Features

Economic Commentary, Features, Features

CPAs Counting On Best Year in a Decade

CPA

National GDP might be mired in the low single digits, but the state’s CPA firms think they could see double-digit growth.

We take notice when a member of the traditionally conservative CPA sector says it could be the best year economically in a decade. Economic outlook projections among Kentucky’s CPA firms are strikingly rosy, though. Generational retirements in the baby boomer cohort are driving demand at accounting firms for succession planning across many commonwealth business sectors, even among CPA firms. Meanwhile, strong growth is expected this year in construction, equine, healthcare, manufacturing and bourbon. Another broad trend, the ongoing growth of online sales, is benefitting Kentucky’s national logistics hub. National GDP might be mired in the low single digits, but the state’s CPA firms think they could see double-digit growth.

 

 

Diane Medley, Managing Partner, Mountjoy Chilton Medley

Diane Medley

Diane Medley

“As a managing partner of a large accounting firm and as the chair of Greater Louisville Inc., keeping an eye on the economic forecast is a part of my job. Economic activity for the country appears stronger this year, particularly with anumber of large-scale mergers and acquisitions transactions in the headlines. We also need to be keeping an eye on changing global economies, which will inevitably impact our own. From an industry perspective, talent retention in accounting continues to be a challenge. Kentucky’s current tax policy and economic situation are also challenges – they hamper our ability to compete with neighboring states and greatly impact clients.”

 

 

G. Alan Long, Managing Member, Baldwin CPAs

G. Alan Long

G. Alan Long

“2016 will be a good year for accounting firms. The strengthening economy along with increased regulation and accounting standard changes will drive more need for services. The connectivity of the world is driving large and small businesses to seek opportunities in the global market, and CPA firms are well positioned to deliver these new services. The biggest obstacle for firms will be finding enough qualified employees to handle the additional work. The “boomer” factor is changing the dynamics of the economy. More are looking to retirement and succession planning, which is creating additional opportunities to provide clients with other necessary planning they need. Succession planning also is driving M&A activity among accounting firms of all sizes as more of the owners are looking to move into retirement.”

 

 

David Bundy, President/CEO, Dean Dorton Allen Ford

David Bundy

David Bundy

“At Dean Dorton we are very optimistic about 2016 and have expanded a great deal to be prepared to assist clients as needed. We expect many of our clients, especially those in the construction, equine, healthcare and manufacturing industries, to see continued strong economic growth. However, we do realize that the economic growth is not consistent across the commonwealth. Many of our clients, especially those outside of the Louisville and Lexington metropolitan areas, those in the natural resources industry, and those impacted heavily by government funding, such as higher education, may experience little to no growth and face on-going business challenges in the year ahead.”

 

 

Mike Stigler, Director, Blue & Co 

Mike Stigler

Mike Stigler

“Unemployment will continue to decline to 4.6 percent. The state will benefit from major manufacturing investments by the automotive industry (Ford and Toyota) and their component suppliers. Completion of the Louisville river bridges will impact investments in distribution and logistics in the regional market. Construction will benefit from demand for commercial and residential building inventory. Uncertainties that could negatively impact the economy are legislative management of state pension funding (second worst funded in the United States), potential changes to Medicaid coverage expansion (affecting 400,000 citizens and $1 billion of federal funding) and lack of readily available skilled labor.”

 

 

Penny Gold, CEO, Kentucky Society of CPAs

Penny Gold

Penny Gold

“While there has been troubling volatility in the stock markets recently, and some indicators show slowing manufacturing and retail sales, consumer confidence runs relatively high. The bright spot for Kentucky is automotive manufacturing; this remains strong, and U.S. optimism has been an important driver. While retail may be sluggish, online sales hit record highs this holiday season. Kentucky is a logistics hub for the nation, so continued growth in this segment is likely. And, of course, Kentucky bourbon and spirits are enjoying strong growth internationally. This provides Kentucky another economic cushion in hard times. The United States is a bright spot in the global economy, and Kentucky is well positioned for a good year.”

 

 

Steve Jennings, Crowe Horwath LLP, Local Office Managing Partner, Lexington

Steve Jennings

Steve Jennings

“What we’re seeing in Kentucky is a reflection of the U.S. economy. While the economy continues to grow, in some areas it is at a slower rate, while other areas are expanding faster. We’re seeing that at Crowe as well with a projection of growth overall, and in many of our practice areas, an expectation of double-digit growth. We continue to use our deep industry expertise to provide audit services to public and private entities while also helping clients reach their goals with tax, advisory, risk and performance services.”

 

 

Matt Coffey, Partner, BKD

Matt Coffey '

Matt Coffey

“We have seen a tremendous increase in demand for consulting and advisory services and expect that trend to continue. Clients’ outlooks of “cautiously optimistic” that were prevalent during the past five years have shifted noticeably during the last 12 months. Clients are proactively making investments and hiring talent to drive growth in their businesses. There continues to be a significant level of activity related to business succession driven by both the number of baby boomer owners looking to retire and the amount of capital available to fund buyouts. The growth within public accounting will be limited only by our ability to continue to develop and retain talent within our profession. I believe 2016 represents a better opportunity for growth than any year in the past decade.”

Features, Features, Legal Affairs

Legal Practice Makes Profits in 2015

Expanding industries in the state could mean more business for Kentucky law firms.

Expanding industries in the state could mean more business for Kentucky law firms.

Kentucky law firms are starting to get excited about economic prospects in this coming year, but know they have to be smart and flexible in responding to a changing marketplace where clients’ needs keep adjusting to new opportunities and a shifting regulatory environment. Corporate law, intellectual property, litigation, regulatory, real estate, and bankruptcy and restructuring practice areas all present opportunities. Construction and healthcare continue to generate business. Those who specialize in energy, banking, manufacturing and the ongoing bourbon boom expect a good 2016 also.

Robert Connolly

Robert Connolly

Robert M. Connolly, Chair, Stites & Harbison, PLLC

“Stites & Harbison is experiencing an increased demand for legal services in the areas of complex litigation, data security and privacy, mergers and acquisitions, class actions and regulatory matters. We are seeing larger volumes of complex legal work flowing back into the marketplace, which had slowed for some time due to economic pressures and the fact that many companies attempted to keep work in-house.

“We are well positioned with highly skilled attorneys maintaining expertise in these areas. The firm also remains focused on geographic expansion across its footprint in 2016.”

 

Mark H. Oppenheimer, Louisville Office Managing Partner, Bingham Greenebaum Doll LLP

Mark Oppenheimer

Mark Oppenheimer

“Bingham Greenebaum Doll LLP expects continued client and firm success in 2016. Our projections, along with client and firm attorney interviews, give us reason to be bullish, specifically in the areas of corporate and intellectual property law. BGD expects revenue to increase in the corporate, intellectual property, litigation, regulatory, real estate, and bankruptcy and restructuring practice areas. Although the U.S. economic recovery is expected to maintain its current pace, market demand for legal services won’t grow significantly. Law firms will continue to compete against one another for new business, and to keep current clients, in order to continue revenue growth.”

 

James H. Frazier III, Managing Member, McBrayer, McGinnis, Leslie & Kirkland

James-H.-Frazier

James H. Frazier III

“The McBrayer law firm is very optimistic about 2016 economic prospects as the firm’s primary focus continues to be giving its clients affordable quality legal counsel that consistently yields positive returns. In 2016 the firm already has added two practice areas: intellectual property and family law. While the firm continues to expand to meet all the needs of our client base, this growth is strategic in nature to guarantee that our clients always receive the personal and responsive attention they deserve. The firm is also expanding its government relations department, MML&K Government Solutions, by improving its infrastructure and practice in Washington, D.C. These strategic moves will benefit our clients on local, regional and national levels.”

 

Jim Dressman, Managing Partner, Dressman Benzinger LaVelle (DBL Law)

Jim Dressman

Jim Dressman

“The Kentucky legal market is dynamic, and the fast-changing environment brings new challenges and opportunities. Hot industries for our firm continue to be manufacturing, healthcare, real estate development, construction and banking.

“Kentucky is a great place for our firm to be; we look to expand our presence into the Lexington market. Many of our clients are family-owned companies, where next-generation leaders have begun to emerge and succession planning is now top of mind. Growth and sustainability, updated operating models, employee recruiting and retention, technology, and more are dominating our client conversations. As a member of the GGI network, our firm continues assisting foreign companies looking to do business in this region and helping regional companies do business internationally.”

 

John R. Crockett III, Chairman, Frost Brown Todd

John R. Crockett III

John R. Crockett III

“The January roller coaster tied to China, oil and the financial markets makes predictions risky, but Frost Brown Todd continues to believe that 2016 presents outstanding opportunities for the business clients we serve. 2015 was a terrific year for the firm, as our growth continued into the Dallas and Pittsburgh markets. We remain grateful to those who trust their most important issues to our team, and are bullish on prospects for continued success here in Middle America. Those of us in Kentucky are hopeful for meaningful and swift progress with debilitating pension deficits, a tax code badly in need of overhaul, and other solutions to enhance our national and international competitiveness. ”

 

Jeff Philips, Managing Member Lexington, and Bonita Black, Managing Member Louisville, Steptoe & Johnson PLLC

“As the Obama administration enters its final year, businesses are confronted with new federal regulatory initiatives. The energy industry, so vital to Kentucky’s economic success, is unsettled. Mergers, acquisitions and bankruptcies for coal and gas companies continue. Healthcare providers and colleges also are encountering increased regulatory obligations, hampering those institutions’ ability to provide a healthy and well-educated workforce. With concerns about cyber security, social media and even drones, technology simultaneously simplifies and complicates our lives. Law firms that offer new and creative solutions for their clients will prosper. Those that do not could suffer.

 

William M. Lear Jr., Managing Director, Stoll Keenon Ogden

bill-lear

William M. Lear Jr.

“Stoll Keenon Ogden’s best barometer of Kentucky’s current and future economic prospects is the performance of the economic sectors in which our firm has a significant footprint. They include aluminum production, automotive, banking, distilled spirits (read “bourbon”), energy, equine, healthcare, information technology and utilities. Among those, all except the energy sector are experiencing solid, and sometimes spectacular, growth and profitability, which should continue throughout 2016. The energy sector, especially the coal industry, continues to suffer under the weight of increased governmental regulation coupled with difficult market conditions. Overall, Kentucky’s near-term economic future looks bright; and, if our governor and the legislature can eliminate the darkest cloud on our economic horizon – public employee pension liability – our future will be much brighter.”

 

Gaines Penn, Managing Partner, English, Lucas, Priest & Owsley, LLP

Gaines Penn

Gaines Penn

“Our law firm primarily practices in the field of business law, so when we’re doing well so is the economy in South-Central Kentucky. Our operations in every sector are expanding gradually, which is ideal for us and the community.

“In the past year, we created a new practice area, business startup services, designed to get businesses off the ground quickly for an affordable flat fee. That area, along with the transactional areas, are all growing, and our tax practice is particularly busy as business owners seek ways to lower their tax burden. We anticipate a strong 2016.”

 

Chauncey S.R. Curtz, Lexington Office Managing Partner, Dinsmore & Shohl LLP

Chauncey Curtz

Chauncey Curtz

“As the economy continues to make a slow recovery, I anticipate more businesses will be moving to finalize transactions and complete capital restructuring, especially with the prospect of rising interest rates.

“Regulatory compliance and data security are top of mind across most every industry sector and need to be proactively addressed to avoid serious and costly issues.  Our energy and natural resources clients are in a period of continuing transition and must evolve to stay competitive.  We are committed to assisting all our clients by providing practical solutions to difficult problems.”

 

Taft A. McKinstry, Managing Member, Fowler Bell

Taft A. McKinstry

Taft A. McKinstry

“Positive energy is flowing in the Bluegrass, and Fowler Bell welcomes this surge of excitement and growth. The economy is blooming, and business is changing for the better. Law firms must keep pace with this change. Clients increasingly prefer firms with focused practice and value-added services over extensive offerings and legal invoices to match. Like our most celebrated Kentucky spirit, we must distill our strengths over time, rather than attempting to be all things to all comers.

“Responsiveness and high-quality work are Fowler Bell’s hallmarks. We continue to apply these core values to a more refined practice in order to serve clients even better in 2016 and coming years.”

 

Franklin Jelsma, Managing Partner, Wyatt, Tarrant & Combs LLP

Franklin Jelsma

Franklin Jelsma

“At Wyatt, we saw an uptick in real estate and merger and acquisition activity in 2015 while healthcare remained strong and coal-related businesses faced increasing challenges. We expect these trends to continue in 2016. Kentucky continues to make progress in diversifying its economy and expanding beyond traditional sectors, but to keep pace with other markets we must make education our top priority. Education is economic development. It is the only real long-term solution for increasing opportunity, strengthening our communities and improving our quality of life. There are no shortcuts.”

 

Henry C.T. “Tip” Richmond III, Member, Dickinson Wright

Henry C.T. “Tip” Richmond III

Henry C.T. “Tip” Richmond III

“We expect sustained growth in 2016 for a number of business sectors.  For example, due to recent changes in the laws affecting trade between the United States and Canada, we anticipate increased cross-border activity that will require sophisticated legal support and solutions. Likewise, we see continued growth in agribusiness, healthcare, intellectual property protection and construction projects. Other sectors such as energy will continue to be depressed due to numerous challenges. Notwithstanding global market challenges, we believe that our clients and our firm will have significant opportunities for continued overall growth.”

