Mark Green: In 2017, Kentucky had $9.2 billion in economic development announcements tied to state incentives, by far the best year ever. How much of that do you attribute to circumstances outside of state policy, and how much should be attributed to the intentional work of your administration, economic development officials and policy changes?
Matt Bevin: Given the fact that our previous best year ever in the history of Kentucky was $5.1 billion, I would attribute the vast majority of that success to the proactive efforts of the administration and to the incredible people we have at every level. We’ve just plain out-hustled other people for some of these big deals.
This has not happened by accident. We’re growing faster than almost anybody on a per capita basis in terms of capital attracted. The reason is that we are just out-working people. We’re hungry for business, and we’re letting people know it.
We’re traveling around the country, around the world, and meeting with CEOs. Last week I was in Japan for 14 hours, and then in Korea for 24 hours, and then I came back home again. For about 36 hours combined, in two countries, we met with dozens of people very specifically interested in moving operations to Kentucky. There’s no substitute for that kind of hands-on, face-to-face dialogue.
MG: Being a salesman for the state is a role all governors take on, and you are developing a reputation as a very strong one. Is there anything new or unique in the way you approach this?
MB: Over my desk, I keep a bronze casting of the bust of Abraham Lincoln, a man who contributed much to America and to Kentucky. He is attributed with saying that good things may come to those who wait, but only the things left behind by those who hustle. That is one of the wisest things ever said. I’m a big believer in it. We are out-hustling other people. It is a big part of what I do, and frankly I don’t do as much of it as I’d like to do.
I am realizing that for us to grow, if we want the next 2 million people to come here and we want the jobs here to employ them, I have to do even more. Any opportunity I have to speak to CEOs who are looking to move to somewhere in North America, I sure want Kentucky to be on their radar screens.
MG: The General Assembly passed, and you signed, tax reform to lower top personal and corporate tax rates, widen the sales-tax base and increase the cigarette tax. How long will it take for the full impact of these changes to be felt, both in the private sector and on the public sector’s revenue flow?
MB: It’s not easy to say. As soon as it goes into effect, which is in the months immediately ahead, you will start to feel it in your paycheck. If you are an individual who’s been paying 6 percent of your income to the state and now you’re paying 5 percent, that will be a 1 percent increase in pay you’ll be taking home. Same for corporations that will have an extra percentage.
As it relates to the state, it will create a ripple effect of capital being redeployed in other ways – people spending it, companies investing it or redeploying it, (adjusting their) capital expenditures rate, increasing payroll, spending it how they see fit. Those things will create extra benefit to the commonwealth.
We need to do a more comprehensive overhaul of our tax structure than what was done. I applaud the fact that we have made some constructive steps. It’s not easy. I applaud our legislature for taking on some tough issues, but we need to do more. We can’t just simply tax and spend. We can’t simply spend every cent – and then some – of any new revenue that’s generated. Otherwise, we only go sideways economically. One concern I have with the bill that was passed is that it doesn’t really accrue for things that are needed: infrastructure and rainy-day funds and future possibilities. It simply spends every red cent, and then some, of that which is raised. And yet it is trending toward a more modernized tax policy, and that will be good both in the near term and in the long term for Kentucky.
- Sign up for The Lane Report business newsletter. Receive breaking Kentucky business news and updates daily. Click here to sign up
MG: Will there be further tax reform? What would Matt Bevin’s ideal tax structure look like, and what is your sense of what is politically doable in Kentucky?
MB: Will there be more? There has to be more. It’s essential. But we still have a long way to go in terms of modernizing our tax structure. What would an ideal structure look like from my perspective? It would be one in which we are taxing consumption and not production. We would not be punitive to those who are creating jobs and creating wealth, but rather taxing those who choose to consume various products. This would be moving more to a model we see in states like in Texas or Tennessee or others, who are taxing no income but rather the consumption. That’s an ideal approach.
The third question you asked is what the political appetite for it is, and that’s frankly the $64,000 question. Clearly, not as much as I would like to see or would have hoped for, but that’s all right. You sometimes eat the apple one bite at a time and not all at once.
I think our legislators are going to have to come back, of necessity, to look at several different things. For us to be more competitive in the marketplace with states around us and states not around us and even with other countries [and] for us to be more competitive with other people trying to attract companies to come build and create jobs, we need a better tax structure.
