The third meeting of the Interim Joint Committee on Economic Development and Tourism was held on Thursday, August 19, 1999, at 1:OO PM, in Room 149 of the Capitol Annex. Senator Glenn Freeman, Co-Chair, called the meeting to order, and the secretary called the roll.

Present were:

Members: Senator Glenn Freeman, Co-Chair. Representative Tom Kerr, Co-Chair. Senators Walter Blevins, David Boswell, Gary Johnson, Vernie McGaha, Dick Roeding, Dan Seum, and Katie Stine. Representatives Royce Adams, Bo Ausmus, Eddie Ballard, Carolyn Belcher, John Bowling, Kevin Bratcher, Buddy Buckingham, Philip Childers, Perry Clark, Howard Cornett, Tim Feeley, Joseph Fischer, Danny Ford, Gippy Graham, Jodie Haydon, Thomas McKee, Marie Rader, Chris Ratliff, Tom Riner, Gary Tapp, Jim Thompson, Johnnie Turner, Ken Upchurch, and Charles Walton.

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

A motion was made and seconded to approve the minutes.

Senator Freeman asked Senator Blevins to give a summary of the joint meeting held by the Task Force on Economic Development and the Subcommittee on Small Business Regulations.

Representative Cornett introduced a resolution to be forwarded to Carol Palmore, Secretary of the Personnel Cabinet, urging state government not to seek mail-order pharmacy as a component in health plans for state employees, teachers and non-Medicare-eligible retirees for the 2000 policy year.

Senator Roeding said this resolution is helpful for state small business and will cover a variety of businesses, not just pharmacies.

Upon motion and second, the resolution was adopted by voice vote.

Senator Boswell stated that prescription medicine is an important part of medical procedures used by the profession to treat the people of the Commonwealth. He would like to know how and why mail order pharmacy is much cheaper than across-the-counter pharmacy in most communities. If this is due to regulations that local pharmacists have to comply with, but out-of-state suppliers do not, then attention should be given to leveling the playing field. He said insurance has gone completely out of control and the pharmaceutical industry is just one component of the high cost of health care in the state.

Representative Buckingham said he represents a large group of retired teachers and state employees who strongly favor the mail order option. He said he agrees with Representative Cornett and Senator Roeding because he has also been a small business person, but he thought the proposed resolution was going to be one that would equalize the competition. He said he felt that the actions being taken by the Committee are probably against the wishes of his constituents. He said if the Committee could find a way that the independent pharmacists could become eligible to participate on a level playing field with the mail order pharmacy, he would not have any problem with it, and he thought the Committee should not target a single industry.

The first presenter was John Buckner, Committee Analyst for the Economic Development and Tourism Committee. He gave an overview of a study mandated by 1998 HCR 119 pertaining to off-premise advertising devices adjacent to Federal interstate highways. Dr. Buckner stated that the resolution asked for the following information: an historical background of current Federal law and agreements as they pertain to billboards; the nature and scope of the agreements between Kentucky and the Federal government; whether the agreements between Kentucky and the Federal government relating to billboards are more or less restrictive in comparison to other states, whether the current state regulations are more or less restricted than what is required by Federal law, and; how do current regulations pertaining to billboards affect Kentucky's tourism industry.

Dr. Buckner said the attempt to regulate billboards adjacent to Federal highways grew out of an effort to coordinate the rapid expansion of the interstate system in the 1950's. He said that while Congress felt that the interstate system could greatly help local rural economy, there was also a desire to protect the scenic environment.

Dr. Buckner provided the arguments for and against the use of billboards as presented by their proponents and opponents. He stated tourism is reported to be Kentucky's third largest sector, which brings to our state billions of dollars in private spending every year and creates a large amount of employment. Many in the tourism and travel industry argue that however impressive these numbers are, Kentucky is still seen as a pass through state. They feel that billboards are an important median to try to lure travelers off the roads to get them to spend money in the state. He said there are also groups who are just as dedicated to the finding that billboards are basically an insult to the aesthetic environment, and detract from the tourist potential.

