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2012 Outlook: Proceed With Caution

By Mark Green

Exterior elevation rendering of the proposed renovation of Lexington’s Rupp Arena that was approved by the Rupp Arena Arts and Entertainment Task Force. The design was created by SPACE GROUP, an architectural and design firm based in Norway.

Kentucky business leaders and public sector officials who play key roles in economic development have a discernibly rosier outlook for economic prospects in 2012 than they did a year ago. Among the several dozen leaders who shared their views for this new year, the composite view is that the economy is, indeed, gaining and sustaining positive momentum.

It’s not robust, but it is on the upswing. We likely are still a couple of years from what most business people would consider substantial recovery from the 2008 financial crisis and recession, whose impact created the worst conditions since the Great Recession of the 1930s. But there are encouraging green shoots sprouting in much of the Bluegrass State.

Topping the list, of course, is Ford Motor Co.’s decision to invest $1.2 billion in its two assembly plants in Louisville. That project, in fact, was voted the top deal in the United States in 2011 by Business Facilities magazine. The now-completed makeover of Louisville Assembly Plant into what Ford terms the most advanced and flexible vehicle manufacturing site in the world already has brought two new work shifts and 3,000-plus jobs. The renovators show up at Ford’s Kentucky Truck Plant next.

Louisville International Airport expects continued restructuring in the passenger service industry and that the nearby UPS Worldport hub will keep it one of the busiest cargo airports in the world.

Manufacturing in general is coming back strongly, which is giving Kentucky a job-growth rate that is better than the national average. That sector could be significantly stronger, however, if federal government decision makers could eliminate policy uncertainty about tax rates and healthcare insurance regulations, which would allow businesses to develop reliable five-year plans.

Another cloud hovering on the scene for Kentucky business is new regulation by the Environmental Protection Agency for coal-fired power plants. Meeting emission standards means increases in the state’s traditionally cheaper coal-based electricity costs, decreasing a business advantage the commonwealth enjoys. As in the rest of the nation, the housing sector remains on its back.

This rendering depicts one of two new Ohio River bridges – shown here across the center of the photo alongside the existing Kennedy Bridge in downtown Louisville – that Kentucky and Indiana officials expect to get construction started on in 2012. The long-sought Ohio River Bridges Project also will include a second structure known as the East End Bridge several miles north of downtown Louisville linking I-265 (Gene Snyder Expressway) with connecting highways in Utita, Ind.

However, leaders in nearly all regions of Kentucky are able to point to economic positives taking place.

Agriculture income topped $5 billion in 2011, a record that will be topped in 2012 barring unusually bad weather. Tourism was up 5 percent statewide in 2011 and that sector foresees further growth this year.

In addition to Ford’s investment, Louisville expects the multibillion-dollar Ohio River Bridges Project to begin this year. Its important healthcare sector is growing.

Major construction projects in Owensboro that continue this year already have pushed its unemployment rate down, and Bowling Green is seeing benefits from its major downtown renovations of the past few years.

Northern Kentucky is riding higher morale after DHL expanded its cargo shipping hub and NKU opened its glitzy, high-tech Griffin Hall for the College of Informatics.

In the Bluegrass region, Toyota will export 6,000 Camrys to Korea this year, and TMMK officials are pleased about the company’s overall plans for higher production and dozens of new model introductions throughout the year. Animal feed supplement maker Alltech has a $1 billion revenue goal for this year, which is double its 2010 figure, and is planning to grow to $4 billion annually within three years.

Louisville Mayor Greg Fischer, Jim Host and Lexington Mayor Jim Gray at the kickoff event in Louisville for the Bluegrass Economic Advancement Movement. BEAM will promote advanced manufacturing in the corridor between Greater Louisville and Central Kentucky.

Around the state, businesses striving to remain competitive during the past three lean years have been upgrading their technology and operations, and the resulting productivity improvements are showing up in better profitability despite the lackluster U.S. economy. Frankfort officials like what is beginning to happen with Kentucky’s role in foreign trade. They believe the state will again have higher exports in 2012 and note the growing number of foreign investment projects they’ve been able to announce.