Agribusiness, Features, Features

Kentucky’s Living Legend Bourbon Distillers

Master Distiller Jimmy Russell’s experience covers all stages of bourbon making. He is known as The Buddha of Bourbon.

Master Distiller Jimmy Russell’s experience covers all stages of bourbon making. He is known as The Buddha of Bourbon.

If Kentucky is best known for horse racing, then Secretariat is one of the state’s undeniable legends. If it’s fried chicken, then Col. Harlan Sanders’ legacy will be with us long after our time here is gone.

But of course bourbon is one of the state’s richest heritages, and has enjoyed a surge in popularity in recent years that few could have predicted. Just ask the Kentucky Distillers Association, which reports that bourbon is a $3 billion state industry, generating more than 15,000 jobs and pouring more than $166 million into tax coffers annually.

What’s more, bourbon production continues to ride, with more than $1.3 billion in capital projects underway or planned the next five years, from distilleries to tourist attractions.

How did bourbon become so popular, not just in Kentucky but worldwide? Many factors play into answering that question, but what cannot be understated is the importance of the people behind the industry.

With the assistance of bourbon writer Fred Minnick, author of “Bourbon Curious: A Simple Tasting Guide for the Savvy Drinker,” The Lane Report has identified five living legends of the bourbon industry, people without whom our current bourbon industry would not look the same.

“Bourbon’s growth and popularity is thanks to a cast of distillers, marketers, executives, production workers, etc.,” Minnick said, “but these men transcended the business in their own way and forever changed the course of bourbon. Each one is either in the Bourbon Hall of Fame or should be.”

Jimmy Russell, Wild Turkey

Wild Turkey Master Distiller Jimmy Russell

Wild Turkey Master Distiller Jimmy Russell

It’s hard to argue with a man who might be referred to any given day as “The Buddha of Bourbon” or “The Master Distiller’s Master Distiller.” Jimmy Russell has been in the business for more than 60 years, easily the longest-tenured active master distiller in the spirits industry, and his legacy shows it.

His tenure at the Wild Turkey Distillery in Lawrenceburg has meant more than just distilling traditional bourbon, however – Russell has ushered in a number of successful Wild Turkey sub-brands and bourbon products, like Tradition, Tribute, 17-year-old Wild Turkey (Japan), Rare Breed, American Spirit, Kentucky Spirit and Russell’s Reserve, which he co-created with his son, Eddie. He was a visionary in the 1970s, creating and releasing the first honeyed bourbon product – some 40 years ahead of the current popular trend of flavoring bourbons and whiskeys.

Starting his tenure at Wild Turkey as a boy sweeping floors – he grew up just five miles from the distillery – he learned from his father and went on to study distilling under such bourbon luminaries as Bill Hughes, Wild Turkey’s second master distiller, and Ernest W. Ripy Jr., son of Wild Turkey’s original owners.

Because of his involvement in distilling from the beginning of the process (selecting grains) to the end (aging), the friendly Russell is looked to as something of a living legend of bourbon. He’s a member of the Kentucky Bourbon Hall of Fame and a whiskey judge for the International Wine and Spirits Competition; if bourbon whiskey is a brotherhood, he is the big brother. This is in part because he reached the level of master distiller in the 1960s, learning how to do it the right way from the right people. He has since passed on that knowledge to Eddie, who, in an homage to his father, created 2014’s Wild Turkey Diamond Anniversary, an outstanding limited-edition expression of 13- and 16-year-old whiskies.

That year was declared “The Year of Jimmy Russell” by Wild Turkey, and led to a number of accolades and tributes, including being awarded a Lifetime Honorary Membership to the Kentucky Distillers’ Association’s board of directors, an honor bestowed to only five other people in the organization’s 130-plus-year history.

Eddie recently was named master distiller himself, meaning that Jimmy Russell has achieved yet another first as the only father-son master distiller team. When making the announcement, the elder Russell was quick to point out that his son isn’t taking his place – just taking a place beside him.

“After 34 years, I think he’s finally earned it,” Jimmy Russell said in the press announcement, “but that doesn’t mean I’m going to go any easier on him – or that I’m going anywhere anytime soon.”

Bill Samuels Jr., Maker’s Mark Distillery

As CEO of Maker’s Mark for 35 years, Bill Samuels Jr. was instrumental in marketing efforts that popularized premium Kentucky bourbon across the United States and around the world.

As CEO of Maker’s Mark for 35 years, Bill Samuels Jr. was instrumental in marketing efforts that popularized premium Kentucky bourbon across the United States and around the world.

While Bill Samuels Jr. is not a master distiller, he is about as Kentucky – and bourbon – as a person can get. Born into a family that had been making whiskey for six generations, Samuels grew up on Distillers’ Row in Bardstown and as a young man had a job driving the aforementioned Col. Sanders around the state as he was trying to grow his new fried chicken concept.

After earning a degree in engineering physics at Vanderbilt, Samuels helped design the Gemini and Polaris rockets in the 1960s before assuming leadership of the family business in the 1970s. Today, his son Rob runs Maker’s Mark, but only after Samuels Jr. served as president and CEO for a memorable and productive 35 years.

During that time, he ushered in the Maker’s Mark Ambassador Program as a way to build camaraderie among fans of the brand, believing that a brand is built one customer at a time. Maker’s marketing was key in introducing premium bourbon to much of the world. Similarly, he helped turn Bourbon Country into a tourism destination, carrying out a long-time dream of his mother. As a result, rustic Maker’s Mark distillery in rural Marion County is visited by more than 100,000 tourists annually.

A few years ago, he also introduced a new brand, Maker’s 46, which he jokingly referred to as “realizing the dream of a desperate old man about to retire with no legacy.”

Samuels is not a master distiller, but he is recognized as a keen businessman and marketer, and he was part of the inaugural class of the Kentucky Bourbon Hall of Fame in 2001. He was named Kentucky’s Entrepreneur of the Year on three occasions and was named Louisville’s Citizen of the Year in 2004. He was inducted into the Kentucky Business Hall of Fame in 2006.

His professional humility, coupled with his personable nature, is probably what stakes Samuels’ reputation so firmly in the bourbon industry. He attributes his success to having smart parents – his father created the Maker’s Mark process and his mother its distinctive name, labeling and wax-dripped bottle – and really good luck. He also believes he managed to continue Maker’s Mark’s run of success thanks to following one piece of good advice handed down by his father: “Don’t screw up the whiskey.”

Jim Rutledge, Four Roses

Four Roses bourbon soon became one of the top brands in the United States after Jim Rutledge returned to Kentucky in 1992 to relaunch a product that had been sold only in Europe and Japan for 50 years.

Four Roses bourbon soon became one of the top brands in the United States after Jim Rutledge returned to Kentucky in 1992 to relaunch a product that had been sold only in Europe and Japan for 50 years.

With nearly 50 years in the bourbon business and 20-plus as master distiller, Jim Rutledge was known by most as “the face of Four Roses” – at least until he retired last September.

But Rutledge is legendary for more than the bourbon he made; he is legendary for his role in bringing what originally was a Frankfort brand back to the United States. Until the early 1940s, Four Roses was one of the best known brands in the business, but when Seagram purchased the Frankfort Distilling Co. in 1943, it moved the Four Roses brand strictly to the European and Japanese markets.

Rutledge joined Seagram in 1966 as an employee in the Louisville plant’s research and development department, where he worked until 1975 before transferring out of the Bluegrass state. After a long stint at Seagram’s corporate headquarters in New York, however, Rutledge returned to Kentucky in 1992 to help revive the Four Roses brand, becoming master distiller in 1995. From there, it became his mission to return Four Roses to the states and to its former glory. That dream came true in 2004 after the Kirin Brewing Co. of Japan purchased the brand.

Thanks to Rutledge’s vision and distilling mastery, Four Roses quickly rose back to the top of the ranks, and remains there. Distilling 10 separate recipes, Four Roses has been named American Whisky Distiller of the Year for four times in the last five years by Whisky Magazine (2011, 2012, 2013 and 2015). Four Roses Small Batch is an acclaimed bourbon that has won numerous awards, starting in 2008 with a gold medal at the International Review of Spirits.

Rutledge was inducted into the inaugural class of the Kentucky Bourbon Hall of Fame in 2001. Following this, he received a “Lifetime Achievement Award” by Malt Advocate magazine in 2007, while in 2008 Whisky magazine named him “Whisky Ambassador of the Year – American Whiskies.” In 2012, he became only the second American named to Whisky magazine’s global Icons of Whisky Hall of Fame.

According to a Four Roses press release upon his retirement, Rutledge plans to stay involved in the bourbon industry.

Harlen Wheatly, Buffalo Trace Distillery

In his 10 years as master distiller at Buffalo Trace, Harlan Wheatley has been nominated three times for a James Beard Award, which is sometimes called the Oscars of Food.

In his 10 years as master distiller at Buffalo Trace, Harlan Wheatley has been nominated three times for a James Beard Award, which is sometimes called the Oscars of Food.

Harlen Wheatly is a native Kentuckian – born in Mt. Sterling – who parlayed a degree and career in chemical engineering and a love of the craft of bourbon into becoming master distiller for one of Kentucky’s most recognized distilleries, Buffalo Trace.

Much like Samuels, Wheatly is pure Kentucky, spending most of his life living and working in the state. It was right around the time he joined the distillery in the late 1990s as a supervisor that the now-flagship Buffalo Trace Bourbon was introduced, and the name of the distillery was changed from George T. Stagg Distillery to Buffalo Trace. In other words, he landed at just the right time to help start and then continue what is now a bourbon tradition that seems much older than it is.

By 2000, Wheatly was promoted to distillery manager; in 2005, he became Buffalo Trace’s resident master distiller, becoming only its sixth master distiller since the Civil War.

Wheatly has driven a number of Buffalo Trace initiatives as the brand has grown, including solidifying standards and consistency, quality focus and efficiency gains. He is responsible for a number of distilling and aging operations, all while acting as a brand ambassador who educates the public on bourbon whiskey while also producing the legendary Pappy Van Winkle bourbons.

Buffalo Trace has won dozens of awards in the time Wheatly has been master distiller, from Whisky magazine’s Distiller of the Year in 2005 to World Whisky Brand Innovator of the Year in 2015. Buffalo Trace has won awards at the International Wine & Spirits Competition, from the Kentucky Travel Industry Association, and even from Wine Enthusiast magazine.

And Buffalo Trace also has been a key contributor to bourbon tourism in Kentucky under Wheatly’s oversight – Buffalo Trace entertained just under 150,000 tourists in 2015, an increase of 18 percent over 2014. Since the end of 2009, Buffalo Trace has seen an astonishing 190 percent growth in tourism.

For his part, Wheatly also is a three-time James Beard Award nominee in the Outstanding Wine and Spirits Professional category. Chances are, he has many more such honors ahead of him.

Chris Morris, Woodford Reserve

Under Chris Morris’ tenure as master distiller, Woodford Reserve bourbon has launched multiple highly acclaimed specialty lines such as its Double Oaked and Master’s Collection.

Under Chris Morris’ tenure as master
distiller, Woodford Reserve bourbon has launched multiple highly acclaimed specialty lines such as its Double Oaked and Master’s Collection.

Affable and approachable, Woodford Reserve’s Chris Morris would be just as happy talking about food as he would bourbon. But make no mistake: Morris knows distilling like few others. Sit in on his Flavor Wheel session, and you’ll marvel at his appreciation of the flavors that can be summoned by bourbon. And the fact his title is not just master distiller but also spirits historian, and one gets a sense of just how important Morris is to distilling in Kentucky.

He actually has spent his entire life in the bourbon industry, having grown up around it as one of three generations of his family to work for Brown-Forman, Woodford’s parent company. He began as a trainee in 1976 and never looked back. He departed for a time in the late 1980s to join another spirits company before returning to Brown-Forman in 1997 to begin his training as a master distiller under legendary distiller Lincoln Henderson.

The consummate brand ambassador for Woodford Reserve, he became master distiller in 2004, launching the Woodford Reserve Master’s Collection to critical acclaim. He also created bourbon finished in Chardonnay and Pinot Noir barrels and even developed what Woodford Reserve says is the world’s first maple barrel. In 2012, he created the delicious, limited-edition Woodford Reserve Double Oaked bourbon. Last year, he released a new rye whiskey, Woodford Reserve Rye.

While he spends much of his time educating people about bourbon and distilling, along with planning new releases, Morris also has served on the Kentucky Distillers’ Association and Kentucky Bourbon Festival’s boards and as co-chair of the DISCUS Master Distillers Committee. In addition, he has served as a judge at the International Wine and Spirits Competition and International Spirits Challenge.

It’s no surprise Woodford Reserve perennially wins awards at competitions such as the San Francisco World Spirits Competition, Whiskies of the World Awards, World Spirits Competition, New York Spirits Awards, and others, not to mention a 2009 Whisky magazine award for Whisky Innovator of the Year.

As long as this kind of success continues, and tourists keep flocking to the gorgeous distillery in Woodford County, don’t expect Morris’ innovations to stop anytime soon.

“The idea is to create new and different things with an artisan’s touch,” Morris said. ν

Kevin Gibson is a correspondent for The Lane Report

He can be reached at editorial@lanereport.com.

