When it comes to economic development, it’s fair to say Kentucky is on a roll. In 2015, the commonwealth set an all-time record of $5.1 billion in new corporate investment. But in 2017, the Kentucky Economic Development Cabinet shattered that record, bringing in more than $8.9 billion spread across 221 projects around the state, with December deals yet to add to the pile.
That’s $8.9 billion in new headquarters and manufacturing plants, new expansions and reinvestments, and most important, new hires. It is estimated this year’s economic development efforts will net the state 16,472 new jobs – the most job growth Kentucky has seen since 2006.
It’s a number Terry Gill, secretary of Kentucky’s Cabinet for Economic Development since January, points to with pride.
“We’re very fortunate to have a business-minded governor. With the right policies in place and resources at hand, we’ve been able to get what we need to create a truly streamlined cabinet. We’ve improved morale and set new records, and we’ve done it all with only about 75 employees – about half the staff this department had at its peak.
“We’ve been able to do it because there’s a real sense of urgency here, and a group of people who understand the world of risk that entrepreneurs live in, because we’ve lived it ourselves. So we’re able to make quick decisions, clear the way with permits and connect them to state resources faster than the competition. And it’s been making a big difference.”
Kentucky was already on many corporations’ radar. Last March, Site Selection magazine held its prestigious annual Governor’s Cup recognition and named Kentucky seventh nationally for 2016 in absolute total projects, beating out many far larger states. Site Selection ranked Kentucky second in number of projects per capita.
Kentucky won the Governor’s Cup for projects per capita in 2015 and 2014. Texas has taken the past five consecutive Governor’s Cups for total projects.
A regulatory approach primed for growth
Gill credits the cabinet’s success this year to a favorable economy overall and Kentucky’s passage in January of the Right to Work Act, which allows employees to individually choose whether or not they wish to join a union, if they work in a unionized workplace.
“It is hard to overemphasize the impact the passage of Right to Work has had on our efforts,” Gill said. “When companies are sitting around a board room table trying to decide where to build and grow, they begin by looking a map that shows where the right to work states are, and they start only with those. Now that we have that barrier removed, the floodgates have opened. We are getting invited to the table for deals we wouldn’t have been before.”
Gill specifically cites the Cabinet’s recent deal with Braidy Industries, which announced this spring it would build a $1.3 billion aluminum rolling plant in northeastern Kentucky, employing 550 people to make metal sheeting for the automotive, aerospace and defense industries. During the announcement news conference, Braidy’s CEO Craig Bouchard credited the right to work legislation as a key factor in why it decided to locate in Kentucky.
It’s all part of a Bevin administration push to develop a more business-friendly state government. In addition to right-to-work, the legislature abolished prevailing wage regulations for contractors working on public projects. In April, a public-private partnership law was passed. The law authorizes state and local governments to use public-private partnerships to develop transportation and other types of infrastructure projects – a move designed to get infrastructure needs addressed more quickly around the state.
“If we don’t address these things, businesses won’t come. They won’t feel good about expanding or moving here,” Bevin said. “No state wants to be known as being at the bottom of the financial barrel. We have to get our house in order, and we’ve been very up front about what we’re going to do. Passing right-to-work has been a huge driver for what we’re doing in the state. Now we need to pass tax reform and deal with the pension program.
“So far it’s all been positively received by businesses in the state. Companies and private capital go where they’re welcome and where the state’s budget is in order.”
In July 2016, the Bevin administration took a business-friendly approach to the state’s labyrinth of development regulations with its Red Tape Initiative. The initiative encourages business people, state employees and consumers to identify burdensome regulations and offer suggestions for improvement – submitting them at redtapereduction.com.
Approximately half of the state’s 4,700 regulations have been reviewed, according to the administration, resulting in 152 being repealed, 337 targeted for repeal, 184 amended and 424 targeted for amendment.
