The first meeting of the Interim Joint Committee on Economic Development and Tourism was held on Thursday, October 15, 1998 at 1:00 PM, in Room 149 of the Capitol Annex. The Chair, called the meeting to order. The following members were present.

Present were:

Members: Senator Glenn Freeman, Co-Chair. Senators Bob Jackson, Robert Leeper, Virgil Moore, Richie Sanders, Robert Stivers. Representatives Royce Adams, Eddie Ballard, Kevin Bratcher, Dwight Butler, Brian Crall, Jesse Crenshaw, H. Gippy Graham, J.R. Gray, Charlie Hoffman, Susan Johns, Marshall Long, Richard Murgatroyd, Ruth Ann Palumbo, Chris Ratliff, William Scott, Katie Stine, and John Vincent.

LRC Staff: Mary Yaeger, John Buckner, Kim Wilson, and Ellen Steinberg.

The following topics were addressed:

I. Executive Order 98-1049: Changing the name of the Kentucky Coal Marketing and Export Council to the Kentucky Coal Council

William J. Grable, Executive Director of the Kentucky Coal Council explained Executive Order 98-1049. Mr. Grable stated that as an agency, the Council is doing less in the export business since most coal companies prefer to do their own. He said the Council is very active in the marketing business by gathering and compiling information from other states for the coal industry and promoting the moving of coal through other states. He said the Council thought that coal education, as well as the marketing, should be part of their name since it has steadily grown in the coal education business and has now become a prominent part of the agency. Mr. Grable stated that since the Council's name was so lengthy, they wanted to change it to the Kentucky Coal Council.

Senator Freeman asked about the status of the coal industry. Mr. Grable said they have lost market share, but production has been steady for the past couple of years. He said the United States was losing export business to foreign countries. One of the factors is that a lot of coal reserves with good quality coal have been discovered in foreign countries. He said Kentucky still has a pretty strong market in eastern Europe.

Senator Stivers asked if the Kentucky Coal Council assists groups that manufacture products related to coal production. Mr. Grable said if asked they would, but they have not been asked for help in that area. Senator Stivers asked if there was any group that did assist in marketing products. Mr. Grable said that each of the groups have their own marketing strategy, which is effective.

Representative Ratliff asked if Kentucky was doing any research and development on mining coal, specifically thin-seam coal and robotics. Mr. Grable said that the University of Kentucky is working on that, but the Kentucky Coal Council is not directly involved.

Senator Freeman asked what Mr. Grable thought about mountain top removal. Mr. Grable said that he was in favor of mountain top removal under some situations because we are running out of space and it allows the use of reclaimed land for future growth, as there are areas now where the only land is in the flood zones. He said mountain top removal would allow for the necessary growth and expansion in that region, but currently they have no pending permits.

Representative Long made a motion to adopt Executive Order 98-1049. The motion was seconded and a roll call vote of 22 yeas, 0 nays, 0 passes was taken.

II. Executive Orders 98-1020 amended by 98-1143 and Executive Order 98-1025 amended by 98-1144 regarding the Red Fox Tri-County Cooperative Corporation and the Eastern Kentucky Exposition Center Corporation.

Jack Conway, Legal Counsel, Governor's Office, explained the Executive Orders. Mr. Conway said that 98-1020 establishes the Eastern Kentucky Exposition Center Corporation. He said that the order was issued to better administer the numerous projects that are in the surplus expenditure plan, which is contained in 1998 HB 321. He said with this particular budget, they were entering into uncharted territory because they had so many different projects. To administer these projects through the various local governments, they found that each particular project presented a unique challenge. While working with local governments in the various counties, he said it became apparent that the Eastern Kentucky Civic Center was the only civic center in the budget that was going to have some special needs. As such, they decided to try to follow the model of the Fair Board in Jefferson County and the Northern Kentucky Exposition Center Corporation, which the General Assembly established in the 1980's. This Executive Order sets up a type of public corporation that could be a state entity which could administer this project for promoting economic development and tourism in the entire eastern Kentucky region He said the Finance and Administration Cabinet will help administer the design and construction of the Eastern Kentucky Exposition Center. There are seven members on the Corporate board, four are appointed by the Governor, two by the county judge and one by the mayor of Pikeville. He said they thought it was necessary to have the Governor appoint four of the members since it is a state agency, and by being a state agency they have the potential of making any employees members of the Kentucky Retirement System.