Features, Features, One-On-One, One-on-One

One-on-One: Owensboro Health CEO Phillip Patterson

Philip Patterson joined Owensboro Health as president and CEO in 2013 and has over 20 years experience in healthcare in New York, Dallas, New Orleans, Atlanta and Birmingham. He came from the Bon Secours Charity Health System, a three-hospital system based in New Jersey where he served as CEO. Patterson has been vice president and chief operating officer of Mercy Hospital, an affiliate of Allina Hospitals & Clinics based in Minneapolis. A Mobile, Ala., native, is known for spending time away from his desk, visiting with employees and physicians at every opportunity, and has a reputation as a visionary executive with an ability to inspire others. His leadership philosophy emphasizes: shared organizational vision, open communication and exemplary performance. He and his wife have two young daughters.

Philip Patterson joined Owensboro Health as president and CEO in 2013 and has over 20 years experience in healthcare in New York, Dallas, New Orleans, Atlanta and Birmingham. He came from the Bon Secours Charity Health System, a three-hospital system based in New Jersey where he served as CEO. Patterson has been vice president and chief operating officer of Mercy Hospital, an affiliate of Allina Hospitals & Clinics based in Minneapolis. A Mobile, Ala., native, is known for spending time away from his desk, visiting with employees and physicians at every opportunity, and has a reputation as a visionary executive with an ability to inspire others. His leadership philosophy emphasizes: shared organizational vision, open communication and exemplary performance. He and his wife have two young daughters.

Mark Green: The Kentucky healthcare sector has been going through significant changes in recent years, just like the national scene: mergers and acquisitions, network realignments. How does Owensboro Health fit into today’s changing healthcare sector?

Philip Patterson: As a regional and trauma-designated medical center, Owensboro Health fits the footprint for Western Kentucky as a tertiary-care referral center. But being a community hospital is where it starts. We are the primary healthcare provider for clients in our home Daviess County and in a few of the surrounding communities and counties. Secondary to that, in relationship with other hospitals throughout our region – small community hospitals, critical-access hospitals – we become their secondary and tertiary provider. We’re trying to build in systems to ensure the availability of that tertiary level of care here in Western Kentucky.

We work with many quaternary partners across Kentucky as well as in Tennessee. We’ve got a tremendous network of partnerships that allow us to grow here locally as well as move people through to Louisville or Lexington as necessary. We have partnerships such as the NICU (Neonatal Intensive Care Unit) relationship we have with Kosair and the University of Louisville Physicians group. They not only staff our NICU but also have a collaborative effort with our Level 3 NICU that we just obtained last year. We can send children to the Level 4 NICU at Kosair, and there’s a seamless transition with us having the same medical group.

We are cementing ourselves as the regional preference for tertiary care and recognize it’s going to take our quaternary partners in Louisville and Lexington to maintain that.

MG: Describe the facilities that you have now. Owensboro Health built and in 2013 opened a $400 million hospital.

PP: Yes. It opened in June 2013. On the main campus at Pleasant Valley, the new hospital has 477 beds. We are a designated trauma center as well as the largest freestanding emergency room in the state when it comes to volume. We have Level 3 NICU capabilities and a full array of surgical complements at all levels. We’re now responsible for the 90-bed Muhlenberg Community Hospital, which has now been renamed Owensboro Health Muhlenberg Community Hospital, in Greenville. It also has a nursing home with 45 beds. Then we’ve got 29 ambulatory locations with over 170 providers in our One Health network, across the 14 counties we serve. So, OH is a pretty large organization.

MG: What entity owns and operates Owensboro Health, and for how long?

PP: Owensboro Health Inc. is a Kentucky not-for-profit corporation set up as a charitable organization under the 501(c)3 laws for the Internal Revenue Code. It has a board of directors of about 14 members appointed by the city, the county, the medical staff and the community at large. The current structure was developed in 2003.

MG: What is Owensboro Health’s geographic market?

PP: Our market consists of a 14-county region in Kentucky and Indiana. Our primary market is Daviess County, Ky., and our secondary market includes the Kentucky counties of Breckinridge, Butler, Grayson, Hancock, Henderson, Hopkins, McLean, Muhlenberg, Ohio, Union and Webster, and the Indiana counties of Perry and Spencer.

MG: What is the One Health subsidiary?

PP: One Health is the new name that Owensboro Health has given to its medical group, which now includes 180 physicians and allied health providers in more than 32 subspecialties. The group’s presence spans more than 25 clinic sites and satellite facilities across all 14 counties we serve. We chose One Health because we wanted our name to reflect the aim of our healthcare: simple to access, receive, understand care. We also want one point of contact tied to the health system. Previously we’d gone under a number of names for the medical group. Last year, in FY2015, 23,000-plus new patients chose to seek an affiliation with our company through One Health.

MG: How many patients does your organization see in a year?

PP: We’ve had significant increases in outpatient volume over the last three years and have grown from about a half a million outpatient visitors to well over 800,000.

MG: What has been Owensboro Health’s experience with the broad trend of fewer inpatient days and more outpatient
services? Is your experience is any different from what’s occurring elsewhere?

PP: For FY2015, our admissions were up about 5 percent from the previous year, and already in FY2016 we’re about 7 percent ahead of last year. So for the last two years we’re still seeing a trend towards the inpatient care that’s pretty significant. That is a trend that is not seen nationally.

For the most part, what you’re seeing across the healthcare world is a shift of inpatient-related care to more of an outpatient setting. But because of the capabilities of our hospital and our regional platform, we’re seen as a more trusted partner throughout the region. As we’ve become that and become a more tertiary provider, we’re seeing increases on the inpatient side as well as the outpatient side.

We’ve had success recruiting primary care and specialty physicians and allied health professionals. We’ve added 55 new providers the past two years. We’ve increased the acuity capabilities at the hospital with our Level 3 NICU, as well as adding trauma services. We’ve added two plastic surgeons who cover inpatient needs – emergency patients, not the cosmetic type. We’ve increased the number of general surgeons, and, in reflection of what you’re saying as the transition of healthcare, we’ve gone into the outpatient pharmacy world in the last two years.

Medicaid expansion has provided increased volume to the organization, as many others have seen. Unfortunately there’s been a large increase in our emergency department, which did ultimately become a large source of inpatient admissions. We continue to address with education across the region about Medicaid expansion that appropriate, proper access of care can lead to a more economical provision of sustained care that has a long-term benefit of creating a better relationship with patients, who then have a better quality of life. If we can address those conditions, it will provide a more long-term, continuing patient relationship instead of the episodic relationships and they end up in the emergency room.

Outpatient surgeries were up in 2015 about 12 percent over FY2014, and we’re running another 8 percent higher this fiscal year – so, continued growth on the outpatient surgery side. We’re seeing numbers up across the board. Some of it has to do with Medicaid expansion, but at the same time we have gone through a significant growth of our whole resources across our region, which has led to some of that growth. People have received quality care at Owensboro Health, and have gravitated to using our newly expanded services and providers.

MG: What were OH’s latest revenue and profit-loss numbers, and how do they compare to the industry?

PP: Total operating revenue in 2015 was about $500 million, which was 11 percent higher than the prior year. Our operating cash flow in 2015 was about $70 million, which was $22 million higher than FY2014. We’re on track for a similar performance this year. Current fiscal year revenue is running about 17 percent higher than a year ago; our operating cash flow compares very favorably to industry averages and significantly ahead of FY2014 for comparable organizations.

MG: Your 14 percent cash flow in 2015 is considerably higher than the industry average.

PP: It is. We are the sole community provider, driven by the Owensboro Health mission to heal the sick and improve the health of the communities we serve. We truly believe the entire community is our responsibility, but we don’t do it alone. We created a community benefit grant program to assist not-for-profit organizations that work to address the priorities identified from the community health needs assessments that we now have to provide to the federal government.

Last year, we gave over $700,000 in grant money to care partners and not-for-profits. It helps drive the second part of our mission, which is to raise the overall health of our communities. It’s not just about healing people episodically. It’s more about really preventative care, and it’s also about getting to the socioeconomic disparities in our community and how we can change that dynamic to improve the overall health of communities we serve. That program’s been in place for about five years, and we’ve given out over $3.5 million.

MG: Which service sectors are generating the most revenue or are shifting the most?

PP: Like most across the industry, we’re seeing growth mainly in our outpatient network and in our physician and provider clinics. The business from the clinics has increased 70 percent the last couple of years. Our physicians saw 430,000 visits last year, versus 250,000 just two years ago. Due to needs, we are increasing our capabilities around primary care and allowing those who previously were underserved to access primary care. We’ve also expanded significantly across our subspecialties; where people used to have to travel out of our region for certain subspecialty care, they can now receive it here.

Growing our physician network has led to a significant increase of people wanting to access care through Owensboro Health. We talked about Medicaid expansion, but enhancing and increasing the locations and services and physicians as well as the Medicaid expansion, has driven growth. It’s also driven hospital services in the hospital itself. We’ve seen an increase in surgery, in obstetrics. Our emergency room is still growing, and we are seeing inpatient service growth of 5 percent, 7 percent, the past two years.

Our laboratory services revenues are flat over that time, because we’ve learned to be more efficient and more effective in that world. And we’ve actually seen a decrease in our volume of diagnostic radiology.

MG: Owensboro Health has 4,000 employees, making you Western Kentucky’s largest private employer. What are the largest categories? What has driven changes in staffing?

PP: Our most relative category, like every other provider, is nursing services. Of those 4,000 employees, 1,782 are in nursing services and 684 are in eight other ancillary services – other providers not in nursing. We’ve got significant inpatient and guest services and tried to be more service-oriented; provide point-of-care and point-of-need individuals. There are no more “phone trees.” People are not getting recordings or having to leave messages but have a live nurse’s or a care coordinator’s voice to help them with their need or crisis. We put a lot into our call centers and people at the front desk to try to make sure that everybody’s care experience is as efficient as it can be on the service side, too.

MG: Why did Owensboro Health acquire Muhlenberg Community Hospital last year, and do you anticipate further merger and acquisition deals?

PP: The hospital has been there since 1938 and was looking for a partner with a regional health system that could strengthen its financials as well as service offerings and preserve its identity as well as its capability within their community. We fit that bill. In June last year, we signed a 20-year lease with the county, then purchased everything at Muhlenberg Community Hospital. The providers and the personnel all became Owensboro Health employees. It led to strengthening the quality and financial initiative at the community hospital level in Greenville.

To answer your question about other merger and acquisition deals, we’re concentrating more on growing our physician capabilities across the 14 counties. It’s about answering those access-to-care issues that still exist in the more rural areas of our community and in basic primary care access, so people can have intervention at the right time and not have to wait to drive 30 minutes to an hour when an intervention will be at the hospital level. I don’t see us making an acquisition at this time with any other health provider.

MG: How has the expansion of Medicaid affected Owensboro Health? And would you like to see Kentucky continue that expansion or make changes as are being considered?

PP: There’s been an increase in people seeking care across the state. We’ve seen that in trend data across all health systems. While some of our increase in primary care is due to Medicaid, part is due to us expanding access; we’ve increased the number of primary care providers and other physicians. Also, Medicaid expansion coincided with the opening of the new hospital. Expansion of the hospital and our capability is driving increases in tertiary care, and some of that is due to Medicaid.

We have seen a decline in people who have no insurance; 6 to 7 percent of our population used to be “self-paying,” and we’re seeing half that now. Since the Affordable Care Act came into effect, self-pay at the hospital is at about 2 percent. That is significant. We’re very, very happy about that.

To the point of our mission of being the community hospital, we turn nobody away. We see 100 percent of those individuals who need us. We have to continue that. Owensboro Health needs to be resilient and adapt to the national and statewide changes as directed by the regulatory agencies. I’m putting together a group of leaders from the business community right now that will help us discuss how we can better care for our community workforce as well as their families – not just the Medicaid population. It’s about partnering across all aspects of our community to create the dialogues necessary and the care and access that’s needed.

Medicaid expansion has been good for the providers financially. It has been very good, even better, for the residents of Kentucky as many now have access to all forms of healthcare that they didn’t have prior. It’s been good across the board.

We know that expansion has come with a price tag of financial support from our commonwealth, and we hope that our new Gov. Matt Bevin has a plan – or it all shakes out and that the work that he’s doing with Mark Birdwhistell and his group comes out as a balanced and well-thought-out plan that allows residents to continue to have access to healthcare. To Gov. Bevin’s point, we also need to be fiscally prudent.

MG: Our magazine reported last year many Kentucky hospitals are investing hundreds of millions of dollars in imaging systems that allow more precise and less invasive treatments. How does OH assess such investments?

PP: We’re not different from any other hospital. Our organization conducts ongoing evaluations of our imaging equipment as well as changes in technology. We look at the age of existing equipment. Are there significant changes that would bring significant capabilities and new opportunities for our patients? We look at what is changing just on the quality of the images, not on the scope itself or the technology. We look at what it’s taking us to maintain the existing equipment versus what is new out there.

Technology advances and vendors are always reviewed by staff and management, and the radiologists, along with having on-site visits to formalize recommendations. Then they work through the capital process. Last year we purchased three 3D mammography systems, which still are not widely reimbursed. But we felt that capability was something necessary to better meet the needs here in our community, so we made that investment. This year, we have approved a replacement MRI as well as a CT. All this is built on the significant investment we made at the hospital with expanded technology in that $400 million expansion two years ago.

MG: So you do a subjective assessment of how much improvement in care you can give patients, not just potential profitability?

PP: Obviously every organization needs to do a return-on-investment procedure to make sure it’s being prudent with its resources. But in the case of the 3D mammography, the clinical side of our operation said, “This is what is right for our caregivers and for our community, for our patients that require these services.” The financial performance is not really there yet, but we thought it was important.