Kentuckians are a hard-working but cautious lot. They don’t go for gimmicks. There has not been a failure of a state-chartered bank in decades. After keeping their heads down and belts tightened and telling The Lane Report they were “cautiously optimistic” for several years, members of the business community are beginning to indulge in some genuine optimism about 2012.

“In Louisville, the economy should continue to show signs of recovery. The two Ford plants will be producing new vehicles, the result of $1.2 billion in investment, and General Electric will continue in-sourcing products from overseas. Our entrepreneurship landscape continues to build as well. We expect to see continued growth in our strength sectors, including logistics, lifelong wellness and aging care, food and beverage, and advanced manufacturing with the Louisville/Lexington BEAM initiative. Increasing exports will also stay as a focus. Our biggest priority for 2012 is starting the construction process on the Ohio River Bridges Project – a $2.6 billion project that will broaden our regional economy and create thousands of construction jobs in the coming six years. ”
Greg Fischer, Mayor Louisville Metro

There will be a national effort to recruit informatics companies to Northern Kentucky this year after the 2011 opening of $53 million Griffin Hall at NKU, built specially for the university’s informatics program.

“Nationally, the workers’ compensation insurance market is expected to begin firming in 2012. Kentucky may begin seeing similar impact in the last half of the year. With that in mind, Kentucky’s businesses should evaluate financial stability, consistency, cost-saving services and staying power of workers’ comp insurers as they consider which company or group fund should provide their workers’ compensation insurance coverage for the long term.”
Roger Fries, President & CEO KEMI

“UPS loves logistics and prides itself in the art and science of moving things exactly where they need to be, when they need to be there. New service offerings like UPS My Choices – a revolutionary new home delivery service that enables busy consumers to manage incoming package deliveries, set UPS apart. We rely on Louisville – as home of our airline, our Supply Chain Solutions campus and our international all-points hub Worldport – to help us harness the power of logistics – not to mention our public and private partnerships throughout Kentuckiana that support programs like Metropolitan College. All ensure that we can focus on our logistics mission around the world.”
Mitch Nichols, President UPS Airlines

“Facing an unprecedented wave of EPA rules, coal-dependent electric utilities nationwide will see continued upward rate pressure through 2012. East Kentucky Power Cooperative is cautiously optimistic that its more than $2 billion in capital investments over the past decade have positioned the co-op to comply without major additional rate impact. EKPC also is actively re-engaging in economic development to assist state officials in creating jobs and investment to strengthen Kentucky’s economy.”
Anthony “Tony” Campbell, President & CEO East Kentucky Power Cooperative

“As this prosperous and successful year comes to a close, KLH looks forward to 2012 with excitement and eagerness for what the coming year will bring. We forecast sustained growth for our firm as we continue to expand, serving our current and new clients with exceptional quality and customer service. We are very optimistic that there will continue to be high demand for our services in the commonwealth; hence, the opening of our Lexington office at the start of 2012.”
Robert Lonnemann, Principal KLH Engineers

“Kentucky’s arts industry, while facing the same challenges as other industries in recent years, is experiencing growth. Organizations are developing and implementing new programming, fundraising and marketing strategies; communities are increasingly utilizing the arts as a development tool; and the growing interest in handmade local products reflects the strong demand for high-quality work by Kentucky artists. The arts industry will continue to deal with economic issues but will also develop creative strategies to move forward.”
Lori Meadows, Executive Director Kentucky Arts Council

“Kentucky will experience its fair share of broadband adoption growth as the global demand for use of broadband capacity continues to grow exponentially in 2012. The growth will be driven by increased adoption and use of mobile devices and their applications, full deployment of 4G mobile networks, the mainstream acceptance of cloud computing and the increased use of non-traditional devices using broadband connections to communicate and operate remotely.”
Rene’ F. True, Executive Director Connect Kentucky

“We anticipate the Kentucky economy will have continued improvement in 2012. That improvement is not only tied to an overall improving economy, but equally important are the investments in information technology and internal process improvements that have been made over the past two years. The cost saving and productivity associated with these investments by Kentucky companies will have a very positive impact on their profitability. The improved profitability will translate into hiring and improved overall economic growth.”
Steve Sigg, CEO SIS Holding Company Inc.

