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How will the economy roll in 2013 for you?

By Mark Green

Economic expectations in Kentucky for 2013 are the brightest in at least five years in The Lane Report’s annual poll of business and public policy leaders across the state.

DiceA resurgent auto manufacturing sector expects U.S. sales of 15 million vehicles, which will give a nice push to Kentucky’s nearly 450 first-, second- and third-tier vehicle makers and suppliers employing tens of thousands of workers. State economic development officials have targeted the sector in recent years, and the past two years yielded at least 125 announcements of new or expanded operations investing $1.7 billion and creating 7,000 jobs.

Meanwhile, Kentucky’s $12 billion and growing tourism industry is riding a tide of good publicity. Lonely Planet, the world’s largest travel guide book and digital media publisher, has named Louisville the top travel destination in the United States for 2013. Three major airlines’ in-flight magazines have featured glowing 20- to 40-page articles highlighting Kentucky in recent months.

Give some credit to the commonwealth’s booming bourbon sector (see the cover story of the December issue of The Lane Report) and its successful Kentucky Bourbon Trail program, which National Geographic recommends as one its top worldwide Drives Of A Lifetime. The seven participating major distilleries already attract visitors from all 50 states and many foreign countries – and last fall a Craft Tour of another seven micro-distilleries was launched.

Kentucky’s exports have been growing by an average of $1 billion annually in recent years, despite the weak economy.

The most significant dark cloud cited by state leaders was political intransigence in Washington and worries this would lead to an economic “fiscal cliff” dive – with higher taxes for all and more uncertainty about future rates, something that has stymied businesses seeking to calculate a return on investments. The compromise struck in the nation’s capital early this month produced hope that 2013 could see an end to years of gridlock, with the potential to unleash billions in business investment and produce solid growth for most economic sectors.

There is a need to modernize public and private operations and to update Kentucky tax policy to remain competitive, state leaders told us, if the commonwealth is to fully participate in the better times ahead. Take the time to read the 2013 economic forecasts that follow to get a sense of the current mood of Kentucky. In the next couple of months, The Lane Report will present comments from the state’s accounting, financial, healthcare and legal communities.

Gov. Steve Beshear

“Looking ahead at the coming year, Kentucky is very well prepared to compete in the global marketplace for more investments and jobs. As governor, my focus is creating new jobs and keeping those we have, while growing our economy for future success. We are seeing significant progress toward these goals, including being ranked among the top states in the United States for rate of job growth over the past year. Thanks to the tireless and dedicated efforts of many people from across the state, this trend will continue throughout 2013, and we will remain steadfast in our pursuit to build a stronger and better Kentucky.”

Eric J. Frankl, A.A.E., Executive Director, Blue Grass Airport

“As we approach 2013, the airport industry is hopeful that we will continue to see growth in passenger traffic. The airline industry will likely remain challenged by fuel prices, the economy and a reduction of regional jet aircraft. At Blue Grass Airport, we have been fortunate to enjoy stable air service over the past several years and hope to see our community support our local airlines so that we stand a better chance of maintaining and growing our passenger service.”

A worker assembles compressor parts at Hitachi Automotive Systems in Berea, Ky.
A worker assembles compressor parts at Hitachi Automotive Systems in Berea, Ky.

Eileen Pickett, Vice President of Economic Development, Greater Louisville Inc.

“Job creation and business investment will continue to improve but only about the rate we saw in 2012 because the global economy remains sluggish. The Louisville region has fared better than other parts of the country and economic development has remained fairly strong, particularly in our sectors of authentic strength – advanced manufacturing; lifelong wellness and aging care; food and beverage; and logistics and distribution. In 2012, Greater Louisville Inc. worked with 158 companies to create 4,594 new jobs and more than $800 million in new investment. To capitalize on growth opportunities as the economy recovers, however, it is critical for Kentucky to offer a competitive tax and regulatory environment and an educated, job-ready workforce. Government leaders at all levels must join in reforms that ensure Kentucky’s business environment positions us for maximum future growth.”

Larry Schaefer, President/Chief Operating Officer, Neace Lukens

“Neace Lukens projects double-digit growth for 2013, significantly better than the 3-4 percent expected overall for insurance retail brokerage. The industry bounced back in 2012 from the economic downturn and soft property and casualty pricing cycle. We expect continued expansion of client payrolls, sales and assets – things that drive premiums and brokerage service revenues. We expect to increase market share as we expand our portfolio of resources to help clients in a changing insurance marketplace. We closed 12 acquisitions in 2012 and expect a similar number in 2013 because we have created a working environment that insurance agency owners find attractive for perpetuating their companies as they plan for retirement.”