Our service line managers and directors work with our finance department and gather as much information as possible on volume and revenue – what’s the overall assessment and expense projection – and we do multiyear financial performances and review cash flow. If it’s big enough, we bring that to the board and ask if they feel this commitment level is warranted at this time. So we do a thorough investigation, but finance does not drive that decision every time.

MG: There is a healthcare insurance industry trend of shifting more cost to patients, who are now opting for higher deductibles to get lower premiums. How is that affecting patients’ decision-making in accessing care?

PP: It’s not only the high deductible that has changed but the advent of “first dollar” coverage in many plans – not just a deductible, patients pay the first dollars of any service provided before the health insurance company is at risk. It really is about transference of risk back to the patient. First-dollar coverage insurance really does put that expense on the hospital as well as the patient, and deflects the risk of insurance significantly.

If you look at patients without first-dollar coverage, many pay the full deductible in full, but it is significant because the relationship there does get to the patient having to make those choices. We as community providers will not restrict that care, but it does place a different risk burden on the provider and the patient and reduces the risk on the insurance.

With Medicaid expansion, we saw a lot of our self-pay volume go down and bad debt expense and charity decrease overall early on, but with the new high-deductible plans we’re seeing shifts in these increases in bad debt charity onto the commercial population. As a sole community hospital, we realize we’re the only option for healthcare for many of these residents we serve. We take that responsibility seriously.

We have a generous financial assistance program at OH, which we revised up this past year to help work on that. For example, patients with annual gross income of 225 percent of the federal poverty level are eligible for a 100 percent charity write-off, which for this community is significant. A family of four with an annual income of $54,000 or less is eligible for 100 percent assistance with their bill. And we increased that this year, so there’s a sliding scale of assistance. Annual gross incomes of 375 percent of the federal poverty level are eligible for up to a 70 percent write-off, which in layman’s terms means that a family of four with an income of less than $90,900 annually is eligible for 70 percent assistance from the hospital.

We try and make people realize that keeping themselves healthy should not be a financial decision solely, and we need to work towards that. We believe our policy is more generous than other health systems throughout the region, and we do have other forms of assistance such as self-pay discounts for those who don’t have any insurance coverage but don’t qualify for the levels of charity that we just talked about. We have prompt-pay discounts, we have flexible payment plan options for people so that there’s not an expectation of paying immediately. One area we’ve increased is our financial counselors who are certified Kynecters through the KYNECT program. They can assist individuals with Medicaid and insurance applications on the exchange, if people want to seek what is the best plan for them.

Economic Development, Features, Features, January 2016, Technology, Workforce Development

Now Entering Silicon Holler

Two of the poorest and most rural counties in the state, and country, also have some of the fastest Internet service

Two of the poorest and most rural counties in the state, and country, also have some of the fastest Internet service

How fast is your Internet download speed? Twenty megabytes per second? Thirty? A hundred? If your download speed exceeds 100 mbps, you’re zooming past most of the rest of the nation. The national average Internet speed as measured by cloud service provider Akami in its 2015 State of the Internet report was 11.9 mbps. Worldwide, the average speed was 5 mbps. In rural areas, speeds are generally considerably slower, if there is service at all.

Cruising the Internet at those speeds in Jackson County or Owsley County, however, will get you run off the information superhighway. Those two counties – two of the poorest and most rural counties in the United States – have some of the fastest Internet speeds in the world: up to 1 gigabit per second.

And it’s not just in a handful of places in Jackson and Owsley counties. Thanks to a six-year, $50 million effort to run fiber optic cable throughout its service area, the People’s Rural Telephone Cooperative (PRTC), based in McKee in Jackson County, can deliver that 1 gigabit or 1,000 megabytes per second Internet speed to every home, business and school in the two counties.

Keith Gabbard, CEO,  People’s Rural Telephone Cooperative

Keith Gabbard, CEO,
People’s Rural Telephone Cooperative

Keith Gabbard, chief executive at PRTC, told a crowd gathered Oct. 22 for a “Gig launch ceremony” that PRTC had been in the fiber business for some time before deciding in 2009 to go with an all-fiber network.

“As of now, 100 percent of our customers have fiber available,” Gabbard said. “Every home and business has a fiber connection, or can have one. What we’ve done here is pretty impressive because we have it to every single home and business, not just in this town (McKee), but to every place to the farthest holler out. Everyone has the same capability.”

Fiber optic cables transmit data via pulses of light sent through glass or plastic strands slightly larger than the diameter of human hair. Traditionally data has been carried via copper wires that conduct electricity. In the early days, of course, the only “data” carried was voice data. With the growth of the Internet, phone lines and dial-up modems gave way to coaxial cable and high-speed routers. Coaxial cable is a thicker copper wire surrounded by insulation, like the one that probably runs to your modem or cable box. Ethernet cables like the one connecting your computer to your network contain copper strands that carry the data.

From copper to fiber, step by step

Copper tends to experience electrical leakage and is subject to electromagnetic interference, however, and its bandwidth – a measure of how much data it can carry – is less than fiber optic cable. Copper also needs a more extensive network of junction boxes to boost the signal as it travels over long distances.

On the downside for fiber, most computers are built to handle copper connections. Since any connection is only as fast as its slowest point, having fiber optic cable run up to your home or business only helps to the extent that the equipment inside the walls is maximized for speed. That said, the higher bandwidth of fiber optic cable means you can have a lot more going on inside your walls – a business, for example, could have multiple simultaneous videoconferences, multiple large data downloads, an entire phone system – and the outside wires can handle the traffic.

It wasn’t that long ago, relatively, that Jackson and Owsley counties had no phone service at all. The PRTC was formed in 1950 and used money available in the form of low-interest loans through the federal Rural Electrification Administration to construct a telephone network. Customers were owners of the business, and profits went to pay off the loans.

In an interview, the PRTC’s Gabbard said over the years the cooperative replaced and expanded the copper network repeatedly as the population grew and spread. The updating and maintenance were constant, he said, and as Internet use grew the PRTC heard from customers that they wanted better service.

In the 1990s, PRTC partnered with four other small Eastern Kentucky companies to form Appalachian Wireless. As part of the effort to build that cellular network, a 375-mile ring of fiber optic cable was installed. Fast forward to the mid-2000s. As PRTC considered ways to upgrade its Internet service, that fiber optic cable looked like a pretty good starting point.

The PRTC funded construction of its fiber optic network through a combination of timely grants from the Rural Utilities Service arm of the U.S. Department of Agriculture, loans, stimulus money from the American Recovery and Investment Act of 2009 and the PRTC’s own capital. After spending $50 million to complete the project, PRTC has about $19 million in debt outstanding. Money to pay that back will come from user fees, as well as the successful Appalachian Wireless business, Gabbard said.

Appalachian Wireless serves its own customers and collects fees from Verizon, which also uses the wireless network. With few other wireless providers willing to build their own networks in the mountainous terrain, the wireless business model is strong enough to help support PRTC’s broadband initiative, as well. That’s helped keep the PRTC from having to raise rates to cover loan servicing costs.

Gabbard said the availability of the loans and grants, plus stimulus money, presented a “once-in-a-lifetime opportunity.”

Mule power helps close digital divide

Mixing in traditional means as it moves to the modern cutting edge, People’s Rural Telephone Cooperative based in McKee has used a mule named Old Bub to help with its last-mile installations of fiber-optic based gigabit Internet connectivity to all its customers in Jackson and Owsley counties in Eastern Kentucky.

Mixing in traditional means as it moves to the modern cutting edge, People’s Rural Telephone Cooperative based in McKee has used a mule named Old Bub to help with its last-mile installations of fiber-optic based gigabit Internet connectivity to all its customers in Jackson and Owsley counties in Eastern Kentucky.

Fully 70 percent of the fiber optic network in Jackson and Owsley counties runs above ground. As it turned out, even the highest of high-tech networks had to rely on the lowest of low-tech methods for installation. At points in the tougher terrain, a mule named Old Bub pulled the cable from pole to pole. Some photos of the operation made the rounds via e-mail earlier this year.

The image of a mule pulling fiber optic cable through the mountains probably seems like a fitting juxtaposition to those not aware of Kentucky’s efforts to close the digital divide. The PRTC’s gigabit network stands out as an example of a fully local initiative, but the state has announced its own plans to improve and expand broadband access.

The KentuckyWired I-Way broadband initiative aims to provide reliable, high-speed Internet service to every county in Kentucky. The estimated $324 million project will build what’s known as a “middle mile” fiber optic network. State officials likened it to building a highway through the state. That highway will have some 1,100 “nodes” at government user sites, including five Kentucky Community and Technical College System sites in Eastern Kentucky.

The I-Way will provide tiered access to speeds up to 400 gigabits – yes, that’s 400,000 megabits – per second. Adequate end-user equipment will be essential to using such capacity, and it will be up to local communities to build the “last mile” – to connect individual homes and businesses to the nodes.

The recommendation to build such a statewide open-access network was one of many that came out of the Shaping Our Appalachian Region (SOAR) initiative co-chaired by former Gov. Steve Beshear, a Democrat, and Republican U.S. Rep. Hal Rogers, whose district encompasses most of Eastern Kentucky. Partly as a nod to that impetus and partly in response to the severe economic downturn in Eastern Kentucky due to the dramatic decline in coal jobs, KentuckyWired construction will start at the eastern end of the state and over the next three years extend 3,400 miles across the state to all 120 counties. Work in the 54-county SOAR region is expected to be finished in summer 2016, with the rest of the state completed by late 2018.

High speed for … jobs in the hollers

The kick-off celebration for KentuckyWired was held Aug. 31 at Hazard Community and Technical College. Beshear said the project would bring much-needed Internet access to all communities.

“The potential for every Kentuckian to tap into the global economy, compete for higher paying jobs, collaborate with researchers around the globe, take classes online, or access increased medical care make KentuckyWired one of the most important infrastructure projects in our state’s history,” Beshear said.

Rogers added that with the capacity and connectivity “the only limit is our creativity. It’s up to us to put this resource to work for economic diversity, job creation and improved opportunities for the people of Eastern Kentucky.”

Jared Arnett, executive director of SOAR, called the extension of broadband service “a literal economic lifeline” in today’s increasingly digital economy and said it can’t reach communities fast enough.

KentuckyWired is the state’s largest public-private partnership. A consortium led by Macquarie Capital of Australia will provide the bulk of the funding via the issuance of debt and equity. The General Assembly approved $30 million in direct state funding in 2014, and the federal government is kicking in another $23.5 million. In August, the Kentucky Economic Development Finance Authority approved the issuance of $232 million in revenue bonds to finance a loan to the consortium, KentuckyWired Infrastructure Co.

Payments on the debt will be made via the state transferring its current lease payments for Internet service to KentuckyWired. In essence, the state and local governments – anyone with a node – will be paying KentuckyWired to use the Internet.

This setup actually has PRTC’s Gabbard slightly concerned. The way things are worded now, local governments and school districts in the PRTC’s service area would end up being among those 1,100 KentuckyWired nodes, and could be told to use the KentuckyWired fiber network instead of the PRTC’s. That would cost PRTC money. Gabbard said he hopes the PRTC can work with KentuckyWired to avoid building a parallel fiber optic network in Jackson and Owsley counties.

Jackson, Owsley jobs only ‘a starting point’

The potential for high-speed fiber network duplication in one of the poorest parts of Eastern Kentucky carries a hint of irony given the overall lack of investment in the region historically. Nevertheless, from an economic development perspective it might not be possible to have too much of a good thing. The emergence of fracked shale gas in the past decade means significantly fewer coal jobs, but plentiful broadband brings better chances to create a diverse patchwork of technology jobs that can help fill the void – and create an entirely new economy centered around technology.

Jeff Whitehead, executive director of Eastern Kentucky Concentrated Employment Program, said the PRTC broadband project and KentuckyWired “takes the lid off of the potential for both economic development and for what people can do from their homes.”

EKCEP, based in Hazard, provides job training, employment assistance, career counseling and tuition assistance for half a million people in 23 Eastern Kentucky counties, including many hit hard by the loss of coal jobs. In 2015, Whitehead said, the PRTC gigabit network has led directly to some 110 new jobs in Jackson and Owsley counties. Almost all of them are for companies based out of state – one employer is based outside the United States – and involve customer service work done remotely, often out of one’s home. The average salaries for these jobs are around $20,000 a year, but most have benefits.

“That’s not knocking it out of the park at this point (in salary), but they are still jobs you can do from home and not have to spend gas money,” Whitehead said. “We’re not satisfied with that; it’s a starting point.”

Down the road, he said, fast broadband service could lead to more and better-paying technology jobs, the ability to do remote job training, and ultimately lay the groundwork for a new generation of locally grown technology entrepreneurs who will be job creators of the future. Eastern Kentuckians prefer not to have to leave their families and their connections to the land to find work. Being connected to the rest of the world via the Internet could mean fewer locals will have to leave, and it could draw in new people who need that connectivity but don’t want to live in a big city.

Isolation ends; school’s never cancelled?!

Local schools are already benefitting from better connectivity. Owsley County Schools Superintendent Tim Bobrowski said the gigabit network has allowed the district to expand the use of “virtual schools,” or instruction over the Internet. As a result, a district that formerly had to make up in the summer an average of 20 snow days per year now can engage students at home, via online programs like Blackboard and Edgenuity that allow students to complete coursework for up to 10 snow days. Additionally, students who get suspended can continue classwork from home as opposed to just sitting at home not learning.