There has to be further change. When it happens, and how it happens, remains to be seen. We’ll work on this with each remaining year that this administration is in power.
MG: Meanwhile, you have certainly changed the political landscape and expectations and made real progress in addressing Kentucky’s unfunded pension liability. How comfortable are you with the progress that has been made? How far along the path to where the state needs to be have we traveled?
MB: If this were a journey of a hundred miles, we’ve gone a single-digit number of miles down this road. We have a long, long way yet to go. To change the analogy to that of a bucket that is leaking, in essence we had a pension that was a leaky bucket. We put money into it, but money leaked out the bottom just as fast as we put it in or faster. We have, in light of the pension bill that was passed, laid a thin piece of paper over the holes in the bottom of the bucket, which as we pour water in will keep the water from pouring out as quickly. But it’s not even a permanent patch. It’s not a very effective patch. It’s certainly not watertight.
While the flow out the bottom will not be as great, we need to find a source for water to fill that pension up, because we have about $60 billion of unfunded liability.
MG: Is the current number $60 billion?
MB: It’s at least $60 billion. That’s being conservative. That’s six times our total state revenue in a year. If we were to put the entire state on hold for six years, freeze everything, not pay a penny for education, not pay a penny for infrastructure, not a penny to law enforcement, not a penny to state employees, not to anything, and then take all of it and put it only to pensions, we would have to do that with every cent that this state made for six years before we would just get back to fully funded. And that’s assuming we accrue no interest or any additional costs for six years.
We have work yet to do. I applaud the legislature for taking what was, for many of them, a very difficult stance, which was to do something. We have for decades kicked this can down the road over and over. Nobody has wanted to make the hard decisions. This administration, and this legislature, for the first time in a generation have stepped up and said, “We’re going to act like adults. We’re going to do what’s fiscally responsible. We’re not going to pander to political expediency. And we’re going to fix this problem.”
We have started that process, but much is yet to be done.
MG: You’ve done a lot to support business, especially since the Republicans won supermajorities in the House and Senate in 2016. Which steps do you consider the most important, and what are your administration’s further priorities for supporting and improving the Kentucky business environment?
MB: Passing right-to-work legislation was powerful. Super powerful. Many billions of dollars of capital that have been invested in our state would never have been invested here had we not passed right-to-work legislation.
Repealing prevailing wage gives us an extra $150 million of buying power annually for public schools and other public projects. That was another powerful tool.
Some of the changes we’ve made to unemployment insurance and workman’s comp, cleaning that up and providing more clarity – that has been powerful, as it relates to giving businesses some assurance we’re serious about providing stability for them here in Kentucky.
Things like medical review panels and certain other types of tort reform, peer review and other things that are being passed into law, have been powerful for the health-care community in giving them some stability in understanding that we in Kentucky are serious about them doing business in this state.
Criminal justice reform and the fact that we are making it easier for people not just to be removed from society but to be rehabilitated and then re-assimilated, is powerful and necessary for us, for our economy. We need these tens of thousands of men and women who are being removed to ultimately be re-assimilated into our society. Developing training programs and re-assimilation programs is a powerful, powerful tool for us here in Kentucky.
Educational changes have been made by offering the chance for school choice in communities where the schools have failed for generations – with a lot of resistance. For the first time in a long time, the powerful voices of the teachers’ union, which defends mediocrity and outright failure, is no longer the voice of the day; it’s no longer being able to dictate that these kids who go to these schools are destined for failure.
When seven out of 10 children in the African-American community in Jefferson County cannot read at grade level, we have failed an entire subsection of our inner city. That is a bad indictment on the status quo. Something has to change. When 32 percent of children in Kentucky cannot recognize text in the third grade – not just read below grade level, cannot recognize text; they are functionally illiterate in the third grade – these are little dirty secrets that the teachers’ union doesn’t want to talk about. And they will not talk about it, because then they can pretend that these hundreds and hundreds of administrators, making six figures and not touching the classroom, are somehow justified. But they’re not. We’re wasting hundreds of millions of dollars on administrative costs, robbing our children.
I mention all this in response to a question about what we’ve done to make the business environment better and stronger and the workforce better and stronger. You can’t do it without an educated workforce.