Braidy Industries is far from the only major company attracted by Kentucky’s more business-friendly platform. Chief among the very high-profile deals the Cabinet for Economic Development completed this year is Amazon’s announcement in January that it will build its first-ever Amazon Prime Air shipping hub for nearly $1.5 billion at the Cincinnati/Northern Kentucky International Airport, creating 2,700 jobs. And the move is expected to attract more development in and around the airport – companies like iServe Products, a fast growing online retailer that last April announced plans to open a 100-job fulfillment center in Northern Kentucky.
In October, Toyota Motor North America Inc. opened its $80 million Production Engineering Manufacturing Center in Georgetown. More than 600 engineers who work at the facility are there to connect Toyota’s vehicle design teams and production lines at Toyota’s 14 North American factories – demonstrating the company’s ongoing commitment to growing its operations in Kentucky.
With more than 155 business development projects slated to be final by the end of the year, Gill is quick to credit the Cabinet for Economic Development team, which is a blend of long-time employees who know the regulatory landscape and leaders from C-suite corporate America.
Gill, for instance, started at the Cabinet in January, after serving as president of OneTouchPoint, a $140 million business-communication services organization, and as president and CEO of FetterGroup.
Gill was joined in May by Vivek Sarin, executive officer in the Cabinet for Economic Development, himself a founder and president of Juvo Co., a professional services firm, and the long-time CEO of trailer and towing-equipment maker Shelby Industries LLC in Shelbyville. Sarin is a five-year board member of Bluegrass Economic Advancement Movement, launched by mayors Greg Fischer and Jim Gray of Louisville and Lexington.
Gill and Sarin draw equal salaries and consider themselves to be “co-leaders” of the Cabinet, an approach they say allows them to divide and conquer, and speed up the number of deals closed.
“We know what it’s like to sit in a CEO’s chair, and live in the world of business risks,” Sarin said. “In order to drive continuous improvement in what we do, we have to be willing to take more creative risks, as well. When companies are coming here, they get the kind of expert help they need to get a go/no-go decision quickly. We are getting very good at shepherding them through permitting and regulations and land-use issues, quickly.
“When other states are fiscally stronger than us, we have to sell other things,” he said. “And for us, that’s personal service, a good workforce, and the ability to get them up and running here fast.”
Build ready/work ready
One of the most challenging parts of relocating, expanding or building a business is site selection. And Kentucky has developed a build-ready program designed to take months off the selection and building process. Kentucky Build Ready certification allows local communities to prepare in advance the permitting, renderings, site pads and more for companies that are looking to develop large facilities. Currently, the state has 15 certified Build-Ready locations around the state and certification efforts underway for a half dozen others. A list is at SelectKentucky.com.
Once a company is interested in a site, its next question is usually “will there be a ready, qualified workforce available to me at this location?” To answer this question quickly, the state has created a rigorous certification program called Kentucky Work Ready Communities. To be certified, a county must meet metrics for high school graduation rates and holders of National Career Readiness Certificates – a credential respected coast to coast – and demonstrate community commitment, encourage post-secondary educational attainment, offer soft skills development programs and have fast, consistent internet service. All of Kentucky’s 120 counties are either certified or actively pursuing it.
Early this year, Bevin, along with the Cabinet for Economic Development, announced that 40 projects will receive a total of $100 million in investment through the Work Ready Skills Initiative, with another $100 million round scheduled for 2018.
The Workforce Ready Skills Initiative brings together private employers, higher-education institutions, high schools, technical schools and community workforce development organizations around the idea that students should be trained for specific, technical skills they will need. The program gives companies an ability to customize training programs that fast track students into jobs in advanced manufacturing, healthcare, IT, business services, construction trades, transportation and logistics. The first 25 projects in round one are projected to train more than 30,000 Kentuckians annually.
To aid students in paying for their training, a Work Ready Kentucky Scholarship program is covering tuition for students and adults enrolling in more than 4,000 certificate programs offered by Kentucky’s state and private universities and community and technical colleges. Information and access to the program is at HelpWantedKy.com.
