Editor’s note: Adkisson is retiring Oct. 31. Ashli Watts has been named to succeed him.
Mark Green: In your previous Lane Report One-on-One 11 years ago, there was a focus on the need to improve Kentuckians’ education level to support job creation and economic development. Where does the state stand now compared to a decade ago?
Dave Adkisson: That is still a top priority of the business community. It has evolved into an issue of workforce development. Educational improvement and workforce development are inseparable, and that is the top issue of the business community. Pensions is the top issue of Frankfort, but workforce is the top issue of businesses across the state. Kentucky made significant progress in the years after KERA (Kentucky Education Reform Act) was implemented in 1990, and during the next generation we came out of the basement of state rankings and solidly into the middle of the pack, in the 30, 32, 33 range of rankings of the 50 states. Unfortunately, we have stalled out. There are some positive indicators about how students are doing in the fourth and eighth grade on math and reading compared to other states, and our high school graduation rate is in the top 10 of states. But in terms of overall achievement, we’re still middle of the pack. It’s important for Kentucky to rededicate itself to educational progress.
MG: What specific approaches does the chamber advocate to achieve that?
DA: We issued a report last year called “Striving to be Top Tier for Talent.” Top business leaders and education leaders met for two years to develop this report, and we focused on four things: greater investments in early childhood; making the high school diploma more meaningful to employers; encouraging all adults in Kentucky toward a relevant degree or credential; and fourth, businesses have to be engaged in shaping education and workforce training.
MG: Over your 15-year tenure, the chamber has had some successes in getting the General Assembly and governor to enact pro-business agenda items. What are the elements of success in advocating public policy?
DA: Although it wasn’t a piece of legislation, the Leaky Bucket Report we did in 2009 reset the conversation in Frankfort, not just for the chamber but for policy-makers. It framed the business community’s view of Frankfort and Frankfort’s spending, and had a positive effect on pointing out some of our spending problems. In terms of legislation, I point to the pension reform of 2013. We assembled a coalition of more than 50 groups to support that pension reform, and to me, that’s the most meaningful piece of legislation in my nearly 15 years. It will literally, according to outside third-party estimates, save billions of dollars for the state of Kentucky over the next 20 years. We had more than 30 local chambers and about 20 employer-based groups, including the Kentucky League of Cities and the Kentucky Association of Counties. When you have mayors, judges, business leaders and local chambers all speaking with one voice, that’s when good things can happen.
Also significant was the unemployment insurance reform during the Beshear administration where we negotiated with organized labor a solution by which we could get the state’s unemployment insurance fund back to solvency. Kentucky owed over $1 billion to the federal government during the recession, so that was a major fix. And then the worker’s comp legislation passed in the 2018 session literally saved billions of dollars for employers and Kentucky. Those three things together saved tens of billions.
MG: There has been ‘disruption’ in nearly every field. What is today’s value proposition to a business for membership in the state chamber?
DA: Chambers across the country are reevaluating that. A trend nationally is most chambers have fewer members, but those members are investing more money. Our chamber has grown at a healthy pace financially, even during the recession, but fewer businesses these days join a chamber out of a sense of civic duty the way our grandfathers might have joined a chamber of commerce or Rotary or Kiwanis. They don’t join for the same reasons today; they’re looking for a return on investment: What will I get? Will I get exposure for my business? Will I get to be in the room with other businesses where I can establish contacts? Will you fight for my cause in Frankfort? Those are the questions we are asked.
What I see as an exciting new opportunity for chambers is in the area of fundraising, but not in the same sense of selling memberships. A business that will argue with you over a $200 increase in their dues will write you a check for $25,000 if you’re working on something they care about. Our charitable foundation, the Kentucky Chamber Foundation, is a 501(c)(3) entity and has really taken off, with help from other foundations like the Bill and Melinda Gates Foundation. Other foundations have seen what we’re doing and said, “Hey, we support that,” and they’ll write a check for $150,000 or $500,000.
MG: You’ve been president of the American Chamber of Commerce Executives and exposed to many other operations. How does the Kentucky Chamber’s portfolio of programs and activities compare to other states?
DA: ACCE is thousands of chambers – local chambers like Bardstown, Paducah, Louisville, the Kentucky Chamber. We compare ourselves, usually, to other state chambers. We’re also a member of the Council of State Chambers and that’s our peer group. We’re the 17th largest state chamber in membership revenue. By total revenue, we’re the 7th largest, and if you add our foundation revenue I’m confident we’re in the top five. California is No. 1, in a league by itself, but we’re larger than Texas, larger than Florida and larger than the New York state chamber. We have a solid chamber in terms of our financial base in a state this size.