Owsley County Schools officials are working on a plan to get laptops like Chromebooks into the hands of some classes next year – as many as two grades per school, Bobrowski said.

As limited as Eastern Kentucky’s economy has seemed in recent years, the possibility broadband brings has people excited. Change won’t come overnight, but already the region’s eagerness to embrace the economic opportunities technology has to offer is changing perceptions.

Some locals are still buzzing about a story that appeared in mid-November on medium.com’s tech-focused section Backchannel. The author profiled Bitsource, a Pikeville company that aims to turn former coal miners into code writers and make a profitable business out of it. The story by Lauren Smiley – “that lady from California” – showcased local entrepreneurship and, perhaps as importantly, local pride.

Hilda Legg, a former administrator of the USDA’s Rural Utilities Service and a past co-chair of the Appalachian Regional Commission, said the gigabit service in Jackson and Owsley counties could also serve as a point of pride as well as a practical way to connect a historically isolated area to the rest of the world. She praised the PRTC not only for having the foresight and willingness to take on the risk of building the fiber optic network but also for promoting it and showing customers how it can help them.

Legg has been called a “broadband evangelist” and she isn’t shy about describing the PRTC’s gigabit network as a blessing. Appalachia has a history of relying on help from outside – be it from mining companies to provide jobs or government programs to fight poverty. Broadband, Legg said, has the potential to change the way locals see themselves.

“We can’t have generation after generation looking to the outside for help,” Legg said. “We’ve got to work at changing the way we look at ourselves and this beautiful, abundant region. I hope it will embolden residents to broaden their opportunities. Quit looking at yourselves in terms of what you don’t have, but rather look at yourselves for what you do have.”

Most of the rest of America – even larger cities – don’t have gigabit Internet service, she said.

Fast Internet service isn’t an elixir for curing the unemployment, drug abuse and attendant health issues that persist in Appalachia, Legg said, but it can be an important tool.

“If you remain isolated, you don’t tend to be able to raise yourself up. It will take time and there are no simple solutions,” she said. “But you have to start with pride in what you have.”

Features, Features, January 2016, Political Commentary

Trio Tackles Intractable Challenges in Frankfort

frankforttrio

(from left) Kentucky House Speaker Greg Stumbo, Kentucky Governor Matt Bevin, Senate President Robert Stivers.

Three major personalities join a legion of colleagues, centers of influence, staff experts and engaged citizens to wrestle one large mission: exactly how to spend roughly $10 billion in each of the next two years.

The “Big 3” leaders are Gov. Matt Bevin, new to Frankfort, Senate President Robert Stivers, elected to the legislature before Bevin even moved to Kentucky, and House Speaker Greg Stumbo, who has taken the state oath of office almost 20 times.

For all the competing parts of a state budget, for Kentucky it comes down to the “pension debt” versus everything else. The governor insists it all starts with the pension solution; almost all agree.

Figuring into the figuring it out are the two budget chairs, Rep. Rick Rand from rural Bedford, and Sen. Chris McDaniel, from urban Kenton County. Both constantly wrestle with financial graphs.

Sen. Joe Bowen, an Owensboro Republican, has worked closely with lawmakers in recent months on the pension question.

Allocating road funds is another intersection where needs outweigh resources. The transportation budget chairs, Sen. Max Wise and Rep. Leslie Combs, both hail from rural regions. Taxes paid on fuel fund highways and bridges.

Every legislator can cite a list of road needs back home. Two experts with broad, experienced views are Rep. Hubert Collins and Sen. Ernie Harris, chairs of the transportation committees. Add another strong voice in these decisions, Rep. Sannie Overly, herself an engineer and lawyer.

Tax reform, always looming in the corridors of power, but rarely for serious consideration, could emerge as a major subject. Like many states, Kentucky suffers from an antiquated taxing model, dating back to the middle of the last century. A more modern system holds the key to more income, a better match to the economy, experts say.

Organizing what comes when are the majority leaders, the point guards who run the floor in each chamber. For the Senate, Damon Thayer from Georgetown sets the pace and priorities in concert with Republican leaders.

For the House it is Rep. Rocky Adkins of Sandy Hook whose voice is heard to call up the agenda part by part.

Hot-button issues could take center stage, mainly any re-reform of expanded Medicaid, a substantial financial dimension already dictated by past actions.

The governor has named Mark Birdwhistell, a former health secretary and Medicaid head, to figure out a new approach aimed for 2017.

Also central to this push is Vickie Yates Brown Glisson, the current top health official.

The health chairs for the House and Senate will figure in significantly. Sen. Julie Raque Adams, a Louisville Republican, is in her second year guiding the Senate health panel. So, too, will Stivers and Stumbo.

Rep. Tom Burch, a Louisville Democrat, was first elected to the General Assembly in 1972, leading the Health Committee for numerous sessions.

A hot topic is charter private schools.

Education Secretary Hal Heiner will be center stage on charter schools as will Rep. Derrick Graham, a Frankfort Democrat, who chairs the Education Committee. For the Senate watch for Sen. Mike Wilson, a charter proponent, who heads Education.

Funding for education, like almost all major issues, hits home with every lawmaker. Rep. Reggie Meeks, Rep. Kelly Flood and Sen. C.B. Embry take the lead roles on school and college financing.

The governor says charter schools may have to wait on the larger task of budget writing. Right-to-work could be a  symbolic vote in the Senate, with the House pushing RTW into neutral for the time being.

Lt. Gov. Jenean Hampton will make small business growth her focus.

Voting rights for scores of felons takes the stage as Gov. Bevin rescinded the action by Gov. Steve Beshear restoring this privilege.

Sen. Whitney Westerfield leads this work for the Senate. The Hopkinsville Republican lost a close race to Andy Beshear for attorney general last November. Given their roles, the two officials, Beshear and Westerfield, will be rejoined in debate as the legislature progresses.

The House has a new chair for the Judiciary Committee, Rep. Darryl Owens of Louisville.  Owens brings a long tenure to a complex set of issues ranging from prison costs to stemming drug addiction.

Former Rep. John Tilley worked closely with Westerfield on reforms for both drug abuse and changing the lives of persons who are incarcerated. Now Tilley heads the Justice Cabinet, which handles myriad services and challenges.

One overarching statistic will lurk in every meeting room and most meetings.  With 100 House seats, 51 is the number needed to control the House of Representatives outright.

Right now it’s 50-46 for the Democrats.

On March 8, there are four special elections to replace two Republicans elected statewide, Commissioner of Agriculture Ryan Quarles and State Auditor Mike Harmon, along with seats in Hopkinsville and the Ashland area.

While many votes will be taken on many bills, the citizen votes for these four seats could color the House agenda, plus the outcome of dozens of decisions.

Meanwhile the Senate is 27-11 for the Republicans.

Bob Babbage is a leading lobbyist, cofounder of Babbage Cofounder.

Features, Features, January 2016, Workforce Development

The Art of Workforce Development

Bill Cloyd provides a hands-on demonstration of mechanical advantage to field trip students as they load G-Force, the bungee powered mini-rollercoaster built years before as an engineering project by students at West Jessamine High School.

Bill Cloyd provides a hands-on demonstration of mechanical advantage to field trip students as they load G-Force, the bungee powered mini-rollercoaster built years before as an engineering project by students at West Jessamine High School.

Across pockets of the Bluegrass State, kids of all ages are delving into cool, project-based learning designed to build a future workforce that embraces technology in every facet of corporate growth.

Forget routine memorization, or weeks of pop quizzes as primary learning tools. Career paths are now crafted around visionary undertakings of their own design: building robots; planning a satellite payload; constructing a building; wiring a circuit board; building a 3-D printer; or making sporty transportation like skateboards from start to finish.

Workforce development with clear intent toward tech and advanced manufacturing careers has become a groundswell in the commonwealth as corporations, educational institutions, parents and even students realize that the future is now. Across the state there are many unfilled jobs that require technology training – usually with math and science underpinnings – and that number is only increasing. To stay competitive, business and industry today pursue productivity and process improvements at a rate that has outpaced static training and education models.

The goal is a workforce pool that not only possesses tech know-how but knows how to be creative and problem-solve within that realm. It’s driving executives and administrators to build innovative thought processes into the skills development process, in classrooms and in the broader environment.

What is STEAM?

This approach is known as STEAM outreach, which stands for Science, Technology, Engineering, Art and Math. The term STEM, leaving out the “A” for art, has become better known – since some argue art and creativity are within science-based disciplines by definition. This outreach encompasses after-school programs, curriculum at the school level, specialty internships, field trips, nonprofit and club-based maker spaces, in-classroom year-long projects, and field work for companies where mentoring is possible.

While a middle and high school focus is apparent, many programs are being redesigned for K-12 in after-school models and clubs as well in the classroom, particularly by training teachers to deliver project-based learning.

Efforts in Kentucky are part of a much bigger race toward hands-on learning. Nationwide, STEM jobs are growing 1.7 times faster than non-STEM jobs, according to the U.S. Department of Commerce. A Kentucky Chamber of Commerce report in December found the commonwealth adding manufacturing jobs at three times the national rate.

Brad Thomas, Associate Manager  of Economic Development, East Kentucky Power Cooperative

Brad Thomas, Associate Manager of Economic Development, East Kentucky Power Cooperative

“Many people living in Kentucky don’t understand that we are an advanced manufacturing state. We’ve got to design (supporting) ecosystems here that work,” said Brad Thomas, associate manager of economic development at East Kentucky Power Cooperative. “Education is responsible for you getting the career you now have. We need to be saying to our kids: ‘We make aerospace products in the state. Would you like to do this?’ ”

Thomas enjoys loading up his truck and showing off a mini-satellite to the school-age, because at once there is a spark of excitement…especially when they realize they could learn how to build one, man it with a science project, or be a part of a launch.

East Kentucky Power Co-op actively supports the two-year-old Shaping Our Appalachian Region (SOAR) initiative, primarily through a STEM-based-education workforce initiative for educators across Eastern Kentucky. The project will equip 100,000 students and 3,000 teachers in that region with world-class science, technology, engineering and math skills.

The aerospace products comment by Thomas, also a Kentucky Association for Economic Development board member, references the fact that fully half of Kentucky’s annual exports are divided between $7.8 billion in aerospace parts and products, and $5.9 billion in motor vehicles, parts, bodies and trailers.

“STEAM is not just computer-based learning,” said Ken Talley, director of career and technical education for Jefferson County Public Schools. He cites several programs begun in the last decade that bring the “real world” into the classroom.

One growing annually is a partnership with the local ACE Mentor Program of America affiliate, in which members of the architecture, construction and engineering (ACE) fields help mentor high school students and inspire them to pursue careers in design and construction. In its seventh year, it now touches 70 public and Catholic education students at Louisville-area high schools such as Jeffersontown, Iroquois and Trinity.

Open community labs and workshops known as maker spaces also are cropping up. For example, Shawnee Alumni Club has undertaken funding with several community partners for one at Shawnee High School in Jefferson County. Other student maker spaces in Louisville include LVL1 in the Butchertown area; UofL’s Engineering Garage (new-2015); The Maker Place of the local Kentuckiana Girl Scouts (new-2015), and Fab Lab at the private Kentucky Country Day School.

STEAM curriculum advancement at the school district level has seen interesting progress in the last decade. In 2013, Fayette County – in partnership with the University of Kentucky – created a STEAM Academy whose mission is to graduate 100 percent of its students, leading them to college or careers in the 21st-century global workforce. UK is hosting, but there are efforts to find a new permanent location.

Launch of Kentucky FAME

Large employers such as Lockheed Martin support programs that encourage education in science, technology, engineering and math, which the company believes requires collaboration among industry, educators, policy makers and families.

Large employers such as Lockheed Martin support programs that encourage education in science, technology, engineering and math, which the company believes requires collaboration among industry, educators, policy makers and families.

Many across the state are watching the new Kentucky Federation for Advanced Manufacturing Education (KY FAME) program, a partnership between Kentucky Community and Technical College System and regional manufacturers to implement dual-track, apprenticeship-style training.  This will create a pipeline of highly skilled workers through community colleges, with early outreach to high school and certain middle school populations. After launching in 2014 in the Bluegrass region, KYFAME expanded to eight regional chapters in 2015. The fundamental skills imparted come from the Advanced Manufacturing Technician (AMT) program curriculum developed by Toyota and Bluegrass Community and Technical College.

Nationally, manufacturers estimated they have at least 600,000 unfilled jobs because appropriately skilled workers cannot be found. Salaries for these “mid-skilled” employees range from $30,000 to $80,000 a year. KY FAME students attend AMT classes two days per week at a KCTCS location and work 24 hours (three normal work shifts) per week for a sponsoring employer.

Students receive an associate degree in applied sciences in 15 months and can expect to begin full-time employment with their sponsor company. In Western Kentucky, sponsors include Wacker Chemical; T.RAD North America; Briggs & Stratton; Centrifugal Technologies; Baptist Health Madisonville; Vanderbilt Chemical; Progress Rail Services; Hibbs Electromechanical Air Relief; Integrated Metal Solutions; MVP Group International; International Automotive Components; MRCOOL; ACE Compressor Services; and GE Aviation.

Other programs addressing career pathways are due for re-evaluation and refinement.

The Jefferson County Public Schools system is in the fifth year of its 5-Star Schools program, offering hands-on training in five technical themes touching on 100 career and technical education pathways, Talley said. It may soon reconvene its task force to redesign and move forward in 2016.

