The fifth meeting of the Interim Joint Committee on Economic Development and Tourism was held on Thursday, September 16, 1999 at 1:00 PM, in Room 149 of the Capitol Annex. Representative Tom Kerr, Co-Chair, called the meeting to order, and the secretary called the roll.

Present were:

Members: Representative Tom Kerr, Co-Chair. Senators David Boswell, Vernie McGaha, Dick Roeding, Katie Stine. Representatives Royce Adams, Hoby Anderson, Bo Ausmus, Eddie Ballard, Carolyn Belcher, Kevin Bratcher, Buddy Buckingham, Philip Childers, Perry Clark, Howard Cornett, Tim Feeley, Joseph Fischer, Danny Ford, J.R. Gray, Jodie Haydon, Thomas McKee, Ruth Ann Palumbo, Marie Rader, Chris Ratliff, Tom Riner, Gary Tapp, Jim Thompson, Johnnie Turner, Ken Upchurch, Mike Weaver and Robin Webb.

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

A motion was made and seconded to approve the minutes of the August 19, 1999 meeting.

The Co-chair introduced guests to present a proposed business improvement tax credit. Larry Maxey, President, Clarion Manufacturing Corporation of America and Vice Chair of the Northern Kentucky Chamber of Commerce Industrial Council, Dennis Griffin, President, Griffin Industries, and Joseph Von Lehman, Jr. Executive Vice President, Radac Corporation gave the presentation.

Mr. Maxey said he was representing the Northern Kentucky Chamber of Commerce, specifically as Vice Chairman of the Industrial Council, to present a proposal on economic incentives for existing industry in the state. He stated that in northern Kentucky and in some other communities in the state, businesses are having a difficult time finding adequate manpower and staying competitive. The existing economic development incentives in Kentucky for new or existing businesses require the creation of jobs. In order to remain competitive, companies may need to make an investment in capital, not personnel.

Dennis Griffin stated that after the 1998 legislative session, they worked on a program to encourage capital employment in the state through industry and agriculture. He determined that one of the better programs for assisting businesses was similar to the investment tax program the federal government offered in the early 1980's. This was basically a program to encourage capital improvement where a company was given credit against their direct tax liability. This seemed to be one of the best methods to encourage capital improvement not tied to job creation.

Mr. Griffin said the Chamber is suggesting a program that would be a direct tax credit of 8% applied against Kentucky corporate tax and could probably be greater in rural counties, such as the KREDA counties. There has been discussion with other chambers throughout the state who have given their support to this approach.

Mr. Von Lehman stated that the number one issue in the Northern Kentucky Chamber has been workforce development. The current labor market shortage makes it difficult to meet the existing job creation requirements in the Kentucky incentive programs. Kentucky needs an additional tool to continue to encourage company investment. Companies need to remain competitive and continue to be encouraged to invest in capital equipment, land and buildings.

Mr. Von Lehman explained how the Kentucky Business Improvement Tax Credit (KBITC) would work. He said they chose property that would qualify for an investment in equipment or personal property. The credit is to be used against Kentucky income tax or license tax, which would be 8% or 12% (in designated areas where economic activity needs to be generated). The credit would be limited to increased taxation that the company would pay, and the amount of credit would vary depending on the number of years the equipment was used in Kentucky. He said the federal law allowed the pass through of this credit to shareholders of an S corporation. Mr. Von Lehman said that the program should not be used in lieu of other economic programs, but in combination with them.

Representative Ausmus asked if the labor shortages in northern Kentucky could be helped by the labor availability in eastern Kentucky. Mr. Griffin said their business in the northern part of the state are geographically limited to large populated areas.

Mr. Lehman said the problem of recruiting from the rural areas has been studied in detail. The following factors make migration difficult: (1) people do not want to leave their home; (2) there has to be suitable housing; (3) people are unlikely to take a position unless they know it is permanent; and (4) there has to be transportation provided to their home and back to their employment.

Senator Stine asked if the equipment became obsolete and updated equipment needed to be purchased whether the recapture would occur. Mr. Lehman said it would if you did not keep the equipment for the four year period. If it was after the four year period there would not be any recapture.