California is No. 1 in terms of services for members, like seminars, educational programs, that sort of thing. We are tied for No. 2; Indiana and Kentucky are right there together. We’re unique in a couple of ways. We have a very robust set of services. We were the first state chamber in the country to hire a reporter to report state capital news for a business audience; and, of course, we’ve become the Frankfort bureau for The Lane Report, which has been a great partnership for us. Other state chambers, including Ohio and Arizona, have stepped into that space. Chambers around the country are so discouraged about the plight of daily newspapers and the level of news coverage that we’ve decided we need to communicate with our members through our own channels, hence the hiring of a reporter and creating The Bottom Line.
MG: The Kentucky Chamber was the first to do it?
DA: Right. John David Dyche, the (Louisville) attorney – a former columnist and an outspoken and entertaining Republican observer who wrote (U.S. Sen.) Mitch McConnell’s biography – spoke to our board of directors. He made the comment, “Can you imagine how much progress there would have been in this state if instead of the (Louisville) Courier-Journal and the (Lexington) Herald-Leader, we had two newspapers more of the editorial persuasion of The Wall Street Journal?” He challenged the chamber and said, “You folks need to create your own news source, through social media and whatever emerging opportunities. The Kentucky Chamber ought to be its own news source.”
That resonated with me for – I hate to say – three or four or five years before we made a move and decided we needed to be generating news content. It’s really been a success for us.
MG: How does the Kentucky Chamber’s member participation and activity level compare to your peer institutions?
DA: Our chamber has a very expansive view of its mission: We ought to take on whatever we’re big enough to take on if it moves this state forward. Other state chambers are comfortable to stay in the pure advocacy mode: lobby the legislature for pro-business legislation, fight regulations, etc., and don’t veer from that. We’ve gotten involved in things like creating a Workforce Center two years ago. I found some outside money from a national foundation and we hired Beth Davisson to be our Workforce Center director. We now have a staff of nine people. Workforce is ‘the’ issue of the business community, and we’ve responded very aggressively.
On another front, nine years ago we created the Leadership Institute for School Principals. We select principals from across the state and send about 50 each year to the Center for Creative Leadership in North Carolina, an institute where you send corporate executives to be trained in leadership techniques. It’s not about running a school, handling the cafeteria or the buses or disciplining students; it’s about leadership style, what it takes to be an effective leader. It costs about $4,500 per principal, but they come back saying it’s the best professional experience they’ve ever had. We’ve had about 400 principals go through it and invested more than $3 million now. We raise that from our members. If there’s a qualified principal from the Green County High School who has been admitted to our institute, we go to a business in Green County and say, “Would you sponsor your local principal?”
MG: Is it difficult to enlist participation in the public policy process in today’s increasingly divided, partisan political environment?
DA: No. Actually, as distasteful as the partisan divide is – and it’s not just Washington, we have polarization in Frankfort too – we have taken that as an opportunity for the chamber to engage business leaders and be involved in making meaningful progress in the state. We have to do our homework, have our data, do polling, build relationships with legislators; we have to earn their trust that we won’t mislead them with our information. But we’ve been successful by developing those relationships. It’s painful in the day-to-day to navigate all of that polarization, but it creates an opportunity for business leaders to speak in what I call “the sane middle.”
MG: Recently Democratic gubernatorial nominee Andy Beshear said he thinks the chamber sides with the Republican Party too much and refused to participate in a chamber forum with Gov. Matt Bevin. How do you address the concern he expresses?
DA: It was very unfortunate. I’ve known Beshear personally and his family for 35 years. I thought he got bad advice, so I think it was a mishap politically. We have a standing offer for him to address the job creators in this state. If he’s successful in his campaign, he will need a relationship with businesspeople who are trying to grow the economy, trying to grow their companies, trying to create more jobs. The polarization has gotten the best of a few people, but hopefully after the campaign, whichever way it goes, we’ll have an opportunity to build bridges. The chamber will certainly reach out at every point to whoever is governor. It makes no sense not to build those bridges.
MG: Does the chamber have goal regarding Kentucky’s minimum wage? Should government have a role in determining that?
DA: We just surveyed our members, and fewer support raising the minimum wage than in the past. Our members, which are most of the leading businesses in the state, pay far more than the minimum wage already, so they consider it irrelevant to their particular situation. They react with general resistance to government telling businesses what to do.
