ONE-ON-ONE
- March 2002
by Ed G. Lane
The Hyundai Plant Would Have a
Significant Economic Impact on Kentucky’
As Kentucky’s Secretary for Economic Development, Gene Strong goes
the extra mile to attract new businesses
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Marvin E. 'Gene' Strong
Gene Strong was named to his current position as Secretary of
the Cabinet for Economic Development in 1993 by the Kentucky
Economic Development Partnership Board. Prior to that, he served
as deputy secretary of the Cabinet under then-Lt. Gov. Paul
Patton.
Under Strong’s leadership,
nearly 193,000 new manufacturing and supportive industry jobs
have been created and more than $2.2 billion in new investment
has also been made. During that time, Kentucky has been recognized
as one of the top 10 states in the U.S. in new jobs creation,
the number of new or expanded manufacturing plants and in the
rate of per capita income growth. Kentucky’s exports have
also increased, placing it among the top 25 states in dollar
value of exports.
Prior to joining the Cabinet,
Strong spent 11 years as an executive of a national real estate
development company based in Lexington.
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Ed Lane: How long have you served as the Secretary of the Economic Development
Cabinet?
Gene Strong: I came to the
cabinet in December of 1991 as the deputy secretary. In 1992, the
General Assembly passed House Bill 89, that created the public/private
arrangement for economic development. After a search process was conducted
by FANTIS in March of 1993 I was selected as the Secretary. So, I
have served about nine years in this role.
EL: While you have been the
secretary of the cabinet, which completed economic development project
do you consider to have been the most beneficial to Kentucky’s
economy?
GS: The UPS project in Louisville,
a billion dollar investment, has been and remains an important project
for Kentucky. The Toyota headquarters in Northern Kentucky has been
an important part of the growth in Northern Kentucky. Those are major
projects with large investments, but then there are companies that
are smaller in nature in communities like Campbellsville or Hopkinsville
or places in Kentucky where the economic impact in those communities,
in many respects, is just as important.
EL: Companies like UPS and
Toyota have created “trickle down” economic development. Distribution
facilities, logistics companies, and automotive component suppliers
have created a lot of new jobs in Kentucky.
GS: Automotive and distribution
have had large impacts. A number of companies have located around
Louisville because of the UPS hub, and around Northern Kentucky because
of DHL. Kentucky is the only state that has two overnight containerized
cargo hubs.
Having Toyota’s manufacturing
facility in Georgetown has attracted suppliers to Kentucky. Our state
is also fortunate to have Ford in Louisville and GM in Bowling Green.
EL: Hyundai Motor Company
is considering Alabama and Kentucky as potential locations for its new
U.S. auto plant. How is Kentucky doing in that competition right now?
GS: It’s my belief that
Kentucky is doing very well. This has been a long and very complex
process. Hyundai is well represented; they are very detailed in their
search. We’ve made a number of trips to Korea. Hyundai management
obviously has visited our state and has spent a good bit of time analyzing
our workforce, utility costs, transportation access and other factors
that are going to be important over the long haul.
EL: Hardin County (Elizabethtown,
Radcliff, Fort Knox) is the location of the Hyundai site in Kentucky.
GS: Correct. Actually, the
site under consideration in Kentucky is about eight miles south of
Elizabethtown, near a little area called Glendale, a small community.
This is a little bit unusual
for us because normally the economic development cabinet only markets
property that we have under control. In this case, because of the
location and its proximity to rail, interstate and other things, we
had to assemble this property. It was not controlled by a local industrial
authority or the community or the state. The state obviously has had
to work pretty hard to get this property assembled and we continue
to try to come to some sort of closure on this property.
EL: When do you think a decision
will be made by Hyundai management?
GS: Based on news bulletins
released by Hyundai, probably sometime between April and June.
EL: You mentioned issues like
utilities, transportation, being near the interstate and rail lines.
What are some of Hyundai’s key site criteria?
GS: The Glendale site’s
western boundary is CSX’s main line, and the eastern boundary
is I-65. The property has great interstate exposure and access. As
you know, one of Kentucky’s major selling points is low utility
costs. Kentucky has the lowest industrial electric rates in the country.
We have a very strong workforce. Elizabethtown is highly regarded
as a community that really supports industry in their training of
workers and that’s a plus as well.
EL: Initially, how did Hyundai
find the Hardin County site?
GS: Hyundai retained KPMG
Consultants to do a site search. I’m sure that they started with
many, many sites. The cabinet actually submitted a number of sites
in Kentucky that had the acreage capabilities, but then at the end
of the day, a company chooses logistically, based on the community
and based on a lot of factors that we talked about earlier. So Hyundai
selected this property in Kentucky. And this is the only site in Kentucky
under consideration.
EL: How big a deal is Hyundai
for Kentucky?