Dr. Buckner said The Federal Aid Primary Act of 1958 tried to lure states to adopt a national set of standards in terms of how billboards would be regulated. In order to get states to sign-off on this piece of legislation, there was a bonus offered. This bonus was a one-half of one percent of the total cost of constructing an interstate if states would voluntarily agree to this billboard stipulation. Kentucky is one of twenty-five states that initially signed the Bonus Act.

Dr. Buckner explained that there were two amendments to the Bonus Act. One is the Cotton Amendment which states that if a state road crosses a Federal interstate and that area was acquired subsequent to 1956, states can allow billboards to go up in these areas. If a state chose to adopt and implement the Cotton Amendment, it would not receive a bonus payment for that segment of the highway. He said that Kentucky did not choose to implement the Cotton Amendment. The second amendment is the Kerr Amendment. This amendment to the Bonus Act excludes from national standards segments of the interstate that go through incorporated municipalities. A state which signed a Bonus Agreement could choose whether to allow billboards in Kerr areas, but bonus money was not available for the construction of an interstate in this area. Kentucky implemented the Kerr amendment. Kentucky signed the Bonus Agreement with the Federal government June 21, 1961.

Dr. Buckner said that there are ten sections to this agreement, and highlighted the ones that the committee needed to be aware of. Section 2 of Kentucky's Bonus Agreement states that the state is going to be adopting the Kerr amendment, but will not adopt the Cotton amendment.

Sections 3 and 4 state that Kentucky has the right to exert greater control over billboards than the Federal government requires. Kentucky's Bonus Agreement sets the usual standards that must be followed. Kentucky, and all other bonus states have the right to adopt much more restrictive standards and stances relating to billboards.

Section 5 states that Kentucky's plan to control billboards was approved by the Federal Highway Administration and any changes to this plan have to be approved by the Federal Highway Administration.

Section 6 states that monies will be paid if and when the funds are available. He explained that the Federal government is not obligated to pay unless Congress appropriates the money. Even though Kentucky has not received any money since the early 1980's, the state is not relieved of the obligation to follow the terms of the agreement.

Section 9 of the agreement states that if Kentucky fails to perform the obligations on any project, the state must return all bonus money received. If Kentucky chooses not to return this money, the Federal government has the right to withhold it from any future Federal highway monies that the state might receive.

Section 10 states that if any section is changed to a commercial or industrial area, Kentucky must return the amount of money received for that particular section of the interstate.

Dr. Buckner stated that Kentucky has received approximately $2.5 million since 1961, but there is disagreement about how much money the state is still owed. The Federal Highway Administration contends that Kentucky is owed $40 thousand, while the State Transportation Cabinet contends that the figure is more like $4 million. Both parties seem to agree that Kentucky is not likely to receive any of this money in the foreseeable future.

Dr. Buckner said that the first Kentucky statutes pertaining to billboard regulation were passed in Kentucky in 1960 (HB 250) known as the Billboard Control Act. Although this law has been amended a few times, the structure that has been set forth in terms of how the state will regulate billboards remains largely in place. The findings of the General Assembly were that in the interest of safety and efficiency, Kentucky should regulate billboards, because these roads are constructed at public expense, its in the interest of the state to control billboards, that billboards have no intrinsic value, the value is determined by how many people can see it, and that billboards are to be prohibited within 660 feet from the right-of-way of any Federal interstate highway in Kentucky unless there are certain exemptions.

Dr. Buckner said the Federal Highway Beautification Act was passed in 1965 in response to state's calling for the Federal government to take a more active role in helping to maintain the interstate highway system. Unlike the Bonus Act, financial incentives for compliance were replaced with potentially heavy sanctions for noncompliance. Many feel that this Act is more lenient towards billboards, because under this legislation billboards can be erected in unzoned areas.

