Interim Joint Committee on

Economic Development and Tourism


Minutes of the<MeetNo1> 2nd Meeting

of the 2005 Interim


<MeetMDY1> September 15, 2005


The<MeetNo2> 2nd meeting of the Interim Joint Committee on Economic Development and Tourism was held on<Day> Thursday,<MeetMDY2> September 15, 2005, at<MeetTime> 1:00 PM, in<Room> Room 149 of the Capitol Annex. Representative Eddie Ballard, Co-Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Alice Kerr, Co-Chair; Representative Eddie Ballard, Co-Chair; Senators Julian M Carroll, Julie Denton, Brett Guthrie, Denise Harper Angel, Ray S Jones II, Richie Sanders Jr, Katie Stine, and Jack Westwood; Representatives Carolyn Belcher, Joe Bowen, Kevin D Bratcher, Denver Butler, James Carr, Tim Couch, Jim DeCesare, W Milward Dedman Jr, Mike Denham, Bob M DeWeese, Ted "Teddy" Edmonds, Jim Gooch Jr, W Keith Hall, Mike Harmon, Mary Harper, Melvin B Henley, Dennis Keene, Thomas Kerr, Stan Lee, Gerry Lynn, Thomas M McKee, Brad Montell, Fred Nesler, David Osborne, Ruth Ann Palumbo, Tanya G Pullin, Ancel Smith, John Will Stacy, Tommy Thompson, and Mike Weaver.


Guests: Randy Fiveash, Commissioner, Department of Tourism, and John Kington, Deputy Commissioner of Support Services, Department of Parks, Commerce Cabinet; Hollie Spade, Executive Director, Office of Legal Services, Kentucky Cabinet for Economic Development; Stephanie Stumbo, Executive Director, Kentucky Community Development Office; Trey Grayson, Secretary of State, Allen Eskridge, Assistant Secretary of State, and Les Fugate, Director of Communications, Secretary of State's Office.


LRC Staff: John Buckner, Committee Staff Administrator; Karen Armstrong-Cummings; Lou Pierce; and Dawn Johnson.


A motion to approve the June 16 minutes was made by Representative Belcher, seconded by Representative Hall, and approved by voice vote.


An update on the Kentucky Commerce Cabinet was given by Randy Fiveash, Commissioner of the Department of Tourism, and John Kington, Deputy Commissioner of Support Services, Department of Parks. Referring to a PowerPoint presentation, Commissioner Fiveash said that the 1 percent transient room lodging tax on suites, rooms, and cabins went into effect June 1, 2005. He said it is paid by everyone and collected by any business providing accommodations, except campgrounds. Receipts from the tax are deposited into the Tourism Meeting and Convention Marketing Fund, which is administered by the Commerce Cabinet. The fund will be used for nonprofit entities only, and for the sole purpose of marketing and promoting areas that will bring tourists and conventions to Kentucky. It is estimated to generate approximately $8 million annually. Some eligible projects include: tourism publications, media advertising, signage, convention trade shows, etc.


Commissioner Fiveash explained that the funds would be divided into three pools of money. The first, approximately $800,000, will be allocated proportionally to the nine tourism regions in the state at an 80/20 percent match. The second pool, approximately $6,000,000, will be used for approved projects and matched on a 50/50 basis. The third pool, approximately $1,200,000, will be used for projects affecting the entire state. The program operates on a one-year project cycle from May 1, 2005 through April 30, 2006, with a November 1, 2005 project application deadline and a May 1, 2006 project reimbursement deadline.


Regarding the Tourism Development Act (TDA), Commissioner Fiveash noted that the act has been amended several times and the Commerce Cabinet will be requesting legislation to clarify past amendments to more clearly define qualifying projects and to clarify inducements.  The commissioner noted that Todd Cassidy is the administrator of the TDA as well as the Director of the Kentucky Film Office.  The commissioner stated that he, the Governor, and other staff members met in Los Angeles with several key movie industry representatives to discuss incentives to bring future films to Kentucky. Staff is currently working on a study and proposals to increase the state's participation. When complete, the results will be presented to the committee.