GS: Hyundai would be the most
significant economic development project in Kentucky since I have
been secretary. It will have that kind of economic impact. When you
look at the amount of investment, the number of direct jobs, the number
of indirect jobs, and the lives of Kentuckians that will be affected
by this over the next 10 to 20 years, the Hyundai plant will have
a significant impact on Kentucky. For this reason, the Economic Development
Cabinet has done everything we can to win this project and we’ll
continue to do that because we think it’s important for our state.
EL: From 1980 to 1990, Kentucky’s
population increased by about 25,000 people. Between 1990 and 2000,
Kentucky’s population went up about 375,000. How much do you feel
economic development influenced Kentucky’s growth during the last
decade?
GS: Kentucky exported a lot
of its workers during the 1980s; they moved to other states to find
employment. Because we have been successful in attracting new businesses
and expanding of a lot of our existing businesses, Kentuckians have
returned because there were job opportunities. Kentucky is also regarded
as a state with high business retention. In large part, the companies
that have come here have stayed here over the years. And as a result,
more and more people are coming to Kentucky in pursuit of high quality
jobs.
EL: You’ve talked to
a variety of companies over the last 10 years and many have decided
to come to Kentucky. What are some of their key reasons for selecting
Kentucky?
GS: If you’re talking
about a headquarters location, the Northern Kentucky International
Airport and the increased air service there has been a major factor
in attracting companies. From a manufacturing standpoint, there are
probably two key factors. If you look at the data from almost every
survey of either site location consultants or corporate CEO’s
number one and number two are always education and transportation.
After education and transportation, you can talk about cost of construction,
and then when you get to about seventh or eighth, you’ll get
into incentives. Incentives are not going to be among the top five
in any category. Incentives seem to get most of the play in the papers
and in the media, but really if you don’t have the other components
in place, incentives just won’t work.
EL: When you think about it,
you can’t give a company a big enough incentive to overcome a major
location deficiency.
GS: That’s why education
is so important and remains the number one point of focus for all
of government. Kentucky still has a long way to go and a lot of improvement
to make, but our commitment to education is demonstrating to companies
across the country and all around the world that Kentucky can deliver
the kinds of workers that they’re going to need in the future.
EL: Kentucky Community &
Technical College System, reorganized under President Michael McCall,
has put new workforce training programs in place and expanded their
campuses around the state. How closely does the Economic Development
Cabinet work with KCTCS?
GS: Very closely. Almost on
a project-by-project basis. KCTCS and Mike McCall have been a great
ally for us. We not only attract new business but also work with existing
businesses to upgrade the skills of their employees. KCTCS has the
ability to be very customer friendly and very flexible. Being able
to do industry-specific training in a KCTCS facility is critical.
They are certainly partners of ours in the economic development arena
and we continue to work closely with them.
EL: What about 9/11? What
kind of impact did the terrorist attacks have on economic activity in
Kentucky?
GS: 9/11 has had an impact,
but the slow-down in business was occurring well before 9/11 occurred.
The decline in business activity started in the fall of 2000 and was
continuing into 2001. After 9/11, the significant impact was primarily
in the domestic business area. Our global business activity, while
it got derailed for a period of time, is back on track. Projects that
we were working on are now back on the burner.
EL: Site Selection magazine
ranked Kentucky second overall in economic development in 2001. And
Kentucky was ranked in the top 10 among all states in four other categories.
What is the secret to Kentucky’s success in new business development?
GS: Investment and jobs creation
around the U.S. and in Kentucky were down in 2001, compared to other
years. Relative to other states, Kentucky’s business activity
grew at a more robust rate than most other states, thus the second
place ranking. One, I give the governor and General Assembly credit
for continuing to promote, support and pass legislation that gives
the Economic Development Cabinet the kinds of tools that we need.
And the Economic Development Cabinet has valuable partners in education,
in transportation, with utility companies, and the private sector.
The partnerships that we’ve been able to establish with government,
education and the private sector have been a major key to Kentucky’s
success. Kentucky also has long-term relationships established with
consultants, companies, and site selection organizations. I also think
continuity in the economic development arena is a big part of our
success as well.
EL: On a regular basis some
of the local newspapers have criticized some of the “low tech”
jobs that have located in counties with high unemployment rates. How
do you feel about this type of criticism?
GS: Anytime you’re in
the public eye you take a little bit of the bad with the good. Kentucky
has recruited hundreds of businesses over the last eight to nine years.
The lions share of those are very high quality, well-paying jobs.
Newspapers tend to pick out one or two projects that they don’t
particularly perceive as being the kinds of jobs that they’d
like to see. Kentucky is not in the business of going out and trying
to attract low wage companies. But the private sector will pay what
the market will bear. Wages are a function of the market.
Our challenge is to get people
into technical training and educational programs so a higher level
of education will create better skilled workers who demand higher
wages. So, I understand the criticism. I still believe that in many
respects, it’s better for people to have a job, though it may
pay $8 instead of $12, than to have no job.
