacturing jobs have been lost nationally since 1990, the U.S. economy added over 5 million professional and business services in the last decade, with an average salary of $60,000 per year. He said although it is believed Kentucky is primarily an agricultural state it makes up only 3.5 percent of the state's payroll. Kentucky ranks 46th in its ability to capture high-paying office economy jobs. He said these type operations tend to locate in large labor markets, near airports, and clusters of similar firms, and graduate programs to keep people trained.
He pointed out that urban areas in Kentucky have the highest college attainment rates and there is a clear correlation between formal education and income. He said no Kentucky county is above the national average in either measure. In metro area peer comparisons Louisville fared poorly in nearly every category--job growth, population growth, education, office economy jobs, average earnings, etc. He said Lexington was doing better than other Kentucky cities, due probably to manufacturing growth.
Professor Coomes said there are various factors that affect Kentucky's fiscal policies including health issues which increase the state's Medicaid costs. He suggested that an increase in the state's cigarette tax to approximately 50 cents might cover some of these costs and be a disincentive to smoke. Professor Coomes said this also might offset the revenue lost by lowering personal income tax--his main recommendation. He suggested lowering Kentucky's top income tax rate a percentage point. This would send a signal that Kentucky wants to attract talented, prosperous people and signal that the rate is going down, not up. He said this would get national attention.
Professor Coomes also suggested suspending HB 44 relating to capital and property tax. He said there is almost no inflation in the economy and there is no reason why local school districts and county governments could not capture some of the rising appreciation of the real estate market. Currently, it is capped at four percent growth a year, which is reached every year and then tax rates have to be lowered to stay under the cap.
Professor Coomes suggested requiring more local matching money by levying occupational taxes. Also, the funding formulas for gas taxes should be based upon where people drive. He suggested that, with today's technology, state government does not need to be centralized. He also suggested fixing the gaming leakage since the state already has gaming. Kentucky is losing approximately $200 million per year in taxes. He suggested privatizing Kentucky's state resort operations. He said Kentucky has the most resort parks of any other state. They are subsidized every year, approximately costing $25 million per year. Professor Coomes suggested the use of local option sales taxes with a reduction in other large taxes.
Steve Higdon, President and CEO of Greater Louisville, Inc. said that, based on the report, the Commonwealth is not competitive in economic development. Every city in the state is losing in the competition with other states. He said North Carolina which used to be only farmland is now one of the fastest growing states in the nation. Louisville's chief competitor, Nashville, in the last year and a half has attracted six corporate headquarters that average over $1 billion in sales. Louisville has lost three corporate headquarters. Mr. Higdon said outdated regulations, tax structure, and spending formulas have made the entire state noncompetitive and this must change for Kentucky to move forward.
Senator Denton said she hoped the committee understood that this report is not an urban versus rural issue. She said this issue should begin in the committee since it is its jurisdiction. Senator Denton asked, for every dollar collected in taxes, sent to Frankfort, then distributed to the counties, how much was wasted. Professor said he could not say specifically but he was surprised at the community projects that filter through the budget for things like sidewalk repair.
Senator Pendleton said they will need to explain to rural constituents how the process will work for them to support it. Mr. Higdon agreed that it would be a major educational process that will take time. He said right now there are no recommendations from the report but it is important to note that Kentucky is not competitive yet surrounding states are.
Representative Weaver asked if the 2004 tax plan was comprehensive enough to make Kentucky competitive or if more research should be done. Professor Coomes said he believed the issue had been studied enough that it was the art of moving from the theoretical to the practical. He said he could provide the standard public finance criteria used to design an ideal tax system, of which Kentucky is violating almost every aspect. Mr. Higdon said he believed the single biggest issue is the personal income tax.
There being no further business, the committee adjourned at 3:23 p.m.