Mr. Conway said that Karen Powell and Bill Hintze are working on finalizing an Memorandum Of Understanding (MOU) with the corporation's newly appointed Board of Directors. The MOU is basically spelling out how they plan to share responsibilities for the design and construction of the corporation. The Architects and Engineers are being selected through the Finance and Administration Cabinet's process that is statutorily established. He said that since Finance has expertise in this type of construction, they will be taking primary responsibility for starting construction and will work with local officials to insure that they have local input.

Mr. Conway said that Executive Order 98-1143 was an Executive Order compelled by the budget law to be administered through a new tri-county authority comprised of equal membership from Letcher, Knott and Perry Counties. One member will be appointed by the three county judges, three members will be appointed by the Governor, and the Secretary of Finance and Administration will be appointed as a voting member. The ex-officio members will be from the Department of Local Government, and the Cabinets for Economic Development and Tourism. He said the Transportation Cabinet has a key roll in providing some of the road work.

Mr. Conway stated that Executive Order 98-1143 amends Executive Order-1020 to spell out the administrative attachment which was required by law, to correct some typos, and to make sure that employees who were hired were eligible for the state retirement system. Also, Executive Order 98-1025 was amended by 98-1044 to assure employees were covered under the State Retirement System.

Representative Long made a motion to adopt Executive Orders 98-1143 and 98-1144. The motion was seconded.

Representative Ratliff asked if the Board of the Eastern Kentucky Exposition Center was going to operate and administer the corporation, and be funded locally. Mr. Conway said no, that the income for the corporation will come from a number of sources. He said it works a lot like the Kentucky Fair Board.

Representative Palumbo asked how the corporation employees are selected. Mr. Conway said that neither board has hired any employees. The corporations will have to form their by-laws and hiring policies. He said generally in those situations, the employees will serve at the pleasure of the board of directors.

Senator Freeman explained that the motion on the Executive Orders was changed to reflect that 98-1020 was amended to 98-1143 and 98-1025 was amended to 98-1144. The motion was amended and a voice vote was taken.

Mark Kaser, Executive Director, Kentucky Wood Products Competitiveness Corporation (KWPCC) gave an overview of the Corporation's Activities for 1998. Mr. Kaser stated that the Kentucky Wood Products Competitiveness Corporation was established by 1994 HB 561 with the purpose of working with the value added or secondary wood industry in the state of Kentucky. During the discussion of the bill, the Economic Development Cabinet and members of several committees found that the states' forest industry was shipping about 75% of its products out in green lumber state, or in some log form. Since that time, the industry has grown at a pace of six or eight percent over the last four years.

Mr. Kaser stated that the organization was setup to receive funding through the coal severance initiative through a fund called the Wood Products Development Fund, receiving five percent of the coal severance fund. During the 1996 session this authorization was amended to limit KWPCC's funding from this source. Budget language that was set forth did stipulate that the funds continue to support the activities of the growth of the secondary wood industry.

Mr. Kaser stated that KWPCC's mission is to promote, enhance, and develop the secondary wood industry being the single source for obtaining information from all sides coming in and out of the wood industry. He explained that the Prime Vendor contract was the statewide purchasing agreement for wood furniture. He said this contract would take 32 price contracts and roll them into one which would become a "winner take all" situation. Whoever wins that contract will have the ability to sell all wood products in the furniture arena to the state of Kentucky. Mr. Kaser said currently six firms hold contracts which will be lost if they are not on the winning team, which amounts to $3 million a year and with the surplus budget and the new construction projects this could be substantially more. All state agencies, council of courts, other state funded projects, and all the education programs may use the prime vendor purchasing contract.

The qualifications and method of award is based on best value criteria measured by the following: products, services, vendor responsibility, delivery system and references. Mr. Kaser stated that there was about $1 billion of new construction each year of the biennium that includes wood products. Of those construction projects, about fifteen percent is made up of secondary wood products. He said that if Kentucky wood product manufacturers can acquire one-third of the award that would mean $50 million in revenues that would add value to the jobs in Kentucky, creating about 600 jobs. Mr. Kaser said that about ninety percent of the states' purchasing in the wood products arena is being purchased from out of state.

Mr. Kaser said the KWPCC tried to organize an alliance to bid on Prime Vender because they felt like the companies that were potentially able to produce products and do business with the state needed to understand that this was a one year contract renewable up to four years.