The Kentucky Federation for Advanced Manufacturing Education is a similar program, but with a twist. KY FAME students study part of the week and work part of the week at a sponsoring company, getting paid as they go. Students graduate debt free and in most cases end up with a full-time job with their sponsor. KY FAME now has 225 member companies in chapters across the state, with 650 students enrolled in this year’s fall semester.
“The pendulum is swinging back to U.S. manufacturing,” Sarin said. “Companies are coming around to the idea that total costs for doing business here are less than if they work overseas. But in order for this to work, overcoming the skills gap and addressing workforce development issues will be critical. It’s our goal to become best in class in that effort, and we’re well on our way.”
Kentucky’s efforts appear to be working. Site Selection magazine just ranked Kentucky’s workforce development first in the south-central region for the second consecutive year in 2017, taking into account state workforce expenditures, certifications and readiness scoring by the U.S. Chamber of Commerce Foundation. Kentucky’s high school graduation rate of 87.5 percent in 2014 was among the highest in the nation, according to a 2016 report by the Everyone Graduates Center at the John Hopkins School of Education and Civic Enterprises.
A regional approach
The key to these efforts, Gill said, is in looking at the commonwealth as a region with its own discrete economies, strengths and weaknesses. He said their economic development emphasis is primarily geared to several key industry segments, including: automotive; aerospace; primary metals; healthcare/pharmaceutical; food/beverage; logistics/distribution; agribusiness; chemicals; and plastic/rubber.
“We have natural industry clusters that are growing up in our state, and we need to exploit those,” Gill said. “For instance, in Louisville you have the healthcare, insurance and aging-care industries that are growing up. With the Amazon Prime and DHL Hubs in Northern Kentucky, and the UPS Worldport in Louisville, logistics and aerospace companies are coming in to base themselves near those resources.
“The same could be said around our automotive plants like Toyota, which is becoming a technical and design center for the company, and perhaps, the industry at large. We need to align our efforts so we can encourage entrepreneurial activity around those segments,” he said.
Gunning to be tops in manufacturing
Part of the Cabinet’s vision for Kentucky is to make it a major manufacturing hub for North America. And the state is already well on its way to that goal. Kentucky’s manufacturing GDP is $36.2 billion. More than 4,460 manufacturing facilities operate in Kentucky, employing more than 245,000 people and accounting for one in six private-sector jobs.
Furthermore, these jobs pay more than industry averages – $56,000 annually compared to an all-industry average of $42,000.
“When we talk about Kentucky to manufacturing companies, we have a great story to tell,” Gill said. “We have tremendous natural resources, and our utility rates are some of the lowest in the nation. We have a tremendous workforce that is ready to work. We’re located at the intersection of so many interstates, and within a short drive of most of America. When you combine that with the logistical powerhouses we have in the area – UPS, FedEx, Amazon Prime, DHL – there are a lot of compelling reasons for a business to locate in Kentucky,” he said.
The state has seen big gains in its automotive industry. Kentucky is the nation’s third-largest producer of passenger cars and trucks. On a per capita basis, Kentucky ranks No. 1 nationally by a very large margin. The commonwealth has 525 motor vehicle-related facilities, including four assembly plants, employing more than 101,000 people. Since 2009, the state’s vehicle output more than doubled without the addition of a new assembly plant, due largely to the reinvestment in and expansion of existing facilities.
In April, Toyota announced a $1.3 billion upgrade of its 30-year-old operations in Georgetown, adding to hundreds of millions it had pumped into TMMK in recent years. In June, Ford announced it will invest another $900 million to support production of its 2018 aluminum-bodied Lincoln Navigator and Ford Expedition in Louisville. General Motors has also announced major investments in its Kentucky facilities since 2015.
Logistics brings it all together
Because Kentucky is situated at the center of a 34-state distribution area in the eastern United States, it has the strategic high ground when it comes to location. Kentucky’s borders lie within 600 miles of more than two-thirds of the U.S. population.