Representative Montell expressed concern about the allocation of statewide matching funds. The commissioner explained that the monies are derived from the 1 percent lodging tax and do not include normally budgeted general funds. He said that although the allocation does not make the state competitive with surrounding states, it is an improvement. He said the cabinet is providing solid information so that everyone is using the funds cohesively for marketing. Representative Montell said qualifying for the funds appeared to favor large areas because of convention centers, etc. and expressed concern about smaller areas being left out.  Commissioner said each of the nine tourism regions is being visited to explain the program. He explained that the larger regions collect more but every county will receive funds. He said 40 counties have no lodging facilities but still receive funds.


Senator Westwood asked if the fund included bed and breakfasts.  Commissioner said the only lodging facilities not included are campgrounds.


Senator Westwood asked for an update on the Elizabethtown project.  Commissioner Fiveash said director Cameron Crow was so pleased with his experience in Kentucky that the world premier of the film would be held in Elizabethtown. He also noted that Dreamer, a Dreamworks production, would be premiered in Lexington.


Senator Sanders expressed concern that signage for Mammoth Cave National Park is inadequate.  Commissioner said he agreed and would be contacting the Transportation Cabinet. He said part of the cabinet's media campaign was to include the Cave in television commercials for the first time ever.


Representative Henley asked if the matching funds would be reallocated for each region as percentages change.  Commissioner replied yes.


Representative DeCesare asked if state-owned facilities collect the lodging tax and if so is it included in the fund.  Commissioner answered yes. Representative DeCesare asked if efforts were being made to get soundtrack videos for Elizabethtown made in the state.  Commissioner said he had not heard of any but they would pursue it. Representative DeCesare said he would like to see more effort being made by the state in promoting Mammoth Cave.


Responding to Representative Hall's questions, Commissioner Fiveash said representatives are from either the convention bureau, the visitors bureau, or the tourism commission of each county. If there is not one the county judge will appoint someone. He said the process remains the. A project must meet a set of criteria. First, the applicant must be a nonprofit organization. An application is completed, reviewed by cabinet staff, then sent to county representatives who review, prioritize, and make recommendations. The cabinet makes the final decision.


Referring to signage at Mammoth Cave, John Kington, Deputy Commissioner of Department of Parks stated that "brown" signs, which are issued by the federal government, must be applied for. He said perhaps the Commerce Cabinet could apply for signs on their behalf.


Mr. Kington said the department's pricing policy is to be competitive with the private sector so as not to hurt local businesses or short-change tax payers. He said there are three rooms rates: in-season, shoulder, and winter rate.


Representative Ballard asked about Pennyrile State Park's golf cart policy. Mr. Kington said all new state park golf courses do not allow private carts. This practice mirrors the private sector. He said most private golf courses either do not allow private golf carts or are in the process of eliminating them. He explained that this is mainly due to revenue. A lesser factor is that some private carts destroy the golf course. Representative Ballard asked if this affected course usage. Mr. Kington said last year they had a slight increase in usage.


Responding to Representative Nesler's question on state park revenues, Mr. Kington said state parks have been losing money but golf course usage and course revenues were up slightly. He said state park usage is being affected by school calendar changes. He said the prime season previously ran from Memorial Day to Labor Day but that has been reduced significantly, noting that General Burnside State Park closed their community pool August 1 due to lack of lifeguards who left for school. He said other states are experiencing the same problem. Mr. Kington said the parks also have not been successful at attracting new convention/meeting business Sunday through Thursday which is partially due to competition and alcohol sales. He said out-of-state casinos also affect business. The Department hired two sales people who are focusing on state and federal agencies and corporate business. Mr. Kington said they are trying to capitalize on the October and February breaks in the school year and they have started a new program, "Family Adventure Quest." Families visit a park and complete a list of fun quests to receive a $100 state park gift card. Mr. Kington said the inability of parks to serve alcohol sale could be affecting attendance also.