James Ramsey, President, University of Louisville

“2013 will see continued economic growth in Kentucky and a return of employment to pre-recession (2008-2010) levels. Growth will be modest but sustained and will lead to continued modest growth in the state government’s general fund. However, the structural imbalance in the state budget will continue to create funding challenges for all of education but particularly for higher education. Kentucky’s colleges and universities will continue to overcome these challenges by identifying cost containment and productivity measures as well as new revenue sources to achieve their statutory mandates.”

Eli Capilouto, President, University of Kentucky

“In the midst of an uneven recovery, our national and global economies will continue to undergo fundamental changes. What will not change is the increasing need to develop a highly educated and skilled workforce with young men and women poised to create and re-create jobs as yet imagined. Colleges and universities successful in that critical endeavor will be those that address access and affordability. And they will be those institutions that create learning environments that are infused with technology, that house collaborative learning space and that compel interdisciplinary research and learning.”

Wil James, President, Toyota Motor Manufacturing Kentucky

“At Toyota, we’re excited about what looks to be a promising 2013! The most recent industry sales projection is 15 million; an encouraging forecast considering just four years ago, auto sales in the U.S. dipped to 10.4 million. We’re excited and encouraged about our new products coming in 2013 with the all-new, redesigned Avalon – manufactured exclusively in Kentucky – leading the way. Last year, Toyota was the No. 1 retail brand in America, and our Kentucky-built Camry the No. 1-selling car (13th consecutive year). If 2012 is an indicator, we expect we’ll be working harder than ever to meet the demands of our customers this year and for years to come.”

Server racks at the protected Data Center operated by SIS in Lexington provide secure IT services for companies in Kentucky and elsewhere. Several Kentucky leaders cite maintaining technological competitiveness as a key strategy for economic growth in 2013.
Server racks at the protected Data Center operated by SIS in Lexington provide secure IT services for companies in Kentucky and elsewhere. Several Kentucky leaders cite maintaining technological competitiveness as a key strategy for economic growth in 2013.

John Conti, President, John Conti Coffee Co.

“During the last several months of 2012, we saw signs 2013 will be a better year. Many customers who reduced their operations during the downturn of 2008, ’09 and ’10 are hiring back and slowly expanding their companies again. During the past four to six months, many of these have called to expand our services to them. Call-ins for new service have doubled. After retrenching during the downturn, we are expanding our sales and service team to handle what we think will be a more profitable 2013.”

Cheryl D. Norton, President, Kentucky American Water

“Our newest water treatment plant in Owen County performed well as expected in 2012, helping us get through triple-digit temperatures and drought without asking customers to curtail water usage. In this industry, ongoing investment in infrastructure is necessary to maintain high-performing systems and stay ahead of ever-stringent water quality regulations. We are committed to making wise investments while remaining vigilant about operational efficiency, providing great value to our customers and shareholders.”

James T. Wood, President & CEO, Louisville Convention & Visitors Bureau

“With Louisville’s selection by Lonely Planet as the top travel destination in the United States for 2013, we expect a spike in travel. Already we have more convention rooms sold in 2013 than in any prior year, which is a strong positive indicator. The National FFA Convention is returning to Louisville in October with over 56,000 students. We are slightly concerned there will be a slowdown in the fourth quarter of 2013 pushing into 2014, so our sales team is in overdrive to book short-term meetings and convention business as a hedge against the projected downturn in the economy.”

Victor A. Staffieri, Chairman/CEO/President, LG&E and KU Energy

“For more than 100 years, LG&E and KU have taken effective steps to boost Kentucky’s standing as the place to do business. Our award-winning customer service and strong reputation in the business community are vital parts of economic development efforts. Meanwhile, environmental construction projects at many of our facilities will create hundreds of jobs for the commonwealth and allow us to continue to utilize Kentucky coal. We understand Kentucky competes for new business on a global stage. As we enter 2013, we will continue our tradition of providing safe and reliable energy to fuel new industry with rates among the lowest in the nation.”