“It almost always requires community support to start a new program because of legislative limits on funding,” he said. “There’s a need to offer more career counseling to our high school graduates, and it needs to be addressed.”

A part of the model that JCPS believes works are externships for teachers to bring them together with employers and explore careers that serve today’s workforce, Talley said.

Jerry Burke, who has taught welding at Jeffersontown High for 20 years, recently completed an externship and engaged his junior-level students in a real world project for Raptor Rehabilitation of Kentucky to create and install a security gate. Ford Next Generation Learning is a grant-type program feeding this type of model.

Youth apprenticeship programs rolled out 

Beyond teacher externships, public education also offers more hands-on apprenticeships.  Another statewide youth pre-apprenticeship program announced in September 2015 is the Tech Ready Apprentices for Careers in Kentucky. TRACK is a partnership between the Kentucky Labor Cabinet and the state Department of Education’s Office of Career and Technical Education. It provides secondary students with career pathway opportunities into registered apprenticeship programs like welding, electrical work and carpentry. Students can receive a nationally recognized credential at little or no cost that is valued by employers looking for job-ready workers.

Where are the STEAM careers?

Workforce avenues are now monitored by a number of national and regional organizations tied to K-12 education.  As defined by the national Metropolitan Policy Program at Brookings Institution, these are the top STEM occupations in Jefferson County: computer occupations; health diagnosing and treating practitioners; construction trade workers; financial specialists; engineers; metal and plastic workers; operations specialty managers; other installation, maintenance and repair occupations; and electrical and electronic equipment workers, mechanics and installers.

STEAM investments in higher education

Jefferson Community and Technical College has included a $33.4 million Advanced Manufacturing/Automotive Technology Center among its capital budget funding priorities for 2016. The center is to be built adjacent to the downtown campus on Broadway in Louisville.

Private byte-sized education also is appearing. Software coding boot camps are appearing for adults already in the professional workforce who are looking for additional skills, or those who’ve taken some college-level math courses but are up for more intensive training.

The Software Guild, now a part of The Learning House, is actively addressing education needs in Louisville for entry-level software developer positions. As the region’s adult software coding boot camp, it teaches .NET and Java skills in 12 weeks, aiming to train workers to fill the hundreds of open tech jobs in Kentuckiana. The next classes start in February. ν

Dawn Marie Yankeelov is a correspondent for The Lane Report. She can be reached at editorial@lanereport.com.

Economic Development, Features, Features, January 2016

Communities’ Do-It-All Partner

The Purchase Area Development District managed a $1.3 million project that resulted in local elected leaders, business owners and partners to open a new Kentucky Career Center building in the Murray West Industrial Park. Funding included a $1,080,000 Community Facilities Loan from USDA Rural Development to the Murray-Calloway County Industrial Development Authority and $246,000 from Delta Regional Authority and the Kentucky Transportation Cabinet.

The Purchase Area Development District managed a $1.3 million project that resulted in local elected leaders, business owners and partners to open a new Kentucky Career Center building in the Murray West Industrial Park. Funding included a $1,080,000 Community Facilities Loan from USDA Rural Development to the Murray-Calloway County Industrial Development Authority and $246,000 from Delta Regional Authority and the Kentucky Transportation Cabinet.

Let’s face it: Area Development Districts are often mentioned but frequently misunderstood. Most people have a vague idea of the function of these organizations – Kentucky has 15 ADDs – which are vital conduits funding many state agencies but also foster many facets of human services, community development and workforce development.

Perhaps only the employees immersed in the daily mission of Area Development Districts, and their individual governing boards’ members, have a true understanding of their profound impact on the agencies they benefit and the state as a whole. For that reason, The Lane Report sat down with Kentucky Council of Area Development Districts Executive Director Darrell Link and other officials to illuminate the inner workings of ADDs.

The first surprising fact is that Kentucky’s ADDs have been around nearly five decades. The 15 entities in the Bluegrass State’s network comprise a collaboration of a large, diverse constituency of all 120 counties and 418 cities. Kentucky’s ADDs are governed by 572 board members and employ 850 people.

The mission: better quality of life

Darrell Link

Darrell Link

“Our strategic mission is simple: Together (the ADDs) foster regional strategies, solutions and partnerships that improve the quality of life for all citizens living in the commonwealth,” Link said.

They do it by working with federal and state officials, local government shareholders, and private- and nonprofit-sector partners. Historically, ADDs were created to pursue three key roles in regional development:

• Area-wide planning, program development and program coordination functions.

• Assisting local governments in provision of local services.

• Promoting and actively pursuing a public/private partnership at the local level as the basis for developing and strengthening the local economy.

“ADDs are a model for good governance, transparency and accountability,” Link said. “Because our governing boards are comprised of judge/executives, mayors and prominent community citizen members, they are in a unique position to hold each other accountable. Every budget and dollar is accountable; every program and service is reviewed regularly; and every policy enacted is fully vetted, debated and voted on by the board. All meetings are public, and all information is available on our websites and upon request.”

Kim Huston, president of the Nelson County Economic Development Agency, has benefitted from the Lincoln Trail ADD for 15 years.

“What I respect most about LTADD is that it’s governed by a board made up of our region’s city and county leaders who determine what the needs are of our local communities,” she said. “For our eight-county region, LTADD has been the local entity that ensures implementation of the specific public purpose of each federal award and takes responsibility for the administration of these programs, thus taking the burden off local governments.”

Bardstown and Nelson County are aided and impacted by the LTADD, Huston said, via various projects, from establishing the first regional economic development program to assisting with infrastructure construction in industrial parks.

“The most important issue we are tackling right now, hand-in-hand with the LTADD, is workforce development and ensuring that we have competent and skilled workers to place in our ever-growing industrial operations,” she said.

Rhonda Whitaker, district manager of government and community relations for Duke Energy Kentucky, has seen firsthand the impact of the Northern Kentucky ADD via the funding it provides to her local workforce investment board.

“For adults, the career and training services provided are critical, especially as our ADD is able to help workers (and youth) possibly retool for those sectors where jobs are most in demand,” she said.

The NKADD has been a key partner, Whitaker said, in the Advanced Manufacturing Workforce Development Coalition, of which she serves as co-chair. Its aim is to promote and fill skilled jobs for employers who can’t find sufficiently skilled workers.

“Our coalition is working diligently to change the awareness and perception about manufacturing opportunities in Northern Kentucky, and to create new training opportunities to help close the gap on unfilled manufacturing jobs,” she said. “We are also seeking innovative ways to pool training dollars to provide more opportunities for those who may find it a challenge to pay for such costs. The ADD has played a vital role in these efforts.”

Role as ‘grant sub-recipients’

Click map for a larger image

Click map for a larger image

The primary role of ADDs is to serve as the required pass-through, or grant sub-recipients (a federal technical term), for billions of dollars in federal money for the various programs and services it supports.

In this role, ADDs ensure money is distributed and services delivered in accordance with the numerous federal and state guidelines attached to the programs and services for each region. Management of these funds requires regular reporting, monitoring and auditing for compliance with state, federal and local laws.

ADDs are the local entity that ensures implementation of the specific public purpose of each federal award. ADDs determine which programs and organizations are eligible to receive federal assistance by measuring performance in relation to public policy objectives. They have responsibility for decision-making and are responsible for adhering to the federal statutory requirements outlined in each of the programs.

What do ADDs Support?

Kentucky’s ADDs provide behind-the-scenes assistance for three main types of state programs: community development; aging and disabilities; and workforce.

Community development programs for local governments and other agencies get ADD staff assistance in building programs for historic preservation, community revitalization, parks and recreation, public safety, infrastructure, housing and transportation enhancements. ADDs help identify funding sources, prepare grant/loan applications and administer grant/loan projects.

In 2015, the ADDs’ role in economic/community development included assisting cities and counties with tasks such as developing 600-plus infrastructure and community projects; obtaining $97.5 million in new state and federal grants; prioritizing transportation and road projects for inclusion in the statewide six-year plan; and providing business loans to start-up and expanding businesses through federal lending programs.

Aging and disabilities programs get support in the form of a variety of services through the long-established ADD system of Agencies on Aging and Independent Living. The AAIL mission is to seek economic security, enhance healthy aging and support public policy that enhances the lives of senior citizens and others of all ages with disabilities.

More specifically, AAIL created programs such as the Older Americans Act, which funds services that keep older adults healthy and active: congregate meals served in the senior centers; home delivered meals; transportation; health promotion activities; and socialization.

“In-home and disability services play a pivotal role in avoiding institutionalization and make a critical difference for our most vulnerable population,” Link said. “The nutritional component and services provided through senior citizen centers offer opportunities for social interaction that enhances the quality of life and improves the health of senior citizens.”

Other aging/disability services and programs established by the AAIL are:

• Homecare, which includes homemaking, personal care, transportation, respite and meals, both home delivered and meal preparation.

• Consumer-directed options programs allow clients normally eligible for traditional home health services to manage their own budget and hire staff to provide in-home services.

• Economic assistance, including help in enrolling in programs such as Medicare, Medicaid, prescription drug assistance, heating assistance, food stamps, farmers markets and food pantries.

• The National Family Caregiver Act, which provides counseling, support groups, training and respite to assist family or other informal, unpaid caregivers. The goal is to relieve some of the physical and emotional burden of caregiving, thus reducing the risk of institutionalization.

“The Area Development Districts have touched the lives of thousands of Kentuckians by allowing them the dignity of aging in place,” Link said.

How ADDs are misunderstood 

“The biggest misconception of ADDs is that we are a federal or state agency,” Link said.

Rather, ADDs are local units of government as defined by the Kentucky attorney general and designed to function as conduits for funding to local areas and programs, and ensure proper oversight of the administration of activities by various local officials and business leaders.

“ADDs are actually unique in their creation – we have our legal authority and governance addressed by all three elements of the public sector: federal (U.S. Department of Commerce actions), state (Kentucky Revised Statutes and attorney general opinions) and local (articles of incorporation and bylaws),” Link said. “We adhere to oversight and accountability through compliance with federal, state and local requirements.”

Why ADDs are good for Kentucky

In a nutshell, he said, ADDs work each day with a goal of improving the quality of life and delivering essential services to all Kentuckians.

In the Bluegrass State, ADDs facilitate local and regional prioritization of these services – such as solid waste, land use, water and sanitation, and transportation planning. ADDs assist in public discussion and prioritization of new transportation corridors; they make rankings readily known and available for citizens and for local, state and congressional leaders and their staffs.

When requested, ADDs provide counties and cities with research staff to study and make recommendations on the delivery of services – such as police, fire and rescue – to help local leaders make sound decisions that improve the quality of services while decreasing overhead costs.

ADDs assist small businesses by providing revolving loan funds, workforce training and education, and help them to fill jobs with qualified people.

Kentucky ADDs also provide technical staff to counties and cities to assist in writing and updating personnel policies, budgets, establishment of tax rates, writing and administering grants.

“All of this transcends political, geographical and parochial boundaries, which greatly diminishes the burden and need for each city and county to staff these positions in a vacuum or independent of each other,” Link said. “There is no other entity or organization that consolidates all of these functions and brings all of the local leaders together to discuss the delivery of essential services at the best cost by working cooperatively together than ADDs, which is a Kentucky win for the taxpayers.”

The most challenging aspect of his job, Link said, is ensuring Kentuckians understand that the ADDs are governed by local leaders who best understand the needs of their communities, hold each other accountable, promote good governance and are fully transparent in their decision making.

“Because the ADDs serve all of Kentucky and play a prominent role in improving the quality of life for every person in Kentucky, I feel my small contribution helps makes a positive difference and a big impact throughout the commonwealth,” Link said.

December 2015, Economic Development, Features, Features, One-On-One, One-on-One, Transportation

One on One: Candace McGraw, CVG CEO

Mark Green: Like the airline industry, CVG has had ups and downs the past decade as the industry contracted but air freight activity increased. How do you describe CVG’s current status?

Candace S. McGraw Candace S. McGraw was appointed CEO of Cincinnati/Northern Kentucky International Airport (CVG) in July 2011, coming from the Cleveland (Ohio) Airport System where she’d served as deputy director. McGraw previously worked as general counsel for Cleveland City Council, and legal counsel and deputy director of charitable gaming for the Ohio Lottery Commission. A Leadership Cincinnati graduate, she is chair of Skyward, the Northern Kentucky region vision organization. McGraw is an Airport Council International-North America board member. She was Best Boss in Northern Kentucky 2013, Outstanding Woman of Northern Kentucky 2015 and a YWCA Career Woman of Achievement 2015. McGraw holds bachelor’s and master’s in political science from Duquesne University and a University of Pittsburgh School of Law juris doctor.

Candace S. McGraw was appointed CEO of Cincinnati/Northern Kentucky International Airport (CVG) in July 2011, coming from the Cleveland (Ohio) Airport System where she’d served as deputy director. McGraw previously worked as general counsel for Cleveland City Council, and legal counsel and deputy director of charitable gaming for the Ohio Lottery Commission. A Leadership Cincinnati graduate, she is chair of Skyward, the Northern Kentucky region vision organization. McGraw is an Airport Council International-North America board member. She was Best Boss in Northern Kentucky 2013, Outstanding Woman of Northern Kentucky 2015 and a YWCA Career Woman of Achievement 2015. McGraw holds bachelor’s and master’s in political science from Duquesne University and a University of Pittsburgh School of Law juris doctor.