The final couple I’ll mention are these. Tax reform: The fact that we are starting to make changes, business recognize that. Pension reform: The credit-rating agencies and businesses alike recognize that for the first time in their lifetimes, Kentucky is serious about addressing its drastically underfunded pension system, the worst underfunded pension system in America. And for the first time we’re taking it head on. Even though we may not be doing perfectly and even though we may be doing it more slowly than would be ideal, the fact that we’re addressing it causes businesses and credit-rating agencies to say, “Hey, they’re serious. And if they’re serious, then there may be hope and reason to invest there.”
All these are just a handful of the reasons why business is starting to take off here and the kind of policies that we’ve put in place to make sure that that will continue for years to come.
MG: Energy prices are rising and look likely to continue on that trend line. Do you anticipate rising prices to create any revival in Kentucky’s coal operations, or to revive shale gas drilling and production?
MB: I think it will help all of the above. But it’s also important to understand that energy prices rise and fall. It’s a bit like a pendulum. Right now, some of the geopolitical unrest and things going on with Iran and North Korea all create a sense of unrest in the world, and those contribute to instability and higher energy prices. Of course this has the ability to help not only with coal production but also with gas and shale reserves. All these things are going to be part of the energy landscape going forward; they’re all key components. About a third of our electricity in America is still generated by coal-fired power plants, about a third of it from gas-fired power plants; maybe a little bit more than that now. So the two of those combined are well over two-thirds of all the energy production of electricity.
We’re blessed in Kentucky on the coal front to have an abundance of it, hundreds of years’ worth of supply. And now it’s just a function of using that properly to take advantage of it, harnessing that knowledge and capability that we have, and being prepared to capitalize on it. And we have companies that are doing that.
MG: Do you see any untaken public policy steps that could help Kentucky’s coal industry?
MB: We’re seeing a tremendous amount of change at the federal level already. EPA Administrator Scott Pruitt is truly an extraordinary public servant, and his dedication, his knowledge, his ability to effect change and move with a sense of urgency is like nothing that has ever been seen in the history of the EPA.
We in Kentucky are taking advantage of that by working closely with the EPA and exercising the authority we have to make decisions to cut the red tape, to smooth the process, to expedite things. Not compromising in any way, shape or form the safety or security or health of anyone, but rather knowing that time is money and that if we can move expeditiously, we not only can get better results using technology before it gets outdated, but we can do it in a more speedy fashion so that companies can be incentivized to make those investments. Everyone wins when we cut red tape.
Secretary Charles Snavely, who leads the Kentucky Energy and Environment Cabinet, is phenomenal – decades of experience in the private sector. He is an incredible leader who has hit the ground running in the work that he does through our PSC and others that regulate energy prices and electricity. It’s just tremendous the impact that he’s having.
MG: The solar-energy sector believes the cost curves will make it viable versus fossil fuel within the next few years. Do you have any policy positions regarding development of solar energy in Kentucky?
MB: I’m a big proponent of us developing any and all sources of energy that are cost effective and can cashflow themselves. If they need to be subsidized by taxpayers in order to justify their existence, then I question whether they are good long-term policies. If they lose money, and only taxpayers subsidizing them allows them to exist, they’re not really sustainable in the way that people think of when they talk about sustainable energy or renewable energy.
Things are trending toward a time when solar will become an increasingly important part of the landscape. But not as quickly and not as big as some would imagine it to be, unless it continues to be subsidized. It’s coming, and I’m a proponent of it. We have people in this state producing solar panels and things of that sort, and I encourage it. But I’m not a big believer in using taxpayer money to subsidize it.
MG: Workforce skills are the most important criteria for business and industry site selectors. Your administration’s Kentucky Work Ready Skills Initiative leveraged $100 million to fund 40 workforce training programs that got more than $110 million in private-sector matching money. What impact do you hope to see and what is the timetable for seeing the benefits?
MB: This $100 million that we put out, people had to compete for that. The local high school, the local college and the local business community had to sit down together and come up with a proposal where each of them would contribute something to their application in the form of money and/or time and/or training and/or resources. It forced great dialogue, where the high school, college and business community, for the first time ever in some communities, began to talk with each other. What is the purpose of putting this money into education, in terms of workforce training, and what is it we in the workforce really need? For the first time, people were speaking face to face about this.