Dan Tobergte, President & CEO, Northern Kentucky Tri-County Economic Development Corp. (Tri-ED) 

“Northern Kentucky will continue to surge in the advanced manufacturing, aviation, informatics and financial services sectors, which propelled the region with over 2,800 announced new jobs in 2012 – 40 percent over our 25-year average. Challenges for our growth will stem from issues surrounding the Brent Spence Bridge, shortages in certain workforce skills areas and Kentucky’s pension liability crisis. Look for enhanced entrepreneurial activity with UpTech II, Northern Kentucky’s informatics-based accelerator, plus passage of the Angel Investor Tax Credit, aggressive national outreach for attraction purposes and paying attention to our primary industry base through our new business retention and expansion program, NKY BOOST.”

Roger Fries, President & CEO Kentucky Employers’ Mutual Insurance

“The workers’ compensation insurance market is showing signs of hardening as some insurers shift focus to more profitable lines of business. Employers in Kentucky should pay careful consideration to the financial stability of their insurance providers and weigh the risks if placing coverage with a carrier who lacks an independent financial rating. Customer service and access to claims management tools, especially in the area of controlling medical costs, are also key factors when deciding the best options for workers’ compensation insurance coverage.”

More than 6,600 employees at Toyota Motor Manufacturing – Kentucky in Georgetown build 4-cylinder and V6 engines in addition to the Camry, Hybrid Camry, Avalon, Hybrid Avalon and Venza vehicles.
More than 6,600 employees at Toyota Motor Manufacturing – Kentucky in Georgetown build 4-cylinder and V6 engines in addition to the Camry, Hybrid Camry, Avalon, Hybrid Avalon and Venza vehicles.

Mark Gillming, Senior Vice President, Messer Construction Co.

“We’re seeing signs of the modest growth in commercial construction in 2012 slowing down in 2013. Many design firms report their work backlog is down, which translates into fewer projects coming to market. Projects from key market drivers such as healthcare and research were awarded last year. Owners have been putting future projects on hold, waiting to see how Washington reacts to the country’s fiscal issues. If the situation is resolved in a way that releases this work, it can change the outlook for the second half of 2013 and beyond. Competition will remain stiff for the limited projects available, and we bring value to our customers through our commitment to in-house training, lean processes and use of technology such as Building Information Modeling.”

Geoffrey S. Mearns, President, Northern Kentucky University

“While I am new to the commonwealth, it is already clear to me that Kentucky is positioned to rapidly rebound the state’s economy over the next few years. We haven’t made a lot of the mistakes other states have made. I strongly believe that if Gov. Beshear and the leadership of the General Assembly come together during the 2013 session to solve the larger challenges, we can reinvest in education and get the economy moving forward. At NKU, we are aggressively preparing ourselves to graduate more students who will help drive economic progress within our region. I know my colleagues are doing the same in other areas of Kentucky.”

Ted Smith, PhD, Chief, Economic Growth and Innovation, Louisville Metro Government 

“With the ‘fiscal cliff’ averted, every indication in Louisville is that our modest recovery will continue in 2013. Under Mayor Greg Fischer’s direction, Louisville Metro Department of Economic Growth and Innovation tracks daily advertised job openings in Louisville, and the seasonally adjusted trend data suggest an increase in open jobs. We believe this trend will continue, fueled by more ripple effects of the significant investment activity of our manufacturing and logistics industries. We also are seeing signs of thawing in commercial real estate development, with material interest and activity in many of our industrial and commercial sites within Louisville Metro.”

Greg Higdon, President & CEO, Kentucky Association of Manufacturers

“Although 2012 was prosperous for many manufacturers, others are not optimistic about 2013, which impacts decisions on hiring and capital expenditures. This was evident in the recent NAM/Industry Week Survey of Manufacturers in which 84 percent of respondents cited political uncertainties as their top challenge; those uncertainties included the fiscal cliff and the impact of federal spending sequestration. Closer to home, in response to KAM’s Annual Manufacturing Wage & Benefits Survey, 52 percent of Kentucky manufacturers say they plan to hire between one and 19 employees in 2013, down from 58 percent in 2012. The economy could improve faster this year if these uncertainties are addressed in a significant manner.”

Doug Whitlock, President, Eastern Kentucky University

“Eastern Kentucky University faces the challenging opportunities that confront all of public higher education. Our focus will remain on student success and providing students value for their tuition, which has been driven upward during an era of decreased state support. Funding realities require that we continue to be more entrepreneurial, primarily in expanding our online offerings, which will include doctoral programs. The business model for higher education is changing, and EKU will keep pace. The university will welcome new leadership at midyear as I finish what has been a rewarding six-year hiatus from retirement.”