Candace McGraw: CVG is doing quite well. We’re moving in the right direction. In 2014, we had our first year-over-year increase in passengers in nine years. That was 3 percent. For 2015, we’re up over 6 percent in overall passengers year-to-date. In local passenger growth, we’re up 16.1 percent year-over-year, and more than 20 percent year-over-year for the past four months. In terms of passenger growth, we’re definitely moving in the right direction.

We had airline consolidation. When I started in the industry over 25 years ago, there were more than a dozen airlines, and now we’re down to three legacy carriers, Delta, American and United, and then Southwest. Those four passenger carriers carry over 85 percent of all U.S. traffic. It’s a markedly different industry.

MG: What is the financial model for airports?

CM: The majority of airports in this country are self-sustaining entities and operate off of three primary revenue sources. We generate revenue through landing fees, concessions, those sorts of things. We receive some federal grant funds. And we receive a Passenger Facility Charge user fee of up to $4.50 per passenger that exits your airport; that’s on the ticket price. We don’t operate off of any local revenue base. We are a tax revenue generator in terms of property taxes, payroll taxes, etc. So we operate much like a private business, but in a public realm.

We have an operating budget of about $126 million annually. We have about 400 direct employees under the Airport Authority Board. We have about 7,500 acres we’re responsible for. Just like every other business, we need to operate safely, securely, efficiently and generate more revenue than our expenses.

Next year, under our new (airline lease) use agreement, we’ll operate even more like a private business. Currently, at the end of 2015 under the existing use agreement, if we generate a profit everything goes back to the signatory carriers. Starting in January, we’ll keep a portion of the profits, and the carriers will get a portion.

MG: You mentioned 400 direct employees. Is that number stable, up or down?

CM: Since I’ve been here, it’s been consistent. We’re blessed to have a very long-tenured staff. For full-time employees, we have an annual turnover rate of less than 4 percent including retirements. We make an effort to hire the right folks, empower them and seek to have them stay over the course of time.

MG: How does the revenue streams pie slice?

CM: About half our business is reliant on airline revenue streams, and the other half is focused on land development, parking, concessions, etc. We, like all airports, are looking at how to generate what’s called non-aeronautical revenue – how can we not be as reliant on airline revenue streams? We’re at about a 50/50 split, which is very strong. We’re trying to diversify our revenue base.

MG: What are the key changes in CVG new lease or use agreement with its airlines?

CM: We’ve been operating on a use agreement – that’s our rates and charges, our business arrangement with our carriers – that’s been the same since 1972, with a few minor modifications. Years ago that model, called a residual agreement, was very standard. If the airport made money, the airlines received the profit; if the airport lost money, the airlines were obligated to pay any deficiencies. Therefore they had a certain amount of control over the airport’s expenditures and capital program. Right now, we have to get airlines’ approval for our capital program, anything over $50,000.

In the 1970s, pre-deregulation, the airlines had a stronger credit rating than the airports. They were viewed to be the stronger business thinkers. There was thought that maybe local airports didn’t have the business acumen to run it like the business that it is.

The new agreement, effective January 1, 2016, running for a five-year period, which is fairly standard now, will allow the airport greater control over its destiny. We’ve negotiated changes so we operate more like a business. We’ll have a revenue split with the carriers and keep some for ourselves over which we’ll have control. There are a number of significant changes.

MG: You have overseen development of a new strategic plan for CVG. Why was this necessary and what are its key elements?

CM: We’re actually taking a crack at our second strategic plan since I’ve been here. When I took my role as CEO in July 2011, we had a strategic plan to take us through 2015 that focuses on operational excellence, customer service, those types of things, efforts doing what we call the reinvention of CVG. We were going from a dominant single-carrier hub to a more multicarrier, locally based airport.

Working around our master plan, looking at our facility needs through 2035, we’re now working internally and with our board to finalize the next iteration of our strategic plan from 2016 through the end of 2020. Mirroring the continuing evolution of CVG, we’ll focus on wanting to be the best airport to fly from or for and to do business with.

MG: What facilities or infrastructure changes will take place?

CM: This airport is going through a huge metamorphosis. We had three terminals, Terminals 1, 2 and 3, and two Concourse A and Concourse B buildings. Terminal 1 closed prior to my arrival; administrative offices were there but no passenger operations. Terminal 2 had eight gates, and carriers – everybody but Delta – operated out of Terminal 2. Delta vacated Concourse A in 2010 and now uses only Concourse B.

In May 2012 we realized we needed to grow our other carriers. We negotiated an agreement with Delta where we took over Concourse A, renovated it from eight gates to 16 and moved the carriers from Terminal 2 into Concourse A. Recently we activated another three gates. We knew that growth was necessary. We have adequate gate space.

We recently moved administration out of Terminal 1. It and Terminal 2, which is closed, will be demolished beginning in January. After we take down Terminals 1 and 2, a consolidated rental car facility will be built in their place. It will be more customer service friendly and accessible for the rental car companies. The area on which the rental car companies are currently located will see some cargo development. After Terminals 1 and 2, four older outbuildings also will be demolished to make way for new development, and we’ll continue to evolve the facilities.

MG: In November, the Kenton County Airport Board gave you a five-year contract extension and a raise. Two years ago, though, former board members attempted to dismiss you. What has changed in 2 years?

CM: There’s no sense revisiting the past. We’ve evolved over time. We work very closely with the airport board; they’re all very good, qualified business thinkers. I was pleased they offered me a contract extension. I have one year left on my current contract and with another five I’ll be here through the end of 2021 at least, which is good because we’re going into new strategic plans and that will give us the opportunity to carry those through.

MG: How much of CVG’s property is developed and how much is left?

CM: Of our 7,500 acres, a lot is within the fence and is for the airfield. We have, though, hundreds of acres currently available for development. When the extension of Wendell Ford Boulevard is completed by the end of 2017, we’ll have additional acreage for development. One tenet we operate under is that we only lease land for long-term development; we’re not going to sell any land. It’s important for us to develop non-aeronautical revenue streams, and leasing gives us a sustainable revenue stream now and in the future.

We’re just in the infancy stage of our potential development. We recently signed a long-term lease with Dermody Properties, which is developing a 52-acre site to be a distribution center for Wayfair; a 900,000-s.f. facility is under construction. That was really our first foray into the development business. We’re marketing a number of sites.

MG: DHL has been growing, and FedEx is expanding. Was it a strategic goal of the airport to develop cargo further?

CM: Under our master plan, we’ve looked at areas for development that are best for aviation purposes – areas closer to the runways – for hangars, cargo facilities, those sorts of things. Farther out there are sites suited for warehousing, distribution, etc., and light industrial or commercial purposes. We’ve looked at what are the highest and best uses of land.

Cargo now is about 51 percent of our overall land use. It’s huge. DHL has gone through a tremendous expansion the past few years – since 2009, three expansions totaling $281 million worth of improvements. DHL has three global super-hubs, and CVG is their North American super-hub. We’d love to do some end-of-runway development that will bring in customers that want to locate near or adjacent to DHL. It would bolster their business and support our business.

MG: Does CVG, with its DHL facilities, look to Louisville International Airport and its UPS experience as a model?

CM: Sure. We’ve taken some tours and looked at some best practices, and we’re always happy to borrow some best practices from other airports, including our friends at UPS in Louisville.

MG: CVG reportedly has had the highest landing fees in the United States. Why was this and has this changed?

CM: Thank you for asking because this is a common misunderstanding. We’ve had some of the highest (italics)airfares(end ital.), which have no correlation with landing fees. Our landing fees are at or below all of our regional competitors. Airfares have been high because we had one dominant carrier; it was monopolistic. As we’ve become more multicarrier, our airfares have dropped. Competition brings lower prices. The most recent Department of Transportation statistics ranked us number six in airfare prices; traditionally we were number one. We’ll drop further when new statistics are released. It’s about growing competition, adding carrier diversity. An industry rule of thumb is that an airport’s (landing fee) cost as part of an airline’s budget is 4 to 6 percent. Airlines’ main cost is always fuel and labor. The landing fees here are very, very low.

MG: Does having significant air freight operations contribute to keeping overall airport operational costs down, thus making it more attractive to new commercial carriers?

CM: Cargo business is about 50 percent of our landed weight, so that’s a great revenue source for the airport. The cargo carriers pay the same landing fee as our passenger carriers, but a rule of thumb is that one large cargo plane’s weight is equivalent to 11 regional jets. We have about 50 DHL planes in and out of here every night, so they’re a great source of ongoing, consistent business. As carriers have come or gone, or expanded or contracted, the cargo business has been consistent if not growing, therefore keeping our overall costs down.

MG: What low-cost passenger carriers has CVG been successful in recruiting?

CM: Frontier started about a year and a half ago with six flights a week; now they’re huge. Allegiant started here a year-plus ago, and we’re now one of their top five airports. We have been Allegiant’s fastest-growing airport in their history. Allegiant and Frontier are now about 20 percent of our business, helping us attract new passengers. We had an untapped demand for vacation and leisure travel.

In January, Allegiant’s going to base three aircraft out of CVG. Allegiant’s model is to start a crew in the morning and end them every night at the same airport, so they’ll at least originate and end those three here. We’re hopeful that will spawn more flights. PSA, a regional carrier for American Airlines, has leased a hangar and they’re going to be starting a base of operations in January as well, with a flight crew and a maintenance base.

MG: What is the divide nowadays between business and pleasure travel?

CM: We were predominantly business traffic when I started here, probably 75 percent, and now we’re almost 50/50 in terms of business and leisure travel. Now that we have some low-cost carrier options, our passenger base is changing and evolving.

MG: CVG markets itself as offering more nonstop flights than any airport in the region, including direct international service to Paris, Toronto, Cancun, Montego Bay and Punta Cana. What is its business sweet spot?

CM: We do have more daily nonstop destinations than any airport in this region. We try to maintain that. We know business travelers prefer a nonstop when possible, so that’s important. People like to be able to travel in and out the same day for business. For leisure travelers it’s all about convenience and price, so our low-cost carriers and vacation packages are very attractive. The daily service to Paris is the only transatlantic direct flight in all of Ohio, Kentucky and Indiana, and gives you one-stop access to anywhere in the world. And Toronto does the same; that’s also a one-stop world connection.

MG: U.S. airlines today are profitable after having collectively lost billions of dollars for several decades. Does airline profitability affect CVG?

CM: What really affects airports is airline consolidation. At one time there were dozens of airlines; now, with the mergers, the top three and Southwest together control 85 percent of the traffic. The airlines now are running a very smart business. They’ve constrained the supply and increased the price; that’s why they’re profitable. Airports are fighting over the service, looking at aircraft, trying to figure out how they can fit into the network.

We develop business cases for the airlines. We know which cities we believe should have service, which cities are underserved, cities where we think an airline could upgauge an aircraft. We were losing passengers traveling to Washington, D.C., and thought this made no sense. What’s the issue? Well, they weren’t leaving early enough in the morning. We went to the carriers and said if you start service this amount of time earlier, you will gain X amount of passengers. And sure enough, that was the case. We try to lay out the business cases in as simple a way as possible why it would make sense for an airline to use CVG.

MG: There has been an economic impact study for CVG about three years ago. What were the findings?

CM: We published a study in April 2013 based on year-end 2012 statistics. We generate $3.4 billion in economic impact annually for this region, including Ohio, Kentucky and Indiana. It’s a huge economic impact. In 2016 we will do the same and base it on either year-end 2015 numbers or mid-year 2016 numbers. I would think we’ll grow beyond that $3.4 billion annual economic impact.

MG: What should the business traveler of today know about air travel that they might not be aware of?

CM: That’s an interesting question. Security measures, for instance, are only going to increase, given the world in which we live. People should be mindful to go online and find some bargains direct themselves. Go to CVGAirport.com; we give you tips on how to find the best deals.

MG: Do you have a closing comment?

CM: One of the things we’re very proud of is that we’ve won the Skytrax World Airport Award as the best regional airport in North America five years in a row. I attribute that to our great staff; they’re devoted to safety, security, customer service. I often say we don’t do one particular thing very well, we do a lot of smaller things very well, and it all adds up, I think, for a great customer service experience. And that’s our goal here. A lot of our sort of brand platform, as we want to say, we have world-class professionalism with a Midwestern charm. And I think our staff demonstrates that.

December 2015, Features, Features, Transportation

Logistics, Logistics, Logistics

CVG

DHL Express’ global hub at the Cincinnati/Northern Kentucky International Airport is the company’s largest facility in North America.

When a state government agency such as the Cabinet for Economic Development declares “We’re a logistical dream” in its locate-in-Kentucky sales pitch, some people might be skeptical.

In the past 15 years, however, huge companies whose sharp-eyed accountants weigh out hard dollars to separate logistical realities from dreams have invested well over $2.4 billion in Kentucky because of its central U.S. location: A huge swath of the country’s commercial and consuming population can be reached by truck or air within a matter of hours.

Live in Denver and need a pair of Sergio Rossi’s – maybe a size 6½ Alton, the platform slingback with a peep toe – from Zappos? UPS may be rapping on your door with a shoebox almost before you punch in the three-digit security code on the back of your Visa card.

These multibillion-dollar (and rapidly growing) investments in moving, distributing and delivering products throughout the country and around the world have created 23,500 full-time Kentucky jobs since 2001 and established the state as a go-to location for far more than bourbon, basketball and Thoroughbreds, according to data compiled by the cabinet.

