One-On-One

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.

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.

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

One on One: Michael Murphy

Mark Green: What areas of construction do your companies engage in? Please describe the entities in Murphy Construction Group, their size and their general operations.

G. Michael Murphy is a fourth-generation contractor/engineer. He is owner and CEO of Scott & Murphy Inc., a Bowling Green excavation, bridge, highway and concrete construction company; co-owner and CEO of Scott, Murphy & Daniel LLC, a Bowling Green building construction company; co-owner and CEO of Hartz Contracting, an Owensboro building and concrete construction company. Murphy Construction Group employs approximately 225. Murphy was 2014-15 chairman of the board for the Kentucky Association of Highway Contractors. He has been board chairman for the Bowling Green Area Chamber of Commerce and the Bowling Green Area Economic Development Authority, and he is a past Outstanding Philanthropist of the Year for Bowling Green.

G. Michael Murphy is a fourth-generation contractor/engineer. He is owner and CEO of Scott & Murphy Inc., a Bowling Green excavation, bridge, highway and concrete construction company; co-owner and CEO of Scott, Murphy & Daniel LLC, a Bowling Green building construction company; co-owner and CEO of Hartz Contracting, an Owensboro building and concrete construction company. Murphy Construction Group employs approximately 225. Murphy was 2014-15 chairman of the board for the Kentucky Association of Highway Contractors. He has been board chairman for the Bowling Green Area Chamber of Commerce and the Bowling Green Area Economic Development Authority, and he is a past Outstanding Philanthropist of the Year for Bowling Green.

G. Michael Murphy: We’ve got three groups. Scott & Murphy self-performs commercial concrete work, bridge and heavy concrete construction, grading and excavation, and industrial concrete construction. Scott, Murphy & Daniel is our building side of the operation, doing design/build, building construction, general contracting and construction management. Since 2012, we also have Hartz Contracting in Owensboro; they do building construction and concrete construction in Owensboro and surrounding counties.

MG: What is the current range of Murphy Construction Group projects from smallest to largest? How many projects do you have in progress? 

MM: In terms of prime projects, we have 50 projects underway. We actually have a lot more than that, because we do a lot of small projects for our regular customers; over 60 percent of our business is existing customer base. And the range is from $100 to $25 million. If we have a customer call us this morning and they need a new doorknob put on the door of their office, within 24 hours we’ll have that doorknob replaced. Sometimes it can be no charge, if it’s a good customer and it’s a minute job that one man can do. We find with those customers that have been our customers for a long, long time, we’ve got to be able to take care of the little things as well as when they have the big opportunities come along.

MG: What is a typical project? What’s your sweet spot?

MM: $5 million is probably an average project for our 100-mile radius. Over the last couple of years our largest projects probably were a $25 million project and a $30 million project, but $5-10 million seems to be our average good project that we like to do.

MG: What were those two large projects?

MM: The latest one is associated with the Quiver Ventures LLC aluminum project here in Bowling Green (a $150 million automotive sheet metal production joint venture by Europe-based Constellium and Japan-based UACJ Corp). We’re working for Fluor Construction, one of the largest contractors in the world, performing the excavation and concrete work for that project. That project is still active; we’ve probably done in excess of $25 million on it.

Then ShopHQ, which is now EVINE, is a local shopping network warehouse. We put a 350,000-s.f. addition onto that existing facility. That project was over $15 million.

A lot of our building construction projects are automotive-related.

MG: Characterize the status and activity level of the construction sector today in comparison to the past five years and historically. Is it at a high point?

MM: We are at a high point. In 2009 everybody took a dip, and we did also. Over the years, we have been very fortunate, mostly because of keeping existing customers. We have done better than average through time. We’ve really not ever had any bad years, but we’ve had some slim years. With our workforce, people who have been with us on average 20 years, we try to maintain their jobs and not have any layoffs; we may overstaff a job to make sure those employees continue to work. That will contribute to a lower-profit year, but in the long run it pays off for us in years like this, where everybody’s at their max and doing their thing and doing a great job.