We had $540 million worth of applications for the $100 million that was available, so we got to choose the best 18 percent of the applications. The $100 million we put up wasn’t to build new buildings; this was to actually train people, scale programs. Dozens of them were put in place or expanded. It was matched by actually closer to about $140 million of additional money that came from the private sector and local communities. So nearly a quarter of a billion dollars is being invested in workforce training in just a two-year period.
We are developing training programs specifically for certain companies, in conjunction with local technical schools and four-year universities, sometimes in conjunction with apprenticeship programs that are starting now even with high school students. We’ve put dual-credit classes into schools so that high school juniors and seniors, and even some down below that, are able to take classes that apply to postsecondary training as well as toward their graduation from high school. Some students are now, at the time they graduate high school, also graduating simultaneously with associate’s degrees and/or certifications. And some of these certifications are stackable in things that employers are highly demanding right now.
All of this is being done to make sure we in Kentucky have the best, most proactive, most intentional workforce development training program of any state in America. Putting in a quarter of a billion in two years has already produced great results, but it’s only just beginning. We will do this again as we move forward, and these are the types of things that in time will continue to bear tremendous fruit. The proof is in the fact that more and more companies are coming here with the confidence that they will get the type of employees with the type of training that they need and want.
Another thing we are doing is moving to 100 percent outcome-based funding for our public universities. No longer are we taking $1 billion worth of taxpayer money and just giving it to people to spend as they see fit, but rather we are saying to universities: There are certain metrics you need to meet, certain expectations, if you’re going to get taxpayer money. We want you to produce graduates who are capable of being employed in the marketplace, specifically in skills that employers in Kentucky want. Because we’re spending Kentucky taxpayer money to educate students here in Kentucky, we want them to be able to work in Kentucky. Moving to outcome-based funding is another way in which, through workforce development, we’re putting a very concentrated focus on how we use taxpayer resources.
MG: How are the state’s colleges and universities performing in their role of preparing state residents for success and in providing the private sector with the skilled workforce it needs now and will need in the near future?
MB: In certain areas very well and in other areas not well at all, so on average less than expected by the workforce. It’s why we are moving to outcome-based funding. We do invest close to a billion dollars a year in taxpayer money to postsecondary education, and it’s spread around our institutions of higher learning, from the technical schools to UK, to UofL, Morehead State, Murray State, Eastern, Northern, Western, all of them. We’re investing money, and we, the taxpayers, expect a payback.
Frankly, interdisciplinary studies or interpretive dance…there aren’t jobs out there. Not in Kentucky, not enough to justify having programs that are staffed by highly compensated faculty teaching a handful of students skills that are not needed in the marketplace. Study after study is increasingly showing even more traditional subjects are just not demanded in the 21st-century workforce. I personally have a liberal arts degree; there’s tremendous value associated with getting a liberal arts degree. But if you only study and learn for the sake of studying and learning, and you only pursue that which is intellectually stimulating but has no application capability, then you’re going to be in trouble, both as an individual and as an institution that tries to sustain itself training such people. We have to rethink how we do it, and that’s what we’re doing with outcome-based funding.
MG: The state has had very challenging budget cycles in which higher education funding was cut. This is a national trend. Do you foresee any restoration to higher-education funding in the next few years?
MB: I’d love to see it, but we need to actually have the money to do it. That’s what people don’t understand. If we don’t have more people and more jobs being created for them to work at, and more taxes being paid by those people working at those jobs, then we will not be able to afford not only that but the other things we expect, like infrastructure and K-12 education and public protection and safety. All the things that are the purpose of government are increasingly being constrained by a lack of capital. Unlike the federal government, we can’t spend money we don’t have. Of course I’d love to see it again spent on areas where we get a return on our investment as taxpayers, where we pour it into programs where there are jobs. We need to train people in everything from the STEM degrees to critical thinking and the ability to work as teams. These kinds of things are essential. But we don’t have the money, and we can’t pretend that we do. It’s easy to say I’m for putting more money in. But where is it going to come from? Every dollar we put into that is going to come from somewhere else that nobody wants to see less money in either. It’s important for us to be realistic with the fact that we have a finite amount of capital.