In mid-November, the state said 55,248 people have jobs in the logistics and distribution sector, which employs about 3 percent of the people working today in Kentucky, according to the Cabinet for Economic Development.

The U.S. Commerce Department also makes clear logistics and transportation are a huge element of the U.S. economy, accounting for revenues of $1.3 trillion or 8.5 percent of GDP in 2012, the most recent year for which data is available.

Erik-Dunnigan

Erik Dunnigan, acting director, Kentucky Cabinet For Economic Development

“Obviously, there’s the old adage: location, location, location,” said Erik Dunnigan, acting director of the state cabinet. “Kentucky is blessed with a fantastic geographic location. … The reality is you can get packages to two-thirds of the U.S. population with a day’s drive.”

“Kentucky – Louisville in particular – has an undeniable geographical advantage,” said Kevin Gue, a professor at the University of Louisville and the director of the school’s Logistics and Distribution Institute inside the J.B. Speed School of Engineering.

“It’s (logistics and distribution) been on fire lately because we’re so well positioned in the country,” said Dan Tobergte, president and CEO of the Tri-County Economic Development Corp. (Tri-ED) in Northern Kentucky, about 80 miles east of Louisville on I-71.

For example, Wayfair, a huge Boston-based online retailer of home furnishings and décor, announced plans in late August to build a 900,000-s.f. fulfillment center on 52 acres owned by the Cincinnati/Northern Kentucky International Airport. But unusually, began work immediately.

Wayfair, whose brands include Joss & Main and DwellStudio, didn’t wait for local or state agencies to approve financial incentives the company or the developers might have been eligible to receive, Tobergte notes.

“That’s another indication that the market is pretty hot. They just wanted to go ahead with the project,” he said. “The proof is in the pudding in the lack of bulk warehouse space (in Northern Kentucky). The vacancy rate is around 3 to 4 percent.”

U.S. logistics index based at UofL

The intersection of Interstates 64, 65 and 71 in Louisville, where morning and evening rush-hour traffic slows to a crawl, have been described as one of the most significant highway transport bottlenecks in the nation. A reworked and streamlined Spaghetti Junction will be completed in 2016.

The intersection of Interstates 64, 65 and 71 in Louisville, where morning and evening rush-hour traffic slows to a crawl, have been described as one of the most significant highway transport bottlenecks in the nation. A reworked and streamlined Spaghetti Junction will be completed in 2016.

Logistics and distribution firms are located throughout the state. They are concentrated, however, in and around Louisville where I-71, I-65 and I-64 converge, and in the Cincinnati/Northern Kentucky metro area where I-74, I-75 and I-71 are tied together.

A two-year-old study commissioned by Greater Louisville Inc. said the logistics sector employs 40,000 people and has grown 20 percent since 2003. During that period, the national growth rate for the industry was 8 percent, according to the “Advantage Louisville” study.

Over the next 10 years, “Advantage Louisville” projects, employment is predicted to increase another 25.2 percent, which is double the national growth rate.

The 55,000-plus logistics jobs in the state rank the industry second behind the automotive category (89,443 jobs) among industries the state is “targeting for recruitment and future growth,” according to Jack Mazurak, communications director for the cabinet. Number three on the growth target list is food and beverage (44,933) while number four is described as “telecom intensive” (37,654).

The Louisville region boom in logistics and academic research at the UofL’s Logistics and Distribution Institute (LoDI) prompted Erin Gerber to develop the LoDI Index when she was working on her doctorate a couple of years ago. The 1-100 index forecasts industry activity at both the Louisville and national levels with numbers above 50 indicating expansion.

“It’s a predictive indicator of the growth or the health of the logistics and distribution industry,” said Gerber, who now is a PhD and an assistant professor in the Speed School’s Department of Industrial Engineering. “Companies can use this to plan ahead.

“If the index is showing a lot of growth, it’s a good time to invest. If not, it’s probably best to hold off on an investment,” said Gerber, whose index is cited and used frequently by Bloomberg, the respected business news service, and the Federal Reserve Bank of St. Louis.

Easy access to truck, air, rail and barge transportation, she said, is a factor that distinguishes the Louisville region, which includes Southern Indiana, from other metro areas where logistics also plays a major economic role. Rail and barge facilities, she said, mean commodities like coal often are among regular transshipments.

Deana Epperly Karem,  Vice President for Economic Development, Greater Louisville Inc.

Deana Epperly Karem,
Vice President for Economic Development, Greater Louisville Inc.

Deana Epperly Karem, vice president for economic development of GLI, emphasizes the importance of barge and rail transport on the menu of options available to shippers.

GLI recently launched a branding initiative that links 10 Kentucky and five Southern Indiana counties as a single region with a receptive business climate, Karem said. The Ohio River, while a state boundary, does not pose an impediment to business development in the two states, she said.

“Companies don’t care about those boundaries,” Karem said. “When one county does well, it affects the others that are nearby.”

Louisville bridge openings near

Karem also stressed the importance of the $2.3 billion Ohio River Bridges Project, whose two new bridges are about to dramatically improve access between the states with more and better traffic capacity.

The stunning new Downtown Crossing this month opens its six northbound I-65 lanes alongside the 52-year-old Kennedy Memorial Bridge, whose four north- and three southbound lanes are being rehabbed to become six southbound interstate lanes.  Pedestrians had a chance to walk the Downtown Crossing Dec. 5.

And about eight miles east, construction work is underway on the East End Crossing, which is expected to fuel development on both sides of the river. By the end of 2016, it will connect rings of I-265 that bypass downtown traffic: Gene Snyder Freeway in Kentucky and Lee Hamilton Highway in Indiana.

Already, the 6,000-acre River Ridge Commerce Center on Lee Hamilton Highway, almost within sight of Kentucky, is booming with active commercial and industrial operations of hundreds of thousands of square feet each plus a 1 million-s.f. Amazon.com fulfillment center. Site development officials are in negotiation with a party that is proposing a 1.5 million-s.f. building.

Kevin Gue, Director, Logistics and Distribution Institute, University of Louisville

Kevin Gue, Director, Logistics and Distribution Institute, University of Louisville

While Karem, Dunnigan and Tobergte all emphasize the advantages of the state or their regions for logistics and distribution, there’s also a mathematical model that bolsters their arguments, according to UofL’s Gue.

For the last 20 years or so, the best locations to build warehouses for products that ship throughout the country have been located within about 100 miles of Louisville, according to Terry Harris, a managing partner and one of the founders of Chicago Consulting, a firm that designs and engineers supply chains to facilitate movement of raw materials to a plant and finished product shipment to customers.

According to Chicago Consulting’s model, the best location for a company with a single warehouse to serve the entire country is Vincennes, Ind., which is 115 miles west of Louisville and 60 miles north of Henderson. From Vincennes, the average distance to U.S. customers is 806 miles and average transit time is 2.28 days, Harris said.

Those numbers may seem unimpressive, but under the one-warehouse model, customer distance and shipping time increase in any other U.S. location.

Under the Chicago Consulting model, Harris said, distance and transit time numbers for Louisville are a tiny fraction higher than Vincennes. That Indiana city is 100 miles – in a straight line – from Louisville and 141 miles in driving distance.

Chicago Consulting’s model shows how the use of multiple, strategically located warehouses reduces shipping mileage and “time to market.” In 2015, the optimal sites for a U.S. company using two warehouse to serve the entire country were Ashland, Ky., and Porterville, Calif.

Vincennes is at a rail service intersection, but unlike Louisville it is not on the interstate highway system and does not have a major airport or a river port.

Creating a ‘Mecca of distribution’

Since January 2001, Kentucky has logged 400-plus announcements about companies either locating logistics or distribution facilities in the state or expanding existing operations, according to the New and Expanding Industries Report from the Cabinet for Economic Development. The companies created 23,500 jobs and saved about 550 in jeopardy of elimination, the report said.

Dunnigan is a rapid-fire advocate for the state and its arms-wide-open business climate, of course. But UofL’s Gue, an academic whose livelihood isn’t contingent on how many companies set up – or expand – shop in the Bluegrass, echoes very closely what the acting cabinet director says.

UPS has 23,000 employees in Louisville where operates its Worldport global air freight hub at Louisville International Airport. Worldport shipping services has attracted 170 companies with 13,000 employees to the region.

UPS has 23,000 employees in Louisville where operates its Worldport global air freight hub at Louisville International Airport. Worldport shipping services has attracted 170 companies with 13,000 employees to the region.

“We have a tremendous geographical advantage that makes Louisville almost the distribution center of the United States, and this is perhaps the main reason why UPS located the Worldport here,” said Gue, referring to the United Parcel Service Worldport hub at the Louisville International Airport.

UPS describes the facility, which has the square footage of about 90 football fields, as the largest fully automated package-handling facility in the world. It handles packages from 130 aircraft per day, averaging about 1.6 million parcels every 24 hours. When things are really humming, UPS says Worldport can process 416,000 packages per hour.

The company said Worldport roots go back to 1982, when UPS decided Louisville was the best location for its new “Next Day Air” package-handling hub. With two major expansions since that represent a $1 billion investment and a 5.2 million-s.f. facility, UPS has established itself as a driving force in and around Louisville and the state.

Gue said UPS experts analyzed a long list of factors before selecting Louisville as its package handling hub.

“They chose a location that would minimize the cost of getting things in and out every night for their next day air service in particular,” he said.

That decision, Dunnigan and Gue said, has had a profound impact on the state, putting Kentucky on the national and international map as a major player in logistics and distribution.

“There is absolutely no doubt about its importance,” Dunnigan said. “They bring credibility to the game for us. The impact they’ve had on that industry for us is significant, and well over 250 companies have located here because of UPS,” he said, describing Bullitt County just south of Louisville as a “Mecca of distribution operations.”

UPS, DHL hubs big attractions

“They’ve put us on the global stage as it relates to being a logistics hub and really given us the credibility that we needed to be successful in the industry. It’s not unlike what Toyota did for us (with its Georgetown assembly plant) in the ’80s with the Japanese business community,” Dunnigan said. “We had three Japanese companies here when Toyota made the decision to locate here back in ’85-’86. Now we’ve got over 175 Japanese companies located in Kentucky. UPS has had that same impact.”

It’s logical, Gue said, for companies that want to ship with UPS to locate near its Worldport.

“Around the Worldport some 150 to 200 distribution centers have sprung up … and when you become known for something, you tend to be a point of attraction for that thing,” Gue said.

“Once you develop a base of knowledge and experience among the workforce in a region, it just makes it easier for companies to move in who are new to the space in an industry that knows them already. They’re probably more inclined to find workers who can get busy from day one and not have to learn new skills.”

UPS reports about 170 companies that employ 13,000 workers moved to the Louisville area to be near the Worldport, according to Mazurak.

UPS is the largest private employer in the state with 25,000 employees, including 23,000 in Louisville, GLI’s Karem said.

Although considerably smaller than Worldport, the DHL Express global hub at the Cincinnati/Northern Kentucky Airport is the largest facility in North America for a German air cargo firm that specializes in international shipping.

Since 2009, DHL has invested $281 million at the airport, including a $108 million expansion scheduled for completion next year. DHL has 2,400 employees in Northern Kentucky and is the region’s largest logistics employer.

Like Toyota in Georgetown did with Japanese companies, DHL works with state economic development officials to attract German businesses to Kentucky, where 64 German-owned facilities now employ nearly 10,000 people, according to the cabinet.

Memphis-based shipper FedEx Corp. is expected to open a 300,000-s.f. distribution center in Louisville in May 2016 and in September received approval for state tax incentives for a possible $199 million expansion of its Northern Kentucky hub, which opened in 2005 after a $50 million investment.

The Louisville distribution center on 46 acres at Interstates 64 and 265 reportedly will create 650 to 700 jobs. The Northern Kentucky expansion remains under consideration, but the company’s successful application for economic development incentives stated its existing FedEx Ground Package System hub is nearing capacity with volume expected to keep growing.

Third-party logistics a growing trend

The ongoing surge in e-commerce is one trend expanding the logistics industry, but another is the growth of third-party logistics (3PL) through which manufacturers hire specialty companies to handle their product packing and shipping.

“Most manufacturing companies today are focusing on their own capabilities and outsourcing those tasks that don’t fit their scope/core competency,” said Abe Eshkanazi, CEO of Chicago-based APICS, a professional society for people who handle supply chain management responsibilities. “In the United States, logistics is 8.2 percent of GDP, and we see continued outsourcing of non-key competency tasks from manufacturers and shippers to 3PL’s.”

Central location, a “robust workforce,” attractive tax rates and business incentives, highway infrastructure, access to air freight and the availability of large tracts of land are factors Eshkanazi cites when he lists the advantages of locating in Kentucky.

Paul Verst, president and CEO of Verst Group Logistics, based in Walton, heads a 3PL company that has grown steadily in recent years.

The company handles packaging, warehousing and transportation for a long list of customers that include Procter & Gamble, Kraft Foods and Kroger. The company has six locations in Northern Kentucky, six in Cincinnati, two in Louisville, one in Lexington and is opening another in Frankfort.

“The big change that you’ve seen is that in the past logistics was never a board room topic,” Verst said. “But it is now because they are beginning to see how much money is being invested in it.”

Verst also talked about how e-commerce is “exploding” and creating plenty of opportunities for companies that handle logistics and distribution.

He also offered an observation about the success of retailing behemoth Wal-Mart, which “understood logistics costs better than anyone else.”

“Being cheaper and faster – that’s the name of the game,” Verst said.