Representative Fischer said that the Northern Kentucky Chamber asked for LRC staff to do research on neighboring states tax incentives. He said Ohio does have a sales tax exemption for research and development equipment.

Senator Roeding said the proposal was not about northern Kentucky being in competition with other parts of the state, but rather another incentive to promote growth and productivity all over the state.

Mr. Maxey said the goals of the proposal are to: (l) strengthen Kentucky businesses that will in turn strengthen the economy of the state of Kentucky; (2) include large and small businesses; and (3) remain a neutral revenue impact on the state.

Next on the agenda was a report given by Representative Palumbo on the activities of the joint meeting of the Subcommittee on Small Business Regulations and the Task Force on Economic Development.

Representative Ron Crimm and Merrill Moeller of Joseph and Joseph Architects explained BR 117-An ACT Relating to Tourism Development. Representative Crimm stated that the bill provides an incentive to builders to restore old hotels that may be of historic significance. According to Mr. Moeller, the Kentucky Tourism Development Act (KRS 154.29) allows for an approved tourism development project to recoup up to 25% of approved costs through a rebate on sales taxes generated at the project site. Among the requirements for project approval are that the project: (a) must exceed $1,000,000 in capital expenditures; (b) must draw a minimum of 25% of its visitors from out of state; (c) that approved lodging costs may not exceed 49% of the total approved costs; and (d) is not feasible without the benefit of the incentive. BR 117 amends existing language by allowing lodging costs to exceed 50% of total project costs if the lodging facility incorporates an historic structure and meets the requirements of the US Department of the Interior's Standards for Treatment of Historic Properties. Or if the facilities involve the restoration of a structure that is listed in the National Register of Historic Places and certified by the Kentucky Heritage Council as contributing to the historic significance of the district. According to Mr. Moeller, there are approximately 36 historic building throughout the state that could benefit from this bill.

Mr. Moeller said that this change in the Act would allow an historic building that meets the requirements of the United States Department of Interior as a historic building to qualify as a tourism attraction. The advantage of this is that it would generate jobs in the hotel industry and bring people into Kentucky.

A motion was made by Representative Ford, and seconded by Senator Roeding for the committee to approve BR 177 as prefiled with a recommendation for passage by the Interim Joint Committee. Upon a roll call vote of 30 yeas, 0 nays, and 0 passes, the motion was approved.

Brenda Workman, Director, Site Evaluation/GIS Division of the Department of Job Development, Kentucky Cabinet for Economic Development gave a presentation on the Kentucky Economic Development Information System Technical Support. Ms. Workman said in the beginning of 1998, the Cabinet began developing an on-line geographic information system that will, when completed, provide up-to-date information on all industrial parks, "spec" buildings, industrial sites, and other infrastructural information. The system will be accessible either on-line or, for persons working off line, from a CD ROM. The system has numerous other features that will be of great benefit both to state and local development officials and to companies seeking information on sites available. According to Ms. Workman, the system should be completed by Summer 2000.

Representative Haydon gave an overview of the Special Task Force Study on the Feasibility of Rails to Trails. He stated that it was the intent of the Rails to Trails Task Force, (1998 House Concurrent Resolution 77), to study the feasibility, benefits and implementation strategy for a rails to trails program throughout the Commonwealth. The Task Force met seven time, heard from both proponents and opponents of railtrails, developed a map of abandoned railroad corridors in Kentucky, prepared a report and adopted twelve recommendations to submit to the Legislative Research Commission.

Representative Haydon explained that a railtrail is a hiking and biking trail constructed on an abandoned railroad corridor. Abandoned railroad corridors make good railtrails because they are generally flat, connect towns and communities, traverse large expanses and are on durable roadbeds. He said that the Task Force found that there have been hundreds of miles of abandoned railroad corridor.

Representative Haydon stated that the Task Force concluded its mission by adopting twelve recommendations. He outlined four of the twelve recommendations including the necessity of: (1) a railtrail coordinator within a state agency; (2) a physical corridor assessment; and (3) reauthorization of the Task Force and creation of railbanking in Kentucky.

Representative Haydon said he thought the railtrails offers an opportunity, not only for tourism, but a safe place for the local citizens to walk, ride bikes, exercise, or just look at the natural beauty of the countryside.

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