Before 2009 we were pretty constant around $60 million a year in revenues. We dipped in 2009, just for that one year, to about $50 million, and then we steadily grew back. Then in 2013 a spike started; our revenues grew about 20 to 25 percent, and it did that for another three years. This year, we had already exceeded every previous year’s revenues in August. The projected revenues for this year will probably be about $130 million.

MG: What is the latest forecast for construction activity over the next five years in Kentucky?

MM: We’ve really been watching that, because we’ve stepped up to handle the volumes that we’re dealing with now, and we want to be cautious how we do that. We see it continuing to grow, and that’s based on the automotive industry. State and national elections will have a lot to do with how that continues. Also, we keep hearing about interest rates starting to climb and don’t know what the effects of that are going to be on us and on the automobile industry and everyone in business. We’re cautiously optimistic that it is going to steadily grow.

MG: To what degree is construction service treated today as a commodity bought at the lowest price? 

MM: Price is key in what we call the hard-bid market – any type of government entity procurement like a state highway or state facilities. If you have a bond and you’re the low bidder, you get the job. It’s always been that way.

In private markets, owners and customers value quality, ability, knowledge and performance – along with price, of course. But over the past 20 years, for everybody, price has really tightened; that is a big factor in everyone’s business. In the private sector, there’s a lot more consideration than just low price. In the government sector, if you are financially stable, can furnish a performance and payment bond, and you’re the low bidder, you get the job. It doesn’t really matter what the history of your quality and timing is on a project.

A lot of times it does feel like that’s where maybe we got knocked out of an opportunity. The owner and the low bidder may later wish they had not had that project, but that’s just the nature of that animal.

MG: Basic construction inputs such as wood, stone, steel and craftsmanship remain consistent, but tools and technology are changing dramatically. What new tools are affecting your operations most?

MM: It’s getting harder to find good, skilled help in this industry, so the more you can lean towards technology and automation, you can reduce labor but still do the same amount of revenues. Probably the biggest recent change in our industry is global positioning systems. A lot of our equipment operates off of GPS now: the machine grades a site automatically. That means less field engineering and surveying, reducing labor. The operators do not necessarily have to be as skilled in operating that piece of equipment because of the automation. They use GPS now in all types of equipment: excavating, grading, and now even machines laying the curb and gutter and sidewalks and things like that. It’s really a neat new tool for us.

Other equipment continues to modernize, and become more costly. A backhoe 20 years ago was $25,000; today it’s $65,000. We have nearly 400 vehicles and pieces of heavy equipment. It takes a lot longer to pay for them, but they do more and that’s good.

Another technology that saves time is smart phones and computers. If a field superintendent has a question, he can reach his project manager in a minute. They can send plans over their computer such as critical grade and alignment information. What can take place in a day’s time used to take weeks sometimes.

I’ve seen road materials improve. Concrete is still concrete, asphalt is still asphalt, but there are additives and different types of mixes and materials that go into each of those, and they make them better, longer-lasting, more durable. That’s a very important thing

MG: Do you prefer to own or to lease equipment?

MM: We’ve leased some in the past, but we think buying equipment is the best way to go. If you take care of it, it lasts longer. We try to make sure equipment that we use the most is the newest, so it has the least number of breakdowns. Where we only occasionally use something, as newer equipment gets old we’ll move it down to what we call second-tier use. When we buy something, it’s because we need it long term. If it’s a short-term need, we’ll rent or lease. But if we see growth is there, we go ahead and buy.

MG: How time-, labor- and cost-intensive is the bidding process today?

MM: We have 24 project managers in our various divisions, and I would say that 40 percent of their time is invested in doing takeoffs and bidding projects. We are set up where the person that is going to manage the job estimates the job, and that way he is solely responsible for that entire project. If he’s successful with the bid, he finishes the project all the way to the end.

MG: What are the most significant cost factors for construction companies today?

MM: By far, health insurance for our employees: 12 percent of our overhead is our health insurance, the portion that we pay for our employees. We probably pay more than our competition, but we think that’s a big factor in having employees stay with the company. It has gone up every year for the last 10 to 15 years, in recent years significantly. I can remember back over 20 years ago it was only 4 percent of overhead. The great thing is that fuel’s gone down, so that has really been a help to offset that health insurance cost.