Mr. Kaser said that HB 561 states that any expenditure over $50,000 in capital construction projects which include wood products shall be contracted by the Finance and Administration Cabinet with the Kentucky Wood Products Competitiveness Corporation. The role of KWPCC is to help solicit bids from those firms, assist those firms in preparing bids, form networks to be more competitive and help firms in training workers, designing products, and to develop product lines as necessary to perform under state contracts. He said they thought the alliance mechanism was the best way to do this.

Mr. Kaser stated that his main concern was that the bid process limits Kentucky Wood Manufacturers' ability to compete on an equal basis because of brand specific specifications and hopes to get this resolved at the pre-bid meeting with the Finance personnel in the middle of October. He said the bid will take place November 18, 1998, and if KWPCC is successful, the companies will undertake the project the first of the year. KWPCC has been asked to administer the bid and transact the money for a management fee. He said that could generate one-half million dollars to the budget, which would lessen the impact of needing other moneys to continue their education and marketing initiatives.

Mr. Kaser said 99% of Kentucky State Parks renovation used in-state furniture and millwork.

Mr. Kaser said KWPCC has been on the accrual system because the coal severance receipts come in after the quarter and they do not receive their funding for three months. He said the new language in the biennium budget states that they will receive three-fourths of their funding from the next year and one-fourth from the previous funding cycle. In this transition, the KWPCC did not receive a 4th quarter payment, leaving then short $324,000. Essentially, the Governor's office says that they will get all the money, but will always be borrowing from one quarter of another fiscal year. Since items on their budget already have designated money attached to them, they will have to reapportion their budget.

Mr. Kaser stated that the Kentucky Wood Magic Demonstration Classroom is a new program that started last year. The program is a joint initiative between six organizations within the state to promote the use of wood products in our daily lives. The resources from Kentucky Tech, Morehead State University, the Division of Forestry and the Kentucky Forest Industries Association will be pooled to hire a person and start an operational budget to do public speaking and college fairs. He said they were presently seeking additional funding to purchase and equip the mobile classroom that is being used.

Mr. Kaser said their project goals are to create events emphasizing the importance of Kentucky wood products to the economy and to Kentuckians' way of life, to provide to teachers demonstrations and activities based upon KERA based objectives, and to utilize a mobile laboratory for hands on learning modules to bring the forest and its products to the classroom. Mr. Kaser said the Nelson County Kentucky Tech Pilot Program is two years old and has ninety children enrolled.

Mr. Kaser gave an overview of the training and education programs related to secondary wood production which included the Nelson County Pilot Program, Green County Program, Wayne County Program, Jefferson Technical College, Pikeville Technical College, which is under construction, and the Kentucky Advanced Technology Institute at Bowling Green and Industry Hub. There is an associate degree program at Hazard Community College in conjunction with the UK Wood Utilization Center and Industry Hub, a four year degree program with Eastern Kentucky University and a proposed Wood Manufacturing Productivity Center, and a 13 week lumber grading course at Morehead State University. He said they also do about eight secondary wood industry technical programs that are short courses and are taught in technical schools where there is a memorandum of agreement.

Mr. Kaser said they have a good nationwide presence and notoriety for the wood products industry through an aggressive media and marketing campaign that is done in conjunction with the Cabinet for Economic Development and several of the community development organizations, such as East Kentucky Corporation. He said they will continue to do national and international trade shows.

Senator Freeman asked what kind of effort is being made to recruit product companies into Eastern and Western Kentucky. Mr. Kaser said of the economic development expansions in the secondary wood industry, they have doubled the amount of industry into coal producing counties through joint efforts with the Economic Development Cabinet and the Eastern Kentucky Corporation. He said that 30% of his initiatives are in the recruitment arena. Senator Freeman asked if he was recruiting outside the Economic Development Cabinet. Mr. Kaser said he was. He said that transportation is a big handicap in Eastern Kentucky. He said it is easy to locate companies close to I-75 and I-64.

Senator Stivers asked how many people specifically refused to come to Eastern Kentucky because of the lack of transportation. Mr. Kaser said at least one dozen. Senator Stivers asked what size companies. Mr. Kaser said 120 to 300 people. Companies are locating in other parts of Kentucky due to transportation issues. Also, the fact that the market is slowing has caused some companies to back out of pending deals all together. They can get companies to come to Manchester and Corbin, but when you go farther into the mountains, they start losing companies.

Representative Long introduced a Resolution adjourning the meeting in honor of the 50th anniversary of the Shelbyville Business and Professional Women's Club and recognizing the 70th annual national Business Women's Week from October 19 through October 23, 1998.

Being no further business before the committee, a motion was made and seconded to adjourn.