EL: There is legislation pending,
House Bill 602, that would set guidelines for economic development incentives.
GS: The Cabinet contracted
with Dr. Paul Coomes at the University of Louisville last year to
conduct a study for us. The state was divided into nine regions and
they were compared with two peer regions in other states to determine
how Kentucky was performing related to jobs creation, wages, economic
performance, and other categories. What we found was that Kentucky
was doing very well against its peer regions in almost every area
with the exception of wages. They’re increasing, just not as
fast as we would like. So we began to work with Governor Patton to
develop economic development guidelines, which will be a part of House
Bill 602. There are multiple components to the bill. It sets a minimum
wage threshold. So any company coming to Kentucky that would access
any of our major three tax credit programs would have to pay a minimum
wage of 150 percent of minimum and would have to offer a 15 percent
fringe package excluding mandatory FICA.
EL: Over the past 10 years,
a program has been implemented to develop regional parks in the 45 coal
counties. The idea was to take the coal severance taxes and re-invest
them in business parks and training for employees. How is this program
progressing?
GS: It’s beginning to
pay some dividends. You’re starting to see some real activity
in these parks. We’re marketing the parks aggressively. For the
first time many of these counties have anywhere from 500 to 1,000
acres to market. These counties are now able to compete on a more
level playing field, in competition with other areas of the state.
EL: Do you see the regional
business parks as being sort of a legacy for the state? The fact that
the land and infrastructure have been acquired and developed at today’s
costs and they will be available over the next 10 or 15 years to boost
Kentucky’s future economy?
GS: They’re debt-free.
The parks were paid for with coal severance dollars that basically
have come to the state from taxes that are paid on the extraction
of a non-renewable resource – coal. A portion of that tax has
been set aside to go back to these communities to help them diversify
their economies outside the coal market into other areas over time.
Long after others are gone these parks will be available for state
and local economic development professionals to continue on an ongoing
basis to create job opportunities for Kentuckians. This program was
started under Governor Jones and strongly supported and continued
under Governor Patton. The General Assembly has also been supportive
of this program.
EL: You have received some
criticism from newspapers with regard to the fact that the parks are
not fully occupied.
GS: Economic development does
not happen overnight, particularly in communities that were not significant
in the economic development game prior to development of a regional
park. Again, some of the things that will have to develop over time
will be educational and training programs that will support new businesses,
improved transportation, and additional infrastructure. That theory
of “build it and they will come” is just not right. No economic
development program is going to start and necessarily show immediate
success, particularly at the local level. You have to stay the course.
It is a long-term process and it takes a long-term commitment.
EL: Recent legislation created
the new economy business development effort that is headed by Dr. Bill
Brundage. How is the Office of the New Economy progressing?
GS: The Office of the New
Economy is attached to our cabinet. We’ve worked closely with
Bill Brundage on all programs. We’re making some changes to some
of our incentive programs. One is the Kentucky Investment Fund Act
that will make venture capital infusion in Kentucky more attractive.
We’re also making some changes to our tax credit program, lowering
the threshold number of jobs that are required (from 25 to 15) to
access that program so that some of the smaller technology companies
may be able to qualify for this program.
EL: Significant investment
is being made on technology and research at the University of Louisville
and University of Kentucky. Will these programs create some high technology
spin-off opportunities?
GS: Bill Brundage is working
very closely not only with the Council on Postsecondary Education
and presidents Lee Todd (UK) and John Shumaker (UofL), but also with
our regional universities. And clearly over time, the state’s
ability to be successful in this initiative, in large part, is going
to be dependent upon the performance of the universities in delivering
the kinds of students and research that will be demanded by technology
companies.
EL: Your cabinet announced
recently that it opened a new overseas office in Santiago, Chile. Why
is Kentucky in South America?
GS: We opened the office in
Chile because we felt that it was the most stable country in South
America. We already have a joint office in Guadalajara, Mexico with
the Department of Agriculture. It has been a very successful office
as it relates to agriculture and other products. Some of our traditional
businesses like Lexmark and others have operations in Mexico. Chile
is a second step in covering the South American market. The cabinet
will work under a contract basis with people in Argentina and Brazil
from Santiago to open up trade opportunities for Kentucky companies.
EL: Your cabinet’s been
very successful over the last decade. Looking back, what to you consider
to have been your major failure?
GS: That’s a good question.
I don’t know that I would call it a failure, but a major disappointment
is that the cabinet has not been able to attract more business to
Appalachia. We’ve made progress, without question, but we’ve
not made as much progress there as we have in Western Kentucky, Central
Kentucky, Northern Kentucky and other areas of Kentucky. That’s
been a frustrating experience for me, because I’m from Eastern
Kentucky and I would like to see more success in that region.
Ed G. Lane is chief executive of Lane Consultants Inc. and publisher
of The Lane Report.
edlane@lanereport.com
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