MG: How many employees have you hired the past five years, and are you able to find those with the skills you need?

MM: We have hired a net of about 75 employees. We have folks retire, and 75 would be the number of employees that we’ve hired, and that has been over the last two to three years rather than five years. The skill level today is not quite what it used to be. The difference between the Baby Boom generation and Generation X is that the baby boomers are probably a little more professional in what they do. This generation is probably more productive, but the challenge is finding those people. There aren’t as many people who want to work in construction today as there used to be.

MG: Has the skill set of today’s construction worker changed much from that of his predecessors of 25 or 35 years ago?

MM: Minimally. The more recent generation is more interested in their personal lives and doing other things, as opposed to the old professionals whose life was what they did and who took a lot of pride in what they did. Those people are still out there; it’s just finding them and developing them. This is an age-old problem.

MG: You are a fourth-generation contractor-engineer. What is your background and professional training, and how did you enter the field?

MM: My dad owned a local ready-mixed concrete operation and a small commercial concrete construction company. He passed away before I started college, and so I worked for engineering firms and small contractors while I was going to college. I was able to get a lot of hands-on experience through what I’d learned through the family business and during college. I went to Western Kentucky University and got a bachelor’s degree in civil engineering technology. Since then, I’ve always attended any technical or communication courses that I could. Along with the experience that I’ve achieved over the years, that has been my training.

MG: Continuing education has been an ongoing element in your operation?

MM: Absolutely. There are several of our managers who are members of the Associated Builders and Contractors, and then FMI, Field Management Institute, is another great company that has educational classes that you can go to regularly. So myself and my management staff stay schooled up on things like that.

MG: You have a long professional relationship with Jim “Scotty” Scott, founder of Scotty’s Contracting and Stone. You were an intern, an employee, division manager, co-owner and full owner of the concrete division. What was the impact and influence of “Scotty” on your career?

MM: I met him in college as an inspector for an engineering company. He was just starting his company. He was a very hard worker, very ingenious, very positive-minded – the kind of guy you wanted to be around. As I was coming out of college, he invited me to join his company. He offered all kinds of opportunities while he was growing his company. He was about hard work and perseverance, and that’s what you had to do to work for him because that’s the kind of guy he was. He was really a super mentor in this industry: his constant positive attitude, always looking for the good in everything, in people, building relationships, doing the right thing. He was a great person to watch and learn what you needed to do in this business.

MG: What is the status of the construction sector today?

MM: Looking back over my 40 years, and especially because we’re pulling out of the 2009 slump, it is tougher to start a new construction business today. There’s a lot of liability, a lot of initial costs. Banking has changed so much; it’s not as flexible as it used to be. There’s a plentiful amount of contractors, so it’s not like there is extra work out there for new companies to get in and compete. But they do.

MG: What’s the trend in company numbers and size?

MM: It just seems it’s in rotation. There will be companies that cannot stay in business because of their business practices or bidding procedures, but new ones are always coming in to replace them. There are not as many medium-sized companies. There are larger companies buying smaller companies and forming a bigger entity.

MG: Construction companies conduct large and expensive operations, sometime over a period of a year or two, before delivering a product for which they are compensated. What financial structures and relationships are necessary to be able to conduct business?

MM: We have to front-end the cost of a lot of the construction. And the larger the project, the more dollars you’re talking about. In our companies, we’ve put our profits back into our company. We do not take a lot of money out of our company; we invest in ourselves. And then we have good lines of credit with financial institutions that we have built a long-term relationship with. They’re part of our team; they understand how it operates, and they’re flexible.

MG: So finding a banking partner who understands your business is important?

MM: Very important. You get into situations on the larger projects, and big dollars in the middle do not get collected until the end – and because of retainages; or you’re doing a big volume of monthly work in the pay periods. We may pay for materials long before we get paid.