In response to Representative Butler, Mr. Kington said the parks sell annual golf passes and senior citizen discount passes. Representative Butler expressed concern that banning personal golf carts would affect seniors who play golf frequently. Mr. Kington said that the parks are mirroring public golf courses but noted that cart rentals are low compared to public courses.


Representative Palumbo said the Department might consider retirees, families with preschool children as well as couples with no children. Mr. Kington said there are all-inclusive packages for seniors, a military discount, and discount rates for state employees. He said the new sales force is also working on other ideas.


Representative Edmonds stated that the Natural Bridge/Red River Gorge area was identified as one of the top five rock climbing areas in the nation and asked why this has not been capitalized upon. Mr. Kington said there is a trekking series at several state parks including Natural Bridge but groups must be small to maintain control and safety.


Representative Lee asked if privatizing state park operations had been considered. Mr. Kington said there has been discussion at Burnside and Green River State Park to lease the land to construct a hotel but that was all. He said maintaining park grounds was the largest expense, not running the lodges.


Responding to Representative DeCesare, Mr. Kington said Internet service is being added to all state parks. Two parks have wireless Internet and the remaining parks will have service soon.


Next Ms. Hollie Spade, Executive Director, Office of Legal Services, and J.R. Wilhite, Commissioner, Department for Existing Business, Kentucky Cabinet for Economic Development appeared before the committee to explain Resolutions 05-02, 05-03 and Executive Order 2005-571. Ms Spade said Resolution 05-03 changes the name of the Department for Innovation and Commercialization for a Knowledge-Based Economy to the Department for Commercialization and Innovation (DCI). Resolution 05-02 transfers single county funds and programmatic oversight to the Kentucky Community Development Office. The Department for Regional Development was abolished so the remaining duties for the multi-county funds have been shifted to the Department for New Business Development.


Ms. Spade explained that the Governor's Executive Order 2005-571 moves the Commission of Small Business Advocacy to the Cabinet for Economic Development. The Division of Small Business Services, Department of Existing Business will work with the Commission. The reorganization changes the number of members of the commission, the set-up, created an executive director position, and provides funding that will allow implementation of some their ideas and issues of concern. Ms. Spade said funding is in the 2005 budget.


Senator Westwood pointed out a technical error on page 1 correcting "CBSA" to "CSBA."


Representative Palumbo said the small business community is concerned about the executive order. She said the purpose of the commission was to be representative of every segment of the small business community and to give them a voice. She said it was put under the Governor's office because of its significance. Representative Palumbo stated she was speaking for the small business community in making a motion that the committee send a letter to the Legislative Research Commission, the Cabinet for Economic Development (CED), the Commerce Cabinet and the Governor expressing displeasure with Executive Order 2005-571. Representative McKee seconded the motion. Representative DeCesare stated he would like more time to review the executive order's content before making a decision. Representative Montell said he shared some concerns mentioned by Representative Palumbo; however, the Commission was not effective because their hands were tied. He said the reorganization should be given an opportunity to work but he was concerned about it being under the CED because their focus is predominantly on large businesses. Representative Palumbo withdrew her motion so that committee members could review the executive order and discuss it with their communities. Representative McKee withdrew his second to the motion.


Gene Fuqua, Chief of Staff of the Cabinet for Economic Development said one of the reasons for moving the CSBA to the cabinet is that it is their job to work with all types of businesses across the state--big and small. He said previously the commission had no budget and no personnel. Now there is a budget, four staff members, and are in the process of hiring an executive director. He said the cabinet works with all businesses, large and small and urged the committee to vote for the executive order.


Representative Henley said the KEDFA Board did assist many small businesses during his tenure as a board member.


Responding to Representative Denham's question, Commissioner Wilhite said they were committed to the success of the commission. He said the number of members on the commission is not as important as the ability of it to communicate with the small business constituency throughout the state. He said the commission is a new direction for the cabinet which previously worked with small businesses on a case by case basis. Now they are dealing with an entire constituency with broad-based issues. Representative Denham stressed the importance of the commission was to rural communities.