“This economy comes with its own set of rules and truths. I worry that as business and community leaders we’re giving too much credence to our ‘old school’ solutions. Meanwhile, we’ve ‘benched’ the recent graduates of the commonwealth and sidelined some of our best young minds. Look around, you’ll find far too many of our future leaders sitting on couches, degrees in hand, unemployed, unproductive and uninspired. Let’s get them plugged in and invested in our shared future.”
John J. Leehy III, President & CEO Payment Alliance International Inc.

“There is virtually no limit on the need for education; the issue is the supply and demand. We at the University of Pikeville see the awareness of the need for education in Eastern Kentucky increasing, and we are expanding to supply that demand.”
Paul E. Patton, President University of Pikeville

“Although appropriate investment in water utility system upgrades has been a challenge for most U.S. water utilities, Kentucky American Water is committed to just such investments in order to keep our systems ahead of the curve and our communities well-positioned for economic success. Staying focused on these upgrades while striving to be more efficient will meet our primary goals of maintaining quality water service and value for our customers.”
Cheryl D. Norton, President Kentucky American Water

“As I enter into my second term as governor, I am enthusiastic about the many opportunities that lie ahead. Over the past four years, we’ve made aggressive and strategic decisions that have allowed us to become more competitive in our economic development efforts. My top priority remains jobs – creating new Kentucky jobs and saving existing ones. As governor, I look forward to leading this great commonwealth into a bright and optimistic future.”
Steve Beshear, Governor Commonwealth of Kentucky

“Despite national economic struggles, the Bluegrass region has been able to weather the downturn better than a lot of cities. Two main factors for that are the area’s diverse economy and its educated workforce. In 2011, economic development activity was steady, as companies like Tiffany & Co. and Allconnect opened new facilities, and others such as Lockheed Martin, Neogen and Tempur-Pedic announced expansions. A game-changer for 2012 and beyond will be the Bluegrass Economic Advancement Movement, a regional strategic planning initiative between Lexington and Louisville that will enable us to better leverage our strengths in advanced manufacturing to give Kentucky a competitive advantage in the global economy.”
Bob Quick, President & CEO Commerce Lexington Inc.

“Optimism is very high in Northern Kentucky and our tri-state region with 43 percent of business leaders recently surveyed planning for growth of more than 10 percent in 2012. We are particularly encouraged by our manufacturing sector, which appears to be making one of the strongest comebacks of all. International trade activity also continues to be a strong suit for us in helping our local companies weather domestic economic turbulence.”
Steve Stevens, President & CEO Northern Kentucky Chamber of Commerce


“Specific to commercial construction, we’re seeing modest signs of growth over last year. Fueling this upswing are infrastructure investments in healthcare, higher education and life sciences. Throughout the downturn firms have absorbed material cost increases as a result of intense competition for work. If costs continue to rise, we may see firms unable to continue to do this due to what are already very tight margins. This could result in significant inflation for construction costs. At Messer we continue to see the importance of market differentiation and strong relationships as success indicators in a challenging economic environment.”                      – Mark Gillming, Senior Vice President, Messer Construction Co.

Airlines are projecting little or no net growth in available seats and flight service in 2012. High fuel costs and a decline in consumer demand will force airlines to be cautious. Growth will come predominantly from better utilization of existing aircraft. While 2012 is expected to be a year of restructuring, Louisville will continue to attract new service to destinations of interest to the regional business community. As airlines continue to modify route networks, Louisville International will continue to aggressively pursue strategic opportunities. As one of the world’s busiest cargo airports, Louisville International will continue to play a major role in both local and national economic activity. The future for air cargo and logistics in the region is bright, and we expect long-term growth in this segment.”