We try to take advantage of any discounts for early payment. And making sure our work is right and our paperwork is right reduces the time for turning an invoice in and getting paid.

MG: You have been active in regional economic development and work regularly in Tennessee. Are there public policy changes you recommend to make the Kentucky market more competitive in attracting and growing business?

MM: I’ve got to agree with other business folks who are for the “right to work” (legislation) in Kentucky. I don’t think it’s such a big deal for all the controversy around it. But it’s important to new business, and if it’s important to them it should be important to us.

Kentucky has done a good job on incentives for business and industry. In my career, the biggest example was Martha Layne Collins as governor, with Toyota. She was criticized initially, but that has been a wonderful thing for our state. Most governors have done a good job at economic development. Gov. Steve Beshear has done a great job; it’s evident in our building construction industry with all the industrial growth going on right now. The majority of that is expansions. I hope that continues to be a priority.

Features, features, October 2015, One-On-One, One-on-One

One-on-One: Community Trust CEO Jean Hale

Jean Hale is chairman, president and CEO of Community Trust Bancorp Inc. and chairman of the board of the corporation’s two subsidiaries, Community Trust Bank Inc. and Community Trust and Investment Co. During her 45 years with Community Trust Bank, Hale has participated in the growth of the corporation from $18 million in assets to $3.8 billion. In addition to leading Community Trust, Hale has been highly active in economic development and education initiatives. She currently serves as chairman of the Kentucky Economic Development and Finance Authority Board, is a member of the Kentucky Economic Development Partnership Board, serves on the boards of Commonwealth Seed Capital, ARH Foundation and the University of Pikeville, and is co-chair of CEOs Against Cancer. She is also the past chair of the Kentucky Chamber of Commerce and the KCTCS Foundation Board and served as director of the Cincinnati branch of the Federal Reserve Bank of Cleveland for six years.

Jean Hale is chairman, president and CEO of Community Trust Bancorp Inc. and chairman of the board of the corporation’s two subsidiaries, Community Trust Bank Inc. and Community Trust and Investment Co. During her 45 years with Community Trust Bank, Hale has participated in the growth of the corporation from $18 million in assets to $3.8 billion. In addition to leading Community Trust, Hale has been highly active in economic development and education initiatives. She currently serves as chairman of the Kentucky Economic Development and Finance Authority Board, is a member of the Kentucky Economic Development Partnership Board, serves on the boards of Commonwealth Seed Capital, ARH Foundation and the University of Pikeville, and is co-chair of CEOs Against Cancer. She is also the past chair of the Kentucky Chamber of Commerce and the KCTCS Foundation Board and served as director of the Cincinnati branch of the Federal Reserve Bank of Cleveland for six years.

Mark Green: You’ve been with Community Trust Bank for a long tenure, pretty much your entire adult life except for teaching high school one year, and you’ve watched the bank grow from $18 million in assets to $3.7 billion as of the 2014 annual report. It’s Kentucky’s largest domestically based bank. What are the unique strategies that have been involved in Community Trust Bank’s long-running success?

Jean Hale: I became president and CEO of Community Trust Bancorp in July of 1999 and added the position of chairman in 2004. I am also chairman of Community Trust Bank and Community Trust and Investment Co., our two subsidiaries. Prior to that, I served as president and CEO of the bank from 1993 to 1999. I served in other executive leadership positions with the bank and the bank holding company since 1991.

Community Trust currently holds the position of the No. 1 deposit market share for Kentucky-domiciled institutions and is the second-largest by assets. Community Trust implemented its strategic plan for diversification of the company when Kentucky changed its banking laws to allow for multibank holding companies and for branching across county lines. That was about 1985 or 1986. They weren’t changed at the same time. They allowed for multibank holding companies a couple of years before they allowed for branching across county lines.

We have always operated with a two-pronged growth strategy: organic growth for all of our market locations as well as growth by acquisitions. Since 1987, we have acquired 15 banks and 17 branches, expanding our franchise in Kentucky and entering into West Virginia and Tennessee.