MG: The state chamber and Northern Kentucky Chamber in early September issued a commentary about the need to allow more skilled immigrants to enter the country for our workforce needs. Kentucky has incentives for tech business that locate their operations in the state. Should Kentucky have incentives for skilled immigrants?
DA: We’re hurting ourselves as a state and a nation by not implementing a reasonable immigration policy. Economists have long since concluded that Kentucky’s economy can’t grow, and the nation’s economy can’t grow, without immigrants. There are jobs going begging right now. We need them in various skill categories, but certainly we want the best and brightest. The president of Harvard yesterday made a statement that American universities are still considered the top universities in the world and attract the best and brightest from all over the world. Why wouldn’t we invite those people to help us achieve economic prosperity in this country? We need a reasonable immigration policy, including for “dreamers.” We wish the U.S. Senate would take that up.
MG: The state’s economic development incentives are 10 years old. Is the chamber looking at recommendations to update Kentucky’s incentives?
DA: We haven’t taken a systematic look at economic development incentives. We support reasonable incentives – and those incentives being scrutinized and exposed to periodic public review. If the state didn’t have incentives to offer companies to locate and grow, it would be like the UK or UofL basketball coach saying, “I know a lot of you don’t like us giving full scholarships to basketball players, so we’re gonna put a team on the court next year without offering scholarships.” It’s nice to imagine a world where you wouldn’t offer companies any incentives, but that’s not where the marketplace is, and other states will eat our lunch if we are not competitive.
MG: A decade ago the chamber helped defeat removal of sales tax exemptions on business services, but in 2018 the General Assembly did remove some exemptions to broaden the state tax base. Where does the business community and the Kentucky Chamber stand on further services tax reform?
DA: We’re open to expanding the tax base of services but avoiding what are called business-to-businesses or B2B services: architecture, engineering, law firms. Economic studies have shown taxing those is an inhibitor of economic growth, but in terms of luxury goods, luxury services, so-called “spa” types of services, a certain element of fairness would call for that. When your teenagers have to pay a tax to go to a movie, but you can go across the street and get a spa treatment tax-free, you have to question the fairness.
Kentucky’s revenue is down significantly as a percentage of the state’s economy. State government is smaller than it was 10 or 15 years ago, certainly smaller than it was right after KERA was passed in 1990. State revenues peaked at about 6%, right after KERA was passed – that was a billion-dollar tax increase. State revenue is now around 5.2% of state GDP, and what that means is about $430 million less in real dollars than the historic average for the last 25 years. Add to that more than a billion dollars of additional money each year is being put into pensions. State government and our schools and universities are operating on probably less than 85 cents of every dollar that they would have been operating on if it were the average of the past generation.
While many businesspeople would applaud a smaller state government, not many businesspeople applaud eighth-graders not getting textbooks or schools having to eliminate the soccer coach or the Spanish teacher. After awhile, it’s cutting back at the basic investments we all want the state government to make.
MG: You leave your official chamber role at the end of this month. But as a well-informed and respected voice in the state, what tax reforms would you advocate for Kentucky?
DA: The business community generally supports consumption-based taxes rather than income-based taxes; we should tax consumption, not productivity. We would be open to an increase in the sales tax if it were offset by a reduction in personal income tax. The inventory tax continues to nag the economy, but it’s a complicated formula and a lot of that goes to local schools and local governments. It would be nice to be able to eliminate the inventory tax because we’re here in the middle of the United States and we’re a haven for logistics like UPS, Amazon, DHL; people want to ship things here to ship things out of here. Over 150 companies have located near UPS, and look what Amazon is doing in Northern Kentucky; it’s gonna explode up there. And yet we tax those goods that we want to be shipped from here to the world. That’s an inconsistency that we need to address.
MG: What about legalizing and taxing additional forms of gambling, or medical or recreational marijuana?
DA: The chamber has not taken a position on medical marijuana except to work with the bill sponsor last year to get language inserted that would protect employers from liability if medical marijuana were legalized in Kentucky. We have not taken a position on recreational marijuana. We’re generally open to expanded gaming, but we play second fiddle to the equine industry there and have waited to see how they – especially the Churchill and Keeneland tracks – want to move forward toward expanded gaming. We see it as an economic development thing and see a lot of dollars going across the river. None of those potential forms of revenue, though, are nearly as substantial as, for example, increasing the sales tax by a penny; they’re only nibbling at the margins.
MG: Regarding the Kentucky economy, what encourages you and what gives you concern?