There have been multiple investments on Main Street in downtown Louisville, especially by the bourbon industry, and the city was recently named the top U.S. travel destination for 2013 by Lonely Planet, the world’s biggest travel guide publisher.
There have been multiple investments on Main Street in downtown Louisville, especially by the bourbon industry, and the city was recently named the top U.S. travel destination for 2013 by Lonely Planet, the world’s biggest travel guide publisher.

Pearse Lyons, President, Alltech

“Alltech expects to achieve its target rate of $1 billion in annual revenue by mid-2013, as we continue 20 percent per annum growth. Our next target is $4 billion within five years through organic growth and acquisitions. We opened Town Branch Distillery in Lexington in 2012 and had 5,000-plus visitors in two months. In 2013, numerous planned expansion projects include two in Kentucky: increasing brewery production in Lexington and expanding production in Nicholasville of our animal health fermentation technologies. We have 3,500 employees dedicated to our mission of leveraging innovation to feed the growing world in a safer, more nutritious and sustainable manner. More than 500 work at our Nicholasville headquarters and manufacturing facilities in Winchester and Springfield.”

Lori Meadows, Executive Director, Kentucky Arts Council

“The arts, culture and design are increasingly important in state economic growth agendas, as the 2012 National Governor’s Association reported in its “New Engines of Growth: Five Roles for Arts, Culture and Design.” Kentucky’s arts industry is integral to community revitalization, entrepreneurial activity, tourism development and creative placemaking, and the arts’ role will continue to expand in these areas. The “buy local” movement has increased interest in and sales of Kentucky artisan products. The economic downturn is changing consumer attendance and donation patterns, and arts organizations continue to redesign programming and services to best suit public interest.”

Stephen Klein, President, The Kentucky Center for the Performing Arts

“The Kentucky Center for the Performing Arts became more strategic in the wake of the economic downturn and produced solid attendance numbers in 2012. We’ve embraced innovation through community collaborations, co-presenting shows outside of our venues and partnerships with leaders, including Louisville Mayor Greg Fisher. Diverse programming continues in 2013 with the Russian National Orchestra, Johnny Mathis and Momix Dance among many others. And we welcome the return of The Louisville Orchestra. We remain committed to our statewide non-profit mission with educational outreach efforts, including such programs as ArtsReach Kentucky and the Governor’s School for the Arts, which recently celebrated its 25th anniversary.”

Mary Pat Regan, Kentucky President, AT&T 

“The way we communicate is changing, and a national transition to an Internet Protocol (IP)-based network is driving communications investment. The past three years, AT&T has invested more than $600 million in Kentucky infrastructure, but the state’s monopoly-era, rotary-dial communications laws are making us less competitive. We must keep attracting capital investment to ensure Kentuckians in rural and urban areas have access to the newest technology and services. If Kentucky doesn’t modernize its laws, other states will gain a larger advantage in the race to grow our economy and provide opportunity for our children and grandchildren. This is about moving forward or falling behind.”

Dave Adkisson, President & CEO, Kentucky Chamber of Commerce 

“Uncertainty still rules at the end of 2012 – in federal tax policy and in access to capital. Hopefully 2013 will see a long-term big deal or grand bargain in Washington so businesses will know what the rules are, consumers can regain confidence and the economy can move from sluggish recovery to momentum. In Frankfort, we’ve got to avoid a train wreck with our public pension programs by enacting serious reform during the 2013 legislature. The good news: The broader economy is trying to recover. It just needs a boost from policymakers that shows government can manage itself.”

Mark Jacobson, CEO, Netgain Technologies

“NetGain Technologies is excited about 2013. We have seen growth in the market the past four months. Companies want to improve their IT systems performance and minimize the hassles of dealing with complicated technology.”

Air industry officials in Kentucky expect growth in freight and business passenger traffic with leisure travel still held back by economic uncertainty.
Air industry officials in Kentucky expect growth in freight and business passenger traffic with leisure travel still held back by economic uncertainty.