One of the factors contributing to our success has been our ability to properly execute our business model of community banking, which provides for decentralized decision-making and centralized risk management. Customers in each of our communities want to do business with their local banker, who has the ability to make the decision. Decentralized decision-making – I use that phrase in most of my investor presentations as one of the bullet points. We talk about the fact that we do have decentralized decision-making and centralized risk management. We recognize our strengths, and focus on the execution and delivery of great products and services to our customers.

MG: That 2014 annual report showed $2.7 billion in loans, an increase of 4.6 percent over 2013. How is your loan portfolio distributed by business sector and geography? Is there a strategy there?

JH: Yes, there is. We currently operate the company with four regions. Each of those regions represents a unique business environment, allowing for diversification in our loan portfolio. As of June 30, 2015, our Eastern region’s loan portfolio was $867 million. That’s followed by our other three regions: our Central region has $627 million, our South-Central region $597 million, and our Northeast region $347 million.

MG: Is there a business-sector targeting?

JH: There’s not a business sector targeting. Our goal is to have 50 percent of our portfolio being commercial-related credits and 50 percent of our portfolio being consumer-rated, consumer-directed: being residential real estate mortgages, automobile lending and direct personal loans. So we look for a balance of 50/50 between our commercial lending and our consumer-related lending.

MG: To what extent is that distribution the result of predetermined goal-setting versus market mechanics?

JH: We have an expectation of growth in each of our markets and regions. However, we do recognize the economic conditions in any region at any given time can vary and impact their growth opportunities.

MG: When and why did Community Trust initiate its separate wealth management subsidiary, and what’s the status of that business?

JH: Over the years with our acquisitions of financial institutions, we acquired several small trust operations. We believe very strongly that our trust and wealth management business provides us the greatest opportunity to grow the fee income for the company. To be successful in doing so, we needed to consolidate the assets and operations of the smaller entities into one and have employees who specialize in those products and services that are provided to trust and wealth management customers. Community Trust and Investment Co. currently has $1.9 billion in assets under management, including the bank’s investment portfolio. As of June 30, they had annualized revenues of $13.1 million.

MG: The Federal Reserve has maintained the federal funds interest rate at very near zero percent for six years now, since the Great Recession and the economic crisis of late 2008. That compares with interest rates that were at or sometimes much higher than 5 percent for most of the last 50 years. How have those very low interest rates affected banking management and profitability?

JH: The Federal Reserve’s decision to maintain the interest rates near zero during the past six years has had a negative impact on the net interest margin of all banks. The net interest margin is the primary driver of profitability for most banks, particularly community banks.

MG: How differently do banks manage themselves, conduct themselves, when the economy is growing versus when it’s in difficulty or even in recession?

JH: That’s a very good question, because how banks conduct themselves, whether it’s during robust or weak economic conditions, depends upon the company’s business model and operational philosophy. A robust economy will provide greater opportunity for bank growth and profitability than weaker economic conditions, which result in limited lending opportunities. Successful banks understand the impact that varying economic conditions can have on their customers and their profitability.

MG: The economy has been out of recession, technically, for six years. Official unemployment is below pre-recession levels, and the stock market, although turbulent, has hit record highs in the past couple of years. The GDP growth rates have been low and rather inconsistent. What’s your general view or the bank’s general view of the condition and health of the U.S. economy?

JH: I believe that the U.S. economy has been improving, but at a very slow pace. We still have not seen a growth in wages, which is a very important part of a strong economy. Also, inflation is still below the Federal Reserve’s desired level. Unfortunately, the jobs that have been added in the recovering economy are not as good as the jobs that were lost during the recession. Our economy is currently a work in process.

MG: Although intended to curb risky practices by large institutions whose failure could damage the whole U.S. economy, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act has been criticized as having placed unnecessary regulatory burdens on smaller banks. From your view, has Dodd-Frank accomplished its stated goals, and what unintended consequences has it generated?