MG: Should the private sector and individual companies be assuming more of the responsibility for giving workers the special skills they need?
MB: Of course. They’ve been doing the bulk of it. They’ve had to take people who’ve been educated in our K-12 systems and our universities and retrain them, because in large measure they’re not showing up prepared to work. These things have not always been provided by the public school system. Historically, you had apprenticeships. In other countries, this is a systemic part of how they do things. In Germany, in Austria, in Switzerland you have apprenticeship programs. These are things that we are focusing on more and more and more.
Apprenticeships are something Kentucky is doing with greater focus and intensity than any state I know of. Others are doing it, and others are doing it well, but nobody’s doing it with as much change as Kentucky is right now. We’re spreading the apprenticeship program, taking advantage of companies’ willingness to come alongside and do training. But we in the state have an obligation to ask them how we can help, what resources we can use, financially and otherwise, to come alongside them, to simplify the process, make it easier from a regulation standpoint.
States – and businesses – have a responsibility, but they always have. And unions – through their apprenticeship programs, the skilled trades – have long had very good training programs. We need more of that. We need more people through the unions and the nonunions alike to be trained within their companies in certain skilled disciplines, because we need more and more men and women with that capability.
MG: What means do you use to stay informed about business and economic activity and public policy? Whom do you consult with, get advice from or use as a sounding board?
MB: I read prolifically. As I was riding back here from Lexington just now I was reading a Harvard Business Review case study done on Webasto, which is the company we just visited. It’s apparently in the past year been the most widely read case study. And it talks about how they changed their culture of hiring and training to move their turnover rate from 60 percent down to single digits. And it’s fascinating. Things like that are intriguing to me.
I have a lot of experience in the private sector and as a military officer, in terms of discipline and leadership, in terms of motivation and training. I draw on my life experiences and talk to the smartest people I know, people who are successful in business. I like to be the dumbest guy at the table and the weakest link in the chain, because you always learn. If you surround yourself with “yes” people or those who don’t know more than you on a topic, how do you ever learn? How can you possibly grow? I want to be surrounded by and talk to people who are experts in areas that I’m not an expert in. That’s how I can learn.
And I’m a big believer in pulling data from any and all sources I can, then if not literally at least figuratively, building these sort of algorithms in my head that I can then translate into action items. I can take what I’ve learned and say, “OK, we need to set up a $100 million workforce development pool, where we can use that to leverage into getting another $140-some million worth of private capital, then leverage that into scaling training programs that leverage into making us the most prepared workforce in America, and leverage that into attracting billions of dollars of capital from companies, which leverages into creating tens of thousands of jobs, which leverages into attracting hundreds of thousands of people to Kentucky, which leverages into having tens of thousands of more taxpayers, which leverages into having many hundreds of millions more dollars in our budget every single year because of people flowing those dollars through the state capital, and that allows us to then pay for that infrastructure and education and workforce.”
These things are connected. One leads to the next that leads to the next. And it all starts with gathering data and information and learning.
MG: Where do you find tables where you’re the least intelligent guy in the conversation?
MB: By inviting people. I do luncheons at the mansion and invite CEOs of significant employers and corporations in the commonwealth. I’ll do it personally or in conjunction with our economic development folks or with our cabinet secretaries. You say, “Who are the best and brightest minds in America? What other states have done things? Which foundations are available to us?” Some of them don’t know one another. I invite them to come sit down around a table and talk about how each of them might not only help one another but how they may help the commonwealth and how the commonwealth may be able to help them. There’s no substitute for this. One of the greatest ways to learn is through direct human communication, interaction and dialogue, where you challenge one another. And if I don’t find them in person, I’ll find them in writing or find them online, or I’ll find sources of information where I can learn.
MG: By all accounts, you are a person of very high physical and mental energy level. Is there anything you do differently than others that accounts for this?
MB: I don’t sleep! That’s how you do it. You get more done. (Laughs.) Every study may tell you this is not good or healthy and I’m not advocating for this, but in all seriousness, think about this. If you slept eight hours a day versus six hours a day, that difference of two hours a day is literally the difference, at the end of a year, of an entire month of 24-hour days. An entire 30 days of 24 solid hours each that you could either sleep or you could be reading and learning something. What if you had an entire month of 24-hour days to do nothing but learn?