DA: One is our central location; nobody can take that away from us. Second is our economic diversity. We have autos, agriculture, tourism, river traffic. All those are huge and are very, very positive.
The concern is the lack of workers. Over 100,000 people sit on the sidelines each day, working-age people who are generally able-bodied and yet not in the workforce. We did a study of that and found three basic reasons: addiction, incarceration and disability. Those are really tough issues to address, but we’ve got to address them. The Kentucky Chamber’s gotten heavily involved this year in the opioid issue – Ohio and Kentucky are the first two state chambers to really get involved in the opioid issue. We see it as a workforce issue, and people who could be gainfully employed and feeling the satisfaction of work and wages are unfortunately sidetracked by this horrible epidemic.
Another concern is the pension problem. It’s huge. The average person in Kentucky is just now capturing a glimpse of the reality, with mental health agencies and universities having to cut back because of the incredible pension costs or possibly facing bankruptcy and going out of business. Payments that ought to be going to improve education are going into a pension problem. Frankfort got us into this problem, and unfortunately we have to look to Frankfort to get us out of this problem. There have been some meaningful reforms, but we’ll be paying the piper for 25 years.
MG: Do you sense any collective expectation in Kentucky’s business community about whether this record-long economic expansion is going to continue for the foreseeable future?
DA: I don’t hear anything in Kentucky, anecdotally, that would differ from the national anxiety in the business community that we all hear about and notice. Kentucky’s diversified economy generally rolls with national waves. There’s anxiety out there over the tariffs, the unpredictability of trade policy. Regardless of business people’s political persuasion, they want stability and predictability, and we live in uncertain times right now.
MG: As your tenure as the chamber president/CEO nears its end, is there a most satisfying accomplishment?
DA: The growth of the chamber: We’ve more than doubled the staff. Fifteen years ago I was employee 19, and we now have 43 on staff. We’ve tripled the budget. We have grown by making ourselves relevant and giving business leaders a forum by which they can address state issues. The board of directors of the Kentucky Chamber is 75 people. We have top business leaders, and earning their respect is satisfying.
To see Kentucky dealing with tough issues but finding a way to move the needle on those issues is very, very satisfying. Too, in spite of the political rhetoric out there we’ve stayed true to the business community’s agenda. We’re routinely listed as the top lobbying association in the state because whereas another association might have five bills in a given session, we have several hundred we have to watch. I told our young public affairs staff members, “If you’ve got the Democrats and the Republicans mad at you on a given day, it’s probably because you’re doing your job for the business community.” So navigating that middle ground has been one of our successes.
MG: Is there a biggest disappointment?
DA: I wish we hadn’t had to spend so much time and energy and rhetoric and emotion on the pension problem over the last five years and instead could have spent that same energy on how we get the math scores of our high school students up above the national average. The pension problem is a double whammy. It’s a financial issue we’ll be dealing with for 25 years, but it also exhausts our capacity to deal with opportunities.
MG: What advice do you offer for your successor?
DA: Continue to convene the most talented business leaders in the state to address Kentucky’s toughest challenges and brightest opportunities. The word ‘convener’ is in our mission statement; it’s why we exist: to bring together. Coalitions form and dissolve on a daily basis in Frankfort, and we have to be nimble in terms of how we can gather support. No one group – no labor union, no farm group, no business group – is strong enough in Frankfort to pound on the table and get its way. Hopefully, we’re strong enough to stop bad things that we see coming, but we have to form coalitions. We constantly have to regroup with like-minded people who share our goals.
MG: Any closing statement that you’d like to make?
DA: I made notes to myself before today about the things that have been the real trends that have affected the last 15 years I’ve been here. We spoke out on pensions in 2006, and some changes have been made. The digging out will continue for the next generation. That’s the No. 1 issue in Frankfort and will be for the foreseeable future. Workforce is the dominant issue for the business community and will be for the foreseeable future, because baby boomers are retiring at 10,000 per day in this country. We don’t have enough Kentuckians to fill the jobs that are currently available. Taxes and revenue – the chamber has spoken out and said we are open to new revenue. When we saw what was happening to this state with pensions and to education spending, we revised our position to where we are more tolerant of revenue reform. Political polarization has gotten more intense and I don’t see that letting up any time soon. But that polarization has allowed the chamber to emerge as a voice for common-sense solutions.
• State business leaders recognize accomplishments of retiring Kentucky Chamber of Commerce CEO Dave Adkisson
Mark Green is executive editor of The Lane Report. He can be reached at [email protected].