JH: I do not believe that Dodd-Frank has accomplished its intended goal. It has not adequately addressed the too-big-to-fail institutions. Consolidation is occurring in the industry, and with the consolidation comes larger banks, and you’re not seeing de novo banks begin operations. Although Dodd-Frank contains some exemptions for community banks, most of the exemptions have become the unintended consequences as the regulatory burden has flowed down to small community banks. Small community banks cannot afford to hire the compliance expertise required for today’s regulatory environment.

This is not only an impact on the bank but on the customers of all banks. It is particularly challenging in small towns, where most community banks do business and are important drivers of economic activity.

MG: So Dodd-Frank has impacted the typical consolidation that takes place in the industry and distorted that normal process and caused more consolidation to larger banks that may lead to less local decision-making? 

JH: Yes, I think that’s correct. It has driven and will continue – unless there are changes in the regulatory environment – to drive mergers and acquisitions.

MG: When Kentucky bankers talk to banking industry policymakers in Washington, what type of changes are they advising or seeking?

JH: When I speak with industry policymakers in Washington, I’m usually talking about relief from the current regulatory burden placed on community banks. I believe that our representation in Washington is trying to address the issue, but it’s a challenge to change laws and regulations once they’re in place.

MG: Do you have an expectation that any significant change will occur in the near-term?

JH: I think that there is an opportunity not to necessarily repeal Dodd-Frank but to make changes that will make the implementation of Dodd-Frank better for the financial services industry.

MG: When a business or individual entrepreneur comes to Community Trust Bank seeking financing, what characteristics does a borrower have who tends to be successful in obtaining a loan and paying it back?

JH: Community Trust has a comprehensive underwriting process for all commercial loans. We analyze the financial information for the borrower to see if they have the ability to repay. However, we also look at other business factors including collateral, credit history, the business plans and the knowledge of their business, and above all, their character.

MG: Have new requirements for lending that have come on the scene as the result of Dodd-Frank made it harder for businesses to get loans?

JH: It’s not impacted businesses as much as it has the consumer. The consumer has been the most adversely impacted by the regulatory changes coming from Dodd-Frank.

MG: How have they been impacted? Costs, fees?

JH: They’ve been impacted by time delays because of some of the requirements on the disclosure side. They have been impacted by the definition of what is a qualified mortgage and not a qualified mortgage, and financial institutions’ decisions whether to make loans that are not qualified mortgages.

MG: What’s the trend today in the rate of nonperforming loans, especially among commercial customers?

JH: It’s positive. Nonperforming loans have declined for most banks as existing problem loans are resolved and the economy continues to improve.

MG: In the past decade especially, there’s been an ongoing shift towards online and mobile banking, and some banks are closing and selling branches as a result. Has this impacted Community Trust Bank significantly, and are there further technology-driven changes in operations that business and individual customers might be seeing soon?

JH: Community Trust provides competitive products and services in online and mobile banking. The banking industry has seen a decline in transaction volumes at branches, which is why you’re seeing branch closures, sales consolidations and reconfigurations. We continually look at how best to deliver our products and services to our customers. The industry will need to be adaptable to the changing consumer, because the delivery of products and service to millennials is not the same as to baby boomers. We will continue to see changes in operations driven by technology, which I believe will only be tempered by cyber-security risks.

MG: How big of an issue is cyber security? It continues to grow in frequency and in the news.

JH: I think cyber-security risk is a risk faced by not just financial institutions. As we have seen in some of the breaches in the past – it impacts retail businesses, as well as the healthcare industry, as well as the government itself. It is a huge risk, and a lot of resources and time are being spent in ensuring that your systems can withstand an attempted breach.

MG: You also are chair of the Kentucky Economic Development Finance Authority (KEDFA) board, which authorizes the state’s economic development incentives, usually in the form of tax breaks for business investment and job creation in Kentucky. Some people question the need for incentives or criticize them. But what’s the role of economic development incentives in today’s world?

JH: In today’s world, certain economic incentives are needed to be competitive in business recruitment, but a large focus in Kentucky over the past several years has been with the continuation and support of existing businesses already operating within the state as well as new businesses. I’m talking about entrepreneurs and small business. There are several tax programs that have been put in place to support small businesses – those that make the improvement of one employee and a small addition to their fixed assets, as well as for entrepreneurs. There are angel tax credit programs. There are business pitch competitions where the state is pulling out the entrepreneur and putting them in a position to find investors. The entrepreneurial effort is really strong in Kentucky right now.