I wish I did, but I have no workout regimen. I don’t run. I don’t advocate this. I stay active and stay fit by just moving all the time. I’ve never been a coffee drinker or a Coke drinker. I don’t drink caffeine. I’ve nothing against it, but very rarely. I just sleep less. Doctors would probably tell you it’s not good.
I’m blessed to be able to travel. Last week, I went to Asia for a day and a half. I went to Japan and then to South Korea. And then I came home. I spent almost as much time in the air getting there and back as I spent in Asia, and during my time in the air I was reading, learning, doing things.
You just turn on; I’ll sleep when I’m not the governor. I hustle more than most people. I read more than most people. I do more homework than most people. I’m willing to take risks more than most people. Do I do it perfectly? Of course not; nobody does. I’m not smarter than most people or more connected or more networked or more wealthy, but I was always able to do more than the average person because of the things that I did more of, which is homework and reading and risk-taking.
That’s how it works for states as well. The states that are hungry, and the states that hustle do best. And that’s why Kentucky is emerging like it never has before.
MG: There is $1 to $2 trillion in infrastructure need nationally, and transportation infrastructure ranks the second in importance among executives surveyed by Site Selection magazine. Declining road fund revenue caused Kentucky to halt projects during fiscal 2016 and have a Pause-50 restart in fiscal 2017; the gas tax formula was revamped, and you implemented a new prioritization process for projects. What are your road project and infrastructure goals and priorities?
MB: It’s worth clarifying that Pause-50 was done because the money was not there; to make sure that as the money was there, we focused it on the projects that were the highest priority. That was good management. It was not spending money ahead of our ability to have it, and not spending it without being very intentional about what we should spend it on first.
The first thing I did when I hired a secretary for transportation was send him and his top people to North Carolina. I look at what other people do all over the country and all over the world, and look for best practices, and I go learn how it’s done. When I wanted to study apprenticeships, I took three cabinet secretaries, and we went to Germany and Switzerland and studied what they do. When I studied transportation expertise to see who prioritizes and makes good use of those monies, the best program I found was in North Carolina. We took the team and went to North Carolina, and we developed something that was customized to our own needs. We call it SHIFT. It speaks to prioritizing how we use the monies in our two- and six-year road plan.
Back to the question of where does the money come from, and have we done enough: We haven’t. We have many billions of dollars in deferred maintenance on existing infrastructure and billions in need for new infrastructure. The Brent Spence Bridge people have talked about for years has to be done. The Henderson Bridge between Henderson and Evansville, Ind., has to be done. These are going to be done. We’re accelerating the engineering and environmental studies on those, working with the other side of the river in each case to do what’s needed.
But we also have over a thousand bridges in this state that are in terrible disrepair, with billions of dollars in deferred maintenance on them. More than 60 bridges and overpasses have been shut down because of their structural instability.
We spend now more than $10 million per year in our budget on our airports. We have budgeted in the most recent budget, and we did previously as well, over $1.5 million a year for rail-related investments and about $500,000 to $600,000 a year in riverport-related investments. Ideally, we would do more on all those fronts.
And we have to address where the money comes from. As much as people don’t want to think about it, we have to pay for things that we want. We have to look at things like the variable excise tax and other forms of revenue to generate monies for the highways, among other things. Nobody wants to do it, but nobody also wants to be in a declining infrastructure environment either.
MG: What timetable do you foresee in building a new Northern Kentucky bridge to supplement the Brent Spence?
MB: There’s going to have to be a new bridge. I also want to look at building a (new) bypass, because that area is one of the fastest-growing in the country, certainly one of the fastest-growing in our state. That whole Northern Kentucky-Cincinnati area is booming, and it’s only going to boom more. We would be wise to get out ahead of that to build bypasses and rings concentrically outside of these areas that are growing.
Addressing that Brent Spence corridor alone doesn’t help us economically to grow, that just replaces something that already exists. I look at the Northern Kentucky area and realize that 4 percent of the nation’s GDP moves across that bridge. That’s a huge, important corridor. We’re working right now with the Department of Transportation and the Ohio DOT, trying to move that forward quickly. It takes time, but I want to start moving on that in the next couple of years. I’m tired of talking about it. Once we get these studies done, once there’s a new governor on the other side of the river in Ohio that will focus on this, we’re going to actually get this done.