Representative Kerr said Senate Bill 480 has already directed the commission to be moved to the cabinet and the executive order only changes the membership from 31 members to 13. Mr. Fuqua agreed stating the new membership includes two people from each congressional district and one at-large member.


Representative Ballard asked how Resolution 05-02 would affect severance funds. Ms. Spade said the percentages should not be affected. Ms. Stephanie Stumbo, Executive Director, Kentucky Community Development Office said the calculations have always come from the Governor's Office for Local Development and that will not change. She said only the programmatic administration of grants will be moved. Representative Ballard asked what percentage the counties receive. Ms. Stumbo said from the coal severance tax revenues brought in between the programs 50 percent of the monies are returned through two programs: the Local Government Economic Assistance Fund (LGEAF) and a portion of the Local Government Economic Development Fund (LGEDF). She explained that depending if monies are taken "off the top" "off the middle" or if legislators line item it lessens the 50 percent counties actually see.


Responding to Representative Bowen's question, Ms. Stumbo said some minor program changes were made to the Single County Coal Severance Grants Program and minor changes to how coal severance line-item projects are administered. She said the grants program application process was simplified and the monitoring process on the use of funds was increased. She said they are no longer advancing line item funds and mandatory site visits to projects are performed to ensure the projects have been completed as promised.


Representative Ballard expressed concern that control of the severance money has been shifted to the legislature. Ms. Stumbo said the guidelines were updated to allow line item projects first and if there was an economic development project or grant legislative support would be sought before it was submitted for approval. She said they would defer to the CED on the use of coal severance grant funds for a project.


Representative Thompson asked Ms. Stumbo what would help give counties more flexibility in how monies are expended. Ms. Stumbo said they would be working with LRC staff during session on line item wording. She said line item wording should be less specific to allow more flexibility especially for infrastructure and nontraditional projects. She said on the other hand some would like to increase the integrity of using line item projects that relate to economic development.


Responding to Representative Hall's question, Ms. Stumbo said they are streamlining the process with this resolution.


Ms. Stumbo said there was language in House Bill 267 intended for Kentucky Infrastructure Authority (KIA) coal and tobacco bond infrastructure projects that stated they must certify they sought all other funding sources on line item projects which now applied to coal severance line item tax projects. She said that after contacting House and Senate leadership, this was not the legislative intent. Ms. Stumbo asked Secretary Rudolph to not ask for the certification but he deemed it to be law. Ms. Stumbo said they would like to correct this next session because it is not applicable.


Representative Bowen asked about the five-year grandfather clause. Ms. Stumbo said if a county produces coal once they are grandfathered in for five years. She said they check coal production on a five-year cycle.


Next, Senator Kerr announced that the committee will meet at the Kentucky Horse Park for the October 13 meeting.


Senator Kerr welcomed Secretary of State Trey Grayson, Allen Eskridge, Assistant Secretary of State and Les Fugate, Director of Communications to the meeting. Secretary Grayson gave an overview of the updated website for the Secretary of State's Office. He said the main idea was to provide as many of their services online as possible for convenience to constituents. He said it also allows the office to provide more services with the same amount of resources. Updates include the ability to view the website in six different languages, and to view certificates of existence. He said starting with September every corporate document is being scanned and placed online. Later, older microfilm will be scanned and made available online also. The Secretary said there is a summons database available for attorneys which has greatly reduced phone calls to the office.


Secretary Grayson said that in 2004 13 percent of all entities renewed online, the rest being received via mail. In 2005, online filing increased to 64 percent. He said half of the Universal Commercial Code filings are now done online reducing the number of clerks needed from 14 to four.


Secretary Grayson said he was most excited about the online program tentatively called Fast Track--a collaboration between state agencies to create a portal that the public can use to form an entity, pay taxes, etc. Plans are to pilot the project early 2006.


Secretary Grayson said the Land Office now has many resources online also.


There being no further business, the meeting adjourned at 3: 15 p.m.