MG: How does Kentucky’s portfolio of economic development incentives compare to those of neighboring peer states?

JH: I would say competitively. I do not have, of course, the exact information available to me at this time regarding what other states are doing. I will point out, of course, there was news this week from Florida’s governor being in Kentucky and being successful in recruiting one of Kentucky’s businesses. So I think it’s important for Kentucky to be competitive in its incentive programs with other states.

MG: In addition to being chair of the KEDFA board, you’re a member of the Kentucky Economic Development Partnership board that oversees the Cabinet for Economic Development, and you serve on the board of Commonwealth Seed Capital. Does the Kentucky business community have sufficient options to finance its operations and fulfill growth potential?

JH: I believe that it does. The different programs offered through KEDFA, combined with those that are offered by other entities – Commonwealth Seed Capital is exactly what it says: It’s investing in businesses that are in the early stages of development. And then you have the tax incentives for small business. So I think Kentucky has a good menu of support for the business.

MG: Beyond some of the public structures, does Kentucky business have access to as much money as it wants to?

JH: I think that’s a very good question. Community Trust Bank has been named by the Small Business Administration to be the No. 1 community bank lender in Kentucky for the past six years. Community Trust is also a USDA-guaranteed lender. A lot of people think that USDA-guaranteed lending is just for farming, but it’s not. It involves different types of businesses that are located in rural-designated markets.

You also have a lot occurring at this time with private equity investors within the state. A good example of that is the public-private partnership that Kentucky has underway now with KentuckyWired, associated with SOAR (the Shaping Our Appalachian Region initiative). You have a lot of philanthropic opportunities for funding as well, depending on what the project would be. There’s a lot of support philanthropically within the state now.

MG: Give us your perspective on SOAR and how they’re doing with that effort. With what kind of a time frame should people view its various undertakings?

JH: I think SOAR is the greatest opportunity that 54 of Kentucky’s 120 counties have had to make a change economically for the future. The unprecedented bipartisan participation of (Democratic) Gov. Steve Beshear and (Republican) Congressman Harold Rogers supporting the SOAR initiative has created significant changes, I believe, at the grassroots level. You’re seeing more cooperation between counties and cities. You’re seeing individuals cooperating with each other and taking a personal interest in the changes that are taking place as a result of the SOAR initiative.

It’s very inspiring. I’m personally involved in it, and I feel it’s very inspiring to see this level of interest and this level of cooperation. I made the comment the other day to someone, in talking about SOAR, that while Kentucky’s motto right now is “United We Stand, Divided We Fall,” I believe the motto should be “United We Succeed, Divided We Fail.” I think that is reflective of what’s occurring within the SOAR initiative.

This is a long-term initiative. It is not something that will be instantaneous or just a few years. When you’re talking about changing the entire economy, you’re talking about all aspects of the economy. You’re talking about not only the creation of jobs and entrepreneurship; you’re talking about healthcare, education, tourism. You’re talking about a dramatic overall change in everything that impacts business and the quality of life for individuals living in the SOAR region.

MG: Do you have a closing comment, or are there other topics we haven’t touched on that you’d like to address?

JH: The one subject that I especially want to touch on, we have, which is the SOAR initiative. I just believe so strongly in what SOAR is doing, because when you’re talking about representing 54 counties out of Kentucky’s 120 counties, what happens in the SOAR region is not just important to the region; it’s important to the state of Kentucky.

Features, Features, One on One, One-On-One, September 2015

One-on-One: EKU president Michael Benson

Dr. Michael T. Benson is the 12th president of Eastern Kentucky University, a position he assumed in August 2013.  Prior to coming to EKU, Benson was president of Southern Utah University, where he directed the development and implementation a $100 million comprehensive campaign. Born in Salt Lake City and raised in Texas, Benson earned his bachelor’s degree from Brigham Young University with a major in political science and a double minor in English and history. He received his master’s degree in nonprofit administration from the University of Notre Dame and completed his doctorate in modern Middle Eastern history from the University of Oxford (St. Antony’s College). He is a regular contributor to the Huffington Post as a featured blogger on higher-education issues and his book, “Harry S. Truman and the Founding of Israel” has been hailed as a landmark work in the area of American foreign policy and the U.S. presidency.