Skip Miller, Executive Director Louisville Regional Airport Authority

“Kentucky’s future is bright because we recognize that economic progress is directly related to talent. And the nation is taking notice. Kentucky ranks first among all states for improvement in the percent of working-age adults with college degrees, six-year graduation rates at four-year college and universities, and the number of undergraduate credentials awarded relative to the population with no college degree. We will rapidly recover from this recession if our state leaders can continue to invest in education and tie our talent to high-growth areas such as informatics, healthcare and other STEM-related industries.”
Dr. James Vortuba, President Northern Kentucky University

“With more than 7,300 associates, close $450 million in payroll and $1 billion in total revenue in 2011, St. Elizabeth has a $1.8 billion total impact to our Northern Kentucky regsion and directly and indirectly, generates a total of more than 12,000 local jobs for our region. We will continue to move forward in 2012, investing further in great people and our communities. More importantly, we’ll see it in the outcomes – a thriving and healthier region we are all proud to call home. Providing superior and nationally recognized healthcare service, St. Elizabeth Healthcare has great commitment to its mission to serve the patients and communities within the Greater Cincinnati Region.”
John Dubis, President & CEO, St. Elizabeth Healthcare

“Innovation will remain robust and the number of start-up companies will continue to increase in 2012. The protracted economic downturn, resulting in downsizing and a lack of good jobs, has pressured individuals to become more resourceful and innovative. Innovative ideas are resulting in a host of new start-up companies. The University of Louisville’s Nucleus: Kentucky’s Innovation Park will continuing to provide a full range of support services to entrepreneurs and start-up companies, resulting in the creation of new jobs for Kentucky.”
Vickie Yates Brown, President Nucleus

“I predict we will see the Kentucky economy develop some momentum in 2012, although it will be another couple of years until we see a return to peak employment levels. The European economy will continue to be a drag on the U.S. and Kentucky economies, but I’m now optimistic that we have avoided a double-dip recession and the business climate that we experience on Main Street in towns and cities in Kentucky will start to feel more normal.”
Dave Adkisson, President & CEO Kentucky Chamber of Commerce

“2011 was more prosperous for many. Manufacturers, especially small and mid-sized companies, continue to struggle because federal policy makers have not addressed the economic uncertainty created by their actions or inactions. U.S. corporations are sitting on some $2 trillion and will continue to do so until policy makers alleviate some of the uncertainty, allowing those companies to develop reliable business plans for the next few years. During 2012, the economy will improve but not accelerate until the manufacturing community is able to execute plans that create a positive economic ripple effect through all sectors.”
Greg Higdon, President & CEO Kentucky Association of Manufacturers

“We anticipate businesses to adopt a ‘proceed with caution’ approach in regard to people (staffing) and technology investments in 2012. Business leaders will use the lessons learned from recent economic uncertainty to look for ways to stretch the resources they have on hand, or to make sure proper change management systems are in place prior to investing in technology. We look forward to helping our clients achieve employee and technological efficiencies in 2012.”
Crinda Francke, Vice President Executrain

“For years, use of coal has provided Kentuckians some of the least-cost energy in the country; it has helped attract industry and jobs to the commonwealth. However, the new Environmental Protection Agency regulations are changing the utility landscape forever. Across the country, we are seeing utility companies making tough choices to meet the regulations impacting coal-fired generation. There’s no escaping the fact these federal regulations will significantly impact our industry and our customers. And, as a result, energy costs will increase in Kentucky. ”
Victor Staffieri, Chairman, CEO & President LG&E and KU Energy

“Northern Kentucky ended 2011 with several strong expansion announcements. The dedication of Northern Kentucky University’s $53M Griffin Hall for the burgeoning College of Informatics highlighted the opportunities for our region. Activity is picking-up, we have a good pipeline of projects and we’re optimistic about 2012. Northern Kentucky will hold a national contest to attract fledgling informatics companies and will enhance life-sciences accelerator efforts. Duke Energy will help us enhance business retention and expansion efforts. Recruitment will focus on our target sectors: advanced manufacturing; office/tech; and aviation. Toyota and Mazak are boosting Kentucky’s exports, and DHL will continue to strengthen international courier and freight operations at CVG.”
Dan Tobergate, President/CEO Northern Kentucky Tri-ED

“Centre College has been fortunate not to experience distress in its financial operation the past couple of years, even during these difficult economic times. Our continuous improvements during the last decade have been more cautious and measured since 2008, but we have moved forward on all fronts nonetheless. Our forecast for the college continues to be strong, but again, we plan to take a more measured, well-considered approach to all things financial.”
John Roush, President Centre College