It is an advantage the state has exploited. The state has six commercial airports and dozens of regional airports. Louisville International Airport is ranked third nationally in 2017 as a logistics leader, according to Business Facilities magazine. The Cincinnati metro area airport located in Northern Kentucky ranks ninth. But with the addition of the Amazon Prime Hub, CVG’s numbers should be set to grow exponentially.
Candace McGraw, CEO of the Cincinnati-Northern Kentucky International Airport, said she’s looking forward to working with the Cabinet as well as the Northern Kentucky Chamber of Commerce to build on the development around the airport.
“We have 450 direct employees of the airport but 13,000 employees who work at some part of our campus through our vendor/partners. Our airport is already a DHL Express super hub, and with Amazon Prime Air’s new cargo hub coming in soon, those employment numbers will skyrocket,” McGraw said. “We’re able to do all this because our airport has the advantage of being very ‘land rich.’ We have 5,500 acres, and our plan is to make much of that land available to other companies in logistics, travel and aircraft maintenance. It’s a symbiotic relationship that helps all our businesses grow, together.”
Building on success in healthcare
While the Cabinet generally stays out of the development of hospitals and physician offices, it does get involved in the development of the myriad businesses that serve healthcare, including aging-care companies, diagnostics, pharma manufacturing/testing, medical supply and logistics companies, and more.
CTI Clinical Trials and Consulting is one such company that had its ribbon cutting in Kentucky this year, bringing 500 jobs to the area. CTI CEO Timothy Schroeder moved his company from Blue Ash, Ohio, across the river to Covington and he said he couldn’t be happier with the new location.
“A lot of people think that you can’t do business if you aren’t on one of the coasts, but we haven’t seen that to be true. Northern Kentucky offers as much or more as other places in the country – great universities, good communities and ultimately amazing people, which is key to business success. Kentucky also offers a low cost of doing business in comparison to other states, as well as a stable work force that is not transient and willing to stay in the state for the duration of their careers,” Schroeder said.
“I would tell anyone looking to locate here to call us. We will tell them what an amazing experience and process it has been for us over the past two years,” he said. “We’d also encourage them to talk to the people in Kentucky, both at a state and local government level. Network with as many business owners in the community and they will tell you why they love having their company in the area.”
From January through October 2017, the Cabinet closed eight deals with healthcare companies totaling about $52.5 million; they will bring more than 400 jobs to the commonwealth in industry sectors such as pharma call centers and distribution centers, healthcare data analytics, medical equipment, dental insurance and more.
Louisville is building on its distinction as the largest cluster for aging-care companies in the world. It just welcomed a new $34 million headquarters project for ResCare, one of the nation’s largest providers of home care to seniors and those with disabilities. Slated to open next year, the deal ensured ResCare would keep its headquarters and the 340 employees who work there in Louisville.
Taking Kentucky’s business global
It’s more than American-owned companies growing the state economy. Through June 2017, Kentucky announced nearly $1.81 billion in economic development projects with foreign owned companies. That foreign-direct investment will result in 2,200 additional full-time jobs in the coming years.
Export efforts have been paying off as well, with the state shipping now to 200 countries in total dollar amounts that are increasing year over year to never-previously-seen levels. Kentucky exported $29.24 billion in goods and services in 2016, an increase of 5.8 percent, or about $1.6 billion, over 2015. In the first eight months of 2017, exports are up an another 4.1 percent over the same period last year.
“When it comes to economic development, we have our foot on the gas,” Bevin said. “I’m a lot more engaged; I get involved. They’re not used to a governor being as hands on, but that makes a difference. We’re just getting warmed up here in Kentucky.”
“The question we have to ask ourselves is, where do we want to be in 10 years?” said Gill. “I want Kentucky to become the sort of place young people are moving to, because it’s a true career destination. I want Kentucky to be known as the place that can attract and retain the best and the brightest. I think we’re well on our way.”
Susan Gosselin is a correspondent for The Lane Report. She can be reached at [email protected]