I want to do that corridor and a bypass simultaneously. Because ultimately that bypass will connect I-71, I-75 and the AA and ultimately go to the river. And eventually it’s going to, of necessity, be met on the other side of the river. But in the meantime, it will connect channels that feed up into Northern Kentucky, and that will be good for economic development.
MG: The road-building industry usually thinks state road and bridge spending should be higher—
MB: I’d be disappointed in them if they didn’t!
MG: —and we are, indeed, lower than in the past. Where would you like to see state spending on infrastructure through the Transportation Cabinet?
MB: We have two primary sources. We have the federal highway trust fund, where dollars come from Congress, and we as a state get somewhere around $700 million every year. We have a similar amount of money that comes through the state’s 9 percent variable excise tax on the wholesale price of fuel. A couple of years ago there was a floor put on this, which was good, but it was not sufficient for the needs we have. While nobody likes the idea of paying more for anything, sometimes if you want more of something, you pay more for it. If you want more and better roads and bridges that aren’t falling down and can handle the capacity and flow with a sense of movement that doesn’t cost you time and money, then you have to pay for it.
We’re going to have to have some frank conversations with the people of Kentucky and with our legislators; we’re going to have to make some tough decisions. Those are the two sources of revenue. And if not those two, then we need another source of revenue. What’s it going to be? And will we, as a commonwealth, be able to handle it? Are there things we can do at our rest stops and truck stops to raise revenue?
Right now, federal law doesn’t allow us to commoditize, commercialize or monetize these incredible rest stops we have on interstate highways. Only in a couple of states, because of previous things that were done years ago, is that allowed to happen. You can’t commercialize a rest stop. Why not? You have millions of people traveling through who want to stop and want a customer experience and are willing to pay for it; you have the ability to capture these people, their time, their money. There are a lot of things we could look at, and I’m working with people at the federal government to see what we could do.
MG: Kentucky’s cost of living is lower than the national average, but our average incomes remain about 18 percent below the national average. Strategies to address it include better educational attainment, supporting an entrepreneurial culture that might produce large new well-paying employers. What is your view on the best appropriate strategies to create wealth and higher incomes in the commonwealth?
MB: We’ve been No. 46 out of 50 for literally 40 to 50 straight years. The key is to create an environment in which innovators and entrepreneurs are rewarded for taking risks, where jobs are created, where companies come and get consistency and certainty, get direct access to people in government to help them. You break down the barriers that prevent them from starting companies and expanding companies here. You cut red tape and you cut red tape and you cut red tape. That’s how it happens. The states that have done it well, that’s how they’ve done it.
Government doesn’t create the jobs. The responsibility of government is to create an environment in which the job creators can create jobs. You mentioned entrepreneurs. I happen to be an entrepreneur. I believe in the possibility of taking an idea and turning it into something. I’ve personally taken ideas that were in my head and turned them into companies that have generated hundreds and hundreds of millions of dollars’ worth of products, in payroll, in taxes paid, in services provided.
How is that possible? Because the American dream is a real thing. You can take an idea and actually turn it into something. We need Kentucky to be a place where people feel that, hey, I can do it in Kentucky as well or better than anywhere.
And so I’m excited when I see Steve Case and his Rise of the Rest tour (bringing investors to startup ecosystems) coming to Louisville, even though cities like Dallas and Austin and Boston were competing. They came here because they found this to be a little incubator for innovative ideas.
I’m excited that MIT REAP (Massachusetts Institute of Technology’s global Regional Entrepreneurship Acceleration Program) chose Kentucky as its only region in the U.S. and it’s going to be a two-year collaboration with the University of Kentucky. Every other state in America would have wanted this.
So there is indication of the belief that there’s a possibility for a rise in entrepreneurship, but that’s not enough just to have the possibility. We as a state have to proactively create an environment in which these people are rewarded for the risks they take. That goes back to taxes and labor policy and education and workforce development, partnership with the state. Companies want a state and a state government that will partner with them, and that’s what we need to do.
MG: The Braidy Industries aluminum mill announcement made last year (the groundbreaking occurred June 1 in Greenup) was described as a project likely to have ripples of ongoing impact in the region. It will supply high-grade, specialty aluminum for auto and aircraft manufacturers. Is the state working to pull in more of the people who might become customers for Braidy?