Dr. Buckner explained to the Committee that there are six exemptions granted under Kentucky statutes for signs adjacent to Federal highways. These exemptions are: signs that designate name and address of owner/occupant of property, the name or type of business conducted on the property, information required or authorized by law, signs advertising the sale or lease of property upon which it is located, signs that are not visible from the highway, and advertising devices which otherwise comply with city or county zoning ordinances located in a commercially or industrially developed area and are compatible with the safety and convenience of the traveling public.

Dr. Buckner said that the billboard statutes grant the Commissioner of Highways the right to promulgate the regulations pertaining to billboards, but in general, an agency may not adopt rules or regulations that add to or take away from statutes, and regulations may not modify or videate a statute. There are very specific statutory requirements for agencies or cabinets that wish to draft regulations.

Based upon a survey of other Bonus states and non-Bonus states in Kentucky's region, Kentucky regulations governing the erection of billboards adjacent to interstates tend to fall outside the norm of what is allowable in the majority of other Bonus states.

Most Bonus states required only one business to form a commercial or industrial area, while Kentucky's regulations requires ten businesses, one of which has been in operation since 1959, and all within a 1,620 foot area. Moreover, the regulations defining this area does not account for variation in median width, thus the 1,620 ft. requirement would affect mountainous areas more severely than others.

Because billboards are often criticized for promoting the sale of alcohol and cigarettes, the Legislative Research Commission staff conducted a count of billboards on rural interstates and two parkways throughout the state and categorized off-premise billboards by industry or business sector. The overwhelming majority of off-premise billboards outside the boundaries of incorporated municipalities are used by tourism-and travel-related businesses. If these were considered one group, they would constitute 84% of all billboards counted, with all others representing approximately 16%. More specifically, the survey showed that approximately 12% of billboards in rural areas contain messages for gasoline and automotive services, 33% for food, 33% for lodging, 1% for camping, 4% for tourist site activities. Further, while the survey counted approximately 1.6% of billboards containing messages for tobacco products, the recent settlement between the tobacco industry and the federal government contained provisions for a voluntary ban on all tobacco related billboard messages.

Representative Ford asked if $2.5 million was the total amount of money received since 1961. Dr. Buckner said that was his understanding. He said the state received additional Moines for taking down the non conforming signs, and said that if Kentucky were to pull out of the Bonus Agreement that money might have to be repaid.

Representative Ford asked if any states that permit billboards charge a state fee. Dr. Buckner said that there was always a permit fee which varies in cost.

A question was asked in the studies with other states, how they addressed the problem of vegetation overgrowth and how wide spread it was. Dr. Buckner said that problem wasn't addressed because it fell outside of the mandate of the study.

Next on the agenda, Lori Holladay, Executive Director, Greater Cincinnati and Northern Kentucky Film Commission, gave a presentation on "Efforts to Attract the Film Industry to Northern Kentucky." Ms. Holiday said that the Film Commission is a not-for-profit corporation with the mission to attract, cultivate and promote film and television production in Greater Cincinnati and Northern Kentucky.

Ms. Holladay said they receive $75,000 a year from the State of Ohio; $60,000 from the City of Cincinnati; $45,000 from an annual fund raising event called, "Hollywood Does Halloween"; $10,000 annual grant from the Ohio Arts Council, which is strictly for the educational efforts; and a $5,000 grant from the Northern Kentucky Convention and Visitor's Bureau. She said they received a one time grant from the Kentucky Department of Tourism for $25,000 to be used for the maps of movie locations in the region. The remainder of the funds come from corporate sponsors, members, ad sales, grants, and foundations, and their annual budget is $285,000 a year.

Ms. Holladay said the Film Commission has three full-time paid staff, six part-time volunteers, 24 student interns per year, 32 member board of trustees that oversees policy, governance, fundraising, and a 32-member advisory board that meets quarterly to help with marketing.