Skip Miller, Executive Director, Louisville Regional Airport Authority 

“Aviation expects modest growth in 2013. We expect business travel growth, but economic uncertainty will continue to weigh on leisure demand. Uncertainty will force airlines to be cautious about new opportunities; their growth will come predominantly from better utilization of existing routes and a shift to larger aircraft. Louisville will compete favorably for 2013’s air service opportunities. As one of the world’s busiest cargo airports, Louisville International will continue playing a major role in local and national economic activity. The region’s air cargo and logistics future is bright; we expect long-term growth. The airport’s sister agency, Renaissance Zone Corp., anticipates an active year for property sales in the Renaissance South Business Park.”

Bob Quick, President/CEO, Commerce Lexington

“The national economy is sluggish, but the Bluegrass region and Lexington specifically have seen positive activity the past year by big business, small business and a growing number of entrepreneurial start-ups and expansions. Our continued success arises from Lexington’s diverse economy, well-educated workforce, plethora of higher education institutions, strong healthcare sector and improving housing market. The past few years have been very active for our Economic Development Division with locations and expansions spanning a variety of industries. We expect this to continue in 2013 as more companies and site consultants consider Lexington’s region for their business needs.”

Larry Hayes, Secretary, Kentucky Cabinet for Economic Development

“Positive momentum is building within Kentucky’s manufacturing and supportive service industries, and the commonwealth is in a prime position to capitalize on significant opportunities in 2013. The past two years, Kentucky’s auto industry announced 125 projects investing almost $1.7 billion that will create more than 7,000 jobs. Our auto production numbers soared above the 1 million mark for the first time since 2007. All indications show this continuing in 2013. Foreign direct investment in the commonwealth also remains strong, representing nearly 35 percent of all capital investment and 20 percent of new manufacturing and supportive service jobs announced in 2012. Kentucky has such a compelling story to tell, and we’re communicating that message to business leaders across the globe.”

Jim Gray, Mayor, Lexington

“Lexington’s economy is slowly recovering from the national recession. That’s good news and tells us we’re on the right track. We’ve had several successes with local companies expanding and companies moving here. City government is back in the black. We’ve had the political will to move our city through recovery to renewed strength, and now we have a chance to imagine investing in the future. Our focus will not waiver: It will remain on improving our city’s ability to compete for good jobs and on building a great American city.”

Bill Crouch, President, Georgetown College

“I’m bullish. Why? Because we’re providing our students with the high-demand skills they need to be great employees: superb writing ability, problem-solving skills, the ability to think critically, the capacity to adapt to change in technology and the workplace, the ability to function well as part of a team, and the ability to present ideas clearly and succinctly. These skills are honed in a campus environment that features small classes, passionate teachers and a real sense of community. This will be another good year for Georgetown College and its graduates.”

Recovery Recession signs_119853268René True, Executive Director, Connect Kentucky

“Demand from the creation and consumption of digital information – and specifically more video content – will continue to place pressure on existing broadband infrastructure. Broadband providers will look for ways to roll out new technologies to meet consumer and business demand for digital content by investing even more in existing markets. New technologies will begin to erase the rural-urban broadband availability divide. However, significant areas of Kentucky will still need local intervention to increase broadband availability or rural citizens will be left behind in the digital age.”

Bill Thomason, President, Keeneland Association 

“Those of us in the Thoroughbred industry are approaching 2013 with optimism, buoyed by positive indicators in 2012 such as a stabilizing auction market, increased participation from domestic and international buyers willing to pay top dollar for quality Thoroughbreds, and a strong affinity among horsemen and fans for quality racing like that offered at Keeneland’s boutique race meetings – to name just a few. Thoroughbred racing is as exciting as it has ever been and in Central Kentucky, we showcase it better than anyone in the world. That’s reason enough for all of us to share in that optimism.”

Andrew R. Clark, DVM, MBA, President, Andrew R. Clark Management Consulting LLC

“The Thoroughbred industry, with declining numbers of mares bred each year, remains a challenging and competitive environment for owners, breeders, service providers and vendors. Surrounding states and regional markets are out-competing Kentucky with incentives and purses that attract breeding and racing away. Meanwhile, the picture is bright on the sport horse side. Legacy improvements from the World Equestrian Games at the Kentucky Horse Park continue to attract people, horses and revenue to the commonwealth. Central Kentucky now showcases new sport horse farms in remarkable numbers, and Mayor Jim Gray has noted the economic gain in downtown Lexington businesses felt in summer 2012 when events were held at Kentucky Horse Park.”