MB: I’m trying to get any and everybody who wants to come here and produce things. Look at what we’ve done to focus on the smelters here that are owned by Century Aluminum. I want people who smelt the material, people who roll the material, anneal the material, heat-treat the material, slit the material, fabricate with the material, weld the material, make widgets out of the material and sell it to the marketplace. I want the whole metallurgical supply chain – because the engineered and manufactured products of the 21st century are made out of various metallurgical components. I’m very intentionally going after anybody who’s a part of that process, from the aviation or automotive industries, without any question. We already have a huge presence. We have more than 500 companies in Kentucky that make products for the automotive industry. We have per capita the largest number of automobiles produced of any state in America. We are No. 2 in America in terms of aviation- and aeronautics-related components that we export; only Washington state is ahead of us. We’re doing good things.
But the Braidy Industries of the world already are attracting other people. We’ve had conversations, and others are coming. Look at their competitors. Look at how many hundreds of millions of dollars has been invested in Kentucky from other aluminum mills, the Constelliums and the Novelises and the Alerises. You’ve been covering these. They’ve been investing hundreds of millions of dollars in Kentucky, somewhat in response to the fact that a new dog is coming to the table and there’s business for all of them. And it’s all in Kentucky.
I was just talking with the head of the aluminum industry in America – $2.6 billion in aluminum product was put out of mills in the U.S., $1 billion of it coming from Kentucky. That percentage is going to increase when we get this Novelis plant online and when we get Braidy Industries online. Kentucky is going to be the epicenter of aluminum production in America.
MG: Agribusiness and an associated food and beverage sector are state economic strengths. Is your administration involved in some of the initiatives to further support those areas, such as bringing Israeli greenhouse technology into Eastern Kentucky, establishing an industrial hemp industry, or recruiting ag tech startups to develop a cluster in this emerging sector?
MB: All of the above. We’re blessed to have a commissioner of agriculture, Ryan Quarles, who is a highly educated person. He’s intellectually curious. He has a good farming background. He’s a ninth-generation farmer here in Kentucky. But he also has a lot of academic knowledge. He’s a good leader, and he is pioneering new ground for Kentucky on all those topics that you mentioned.
It is a very small part of our overall economy – people overestimate the impact of our ag sector on our economy; it’s a single-digit percentage of our state’s GDP – but it’s an important one, and it touches thousands of families, especially in rural parts of our state and in the central and western parts in particular. It’s important for us to diversify. With the ag-tech research and things that you mentioned, there are some pioneering things being done out in the western parts of the state and millions of dollars being invested in the facilities, doing things in conjunction with Murray State and others. They’re cutting-edge.
A hundred years ago, Kentucky was – and could easily be again – the epicenter of hemp production in America. Hemp has tremendous capabilities not only in producing things like the dashboards of automobiles because of its tough, fibrous capability but also the cannabinoid oils derived from it for medicinal and other purposes.
We are exploring and pursuing these things. I’m a believer in equal opportunity for every good idea that generates jobs and helps the economy.
MG: Is it fun being governor?
MB: It’s not fun, but it’s rewarding. It comes at the expense of a lot of things that would be more fun, but I didn’t do this for fun. I did it to make a change. I did it to impact this state’s economy and its future, to create opportunity for the next generation. I want my children and grandchildren to be able to live here and work here and do whatever they want to do while doing so.
And in order to create that kind of environment, it takes the kind of application of energy and foot on the gas to make change and to take on hard things. Whether it’s changes in labor laws like right-to-work, or tackling the pension crisis or taxes or education reform, all these things come with great resistance, and a lot of pain and suffering for legislators. That’s why they’ve ignored it for so long. But to me, that’s not acceptable.
I campaigned saying I would take on all these things. When I ran I was the only candidate who put in writing what I was going to do. Read my “Blueprint for a Better Kentucky.” There are seven tenets to it, and we’ve done all or part of every one of them already. Even though it’s not fun, and it’s not easy, it is essential that it gets done, and I think the people of Kentucky respect and appreciate that. But you know, it is rewarding. It really is. ■
Mark Green is executive editor of The Lane Report. He can be reached at [email protected]