Ms. Holladay said the 22 films that have been produced in the area have opened up over 40,000 jobs and represents over $64 million of direct economic impact, representing not only the movies but commercials, tv series, music videos, documentaries, and cable tv shows. She said some of the intangible benefits to the area are: civic pride, tourism development, economic development, marketing, employee recruiting, and a quick influx of cash. She said the majority of crew and equipment come from Northern Kentucky.

Ms. Holladay said they are like a mini-chamber of commerce because they specialize in an industry that needs an expertise in how to get the films in the area. Some of the ways they sell the region is to get leads from contacts and trade shows, attend film festivals, put on workshops having professionals speak and give classes, do direct mail campaigns.

Ms. Holladay said in marketing films there is a lot of competition with Canada due to the exchange rate, the large crew base, the 22% rebate on labor expenses. She said they have been building up a crew base in the Greater Cincinnati area by putting on some educational programs and working on building up equipment and studios.

Ms. Holladay said to try to compete with Canada, they are getting scripts to producers, publishing a filmmakers handbook for low budget independent filmmakers teaching them how to make a film in the Northern Kentucky/Cincinnati area. She said they are working with Northern Kentucky University and Cincinnati State Technical and Community College to develop a film degree. She said they have started a development fund which is an investment fund that goes into the development phase of movies.

Ms. Holladay said the Film Commission would be asking for support from the legislature in helping the Northern Kentucky area have more marketing dollars to enable them to bring in more movies, more dollars, and jobs to the area.

Ann Latta, Secretary, Tourism Development Cabinet and Jim Toole, Motion Picture Services Director gave a presentation on the Cabinet for Tourism Development's Film Office role in attracting the film industry to Kentucky. Secretary Latta said that since it's creation in 1976 Kentucky's office has been directly involved in over 45 major films, countless commercials, documentaries and industrial films. The economic impact of these productions has totaled well over $200 million. The primary responsibility of the office is to recruit film companies to select a Kentucky location for their projects, and work very hard to make sure they have a pleasant experience in the state.

Secretary Latta said that Jim Toole is over the Film Office which operates under the direct supervision of Secretary Latta's office. Mr. Toole attends trade shows in Los Angeles and New York at least once a year. In 1997, Governor Patton led a film and television trade delegation to Los Angeles and hosted a reception that was specifically aimed at film industry decision makers. She said this was probably part of the reason that 1998 was a record year for production in the history of the Film Office. The office publishes and maintains a Production Services Directory which is used as a resource book for people in film making.

Secretary Latta said that in the last three years there have been seven major films that chose Kentucky as their primary location. Those films left an estimated $34 million in the state for their direct spending. For every $1.00 spent on production in Kentucky, the total economic impact is conservatively estimated to be $2.50, and the total economic impact of these seven films shot in the state in the last three years is approximately $85 million.

Secretary Latta said Kentucky does have an incentive program based on a sales tax rebate to the film companies for all of their in-state purchases.

Senator Stine asked how often the Film Office enters into contractual arrangements with entities like the Film Commission to try and initiate business on behalf of Kentucky. Secretary Latta said that they usually rely on their own contacts. Senator Stine asked if Secretary Latta has looked at any of the tax incentives that Kentucky offers as they compare to other states. Secretary Latta said Kentucky was about the first state to offer the sales tax rebate.

Mr. Toole said that Kentucky's tax rebate program was probably the most flexible in the country. He said that because of what has been happening in Canada, a lot of the other states are scrambling to catch up to offset that runaway production.

Representative Kerr asked if there were other incentives other than the tax rebate. David Lovelace said they are working with the Economic Development Cabinet with a group of Kentuckians that want to set up an investment fund to attract investments that would fund films made in Kentucky. Those investors would get the corporate or individual tax credit. Mr. Toole said this group has four scripts that they want to produce in Kentucky in the next few years.

Representative McKee said he thought it would be good for the committee to ask the representatives from the new NASCAR race track in Gallatin County to appear before the committee to give a presentation on the new track.

Being no further business before the committee, the meeting adjourned at 3:05 pm.