Dr. Michael T. Benson is the 12th president of Eastern Kentucky University, a position he assumed in August 2013. Prior to coming to EKU, Benson was president of Southern Utah University, where he directed the development and implementation a $100 million comprehensive campaign. Born in Salt Lake City and raised in Texas, Benson earned his bachelor’s degree from Brigham Young University with a major in political science and a double minor in English and history. He received his master’s degree in nonprofit administration from the University of Notre Dame and completed his doctorate in modern Middle Eastern history from the University of Oxford (St. Antony’s College). He is a regular contributor to the Huffington Post as a featured blogger on higher-education issues and his book, “Harry S. Truman and the Founding of Israel” has been hailed as a landmark work in the area of American foreign policy and the U.S. presidency.

Mark Green: EKU’s enrollment in 2010 was 16,567, which is close to present numbers. Your strategic plan elements include recruiting more students and enhancing their success. Is there a student body growth goal, and how does that fit into the overall strategy?

Michael Benson: I’ve been president of three institutions, and every school grapples with this question: What is our ultimate sweet spot? You don’t just chase growth for growth’s sake. It’s one thing to get students through the door and quite another thing to retain and graduate them, our ultimate goal. We need to make sure we have the infrastructure in place, whether it’s housing, food service options, the degree programs and the proper faculty-to-student ratio. EKU is not a Tier 1 research institution, so the faculty come here primarily to teach. We really believe in our small class size. We use a very high proportion of full-time faculty to teach – teaching within a setting that is very manageable.

MG: How does a regional comprehensive university like EKU fit into the state’s workforce development strategy?

MB: We try to be finely and highly attuned to the state’s needs. We for a long time have produced a great percentage of the teachers through our teacher education program. Among 108 degree programs, our most highly sought-after are our occupational therapy and nursing programs. We just started offering another doctorate; we now have four clinical doctoral programs. We now have a Psy.D., which is a psychology doctorate for a clinical practitioner. We have programs that the workforce demands.

I just came back from Ashland where we signed another Two Plus Two agreement for our aviation program. A student can go to the local community college, technical college, and get those two years of general coursework done, and then we bring our aviation program to them. That has proven to be hugely popular and very sought after.

MG: Does EKU have satellite campuses? How much of the overall class catalog do those students have access to? 

MB: We have two very handsome stand-alone structures in Corbin and Manchester for which the state legislature appropriated building funds. We then have operations in different leased spaces in Somerset, Danville and Lancaster. While we try to be as broad as we can in our offerings, access to everything is certainly not possible on a scale where you may not have the student demand.

A high-school student can come to one of our satellite locations and take a dual-credit class during his or her junior or senior year. We try to be attuned to what the needs are and address them.

MG: EKU has about 3,000 online students. What is EKU’s approach to online or “distance” learning?

MB: They can be anywhere. We have people from overseas. That’s the beauty of online: You can be literally around the globe and still dial in and get into the courses that you want to take. Some programs we’ve put wholly online and some are hybrids, a combination of face-to-face and online. A number of our 2,400 graduate students – that’s a high number – are through our online programs. Sometimes I’ll meet a student at graduation and they’ll tell me, “This is my first time on campus.”

Our bread and butter is the face-to-face, undergraduate teaching with a full-time professor in a small classroom. We try to be responsive, and online is a very popular, very sought-after mode of delivery these days.

MG: Describe EKU’s role in the Shaping Our Appalachian Region (SOAR) initiative to diversify the economy and increase economic opportunity, especially via homegrown entrepreneurship regionally.

MB: Two of our satellite campuses are hubs for what SOAR is trying to do as well as pushing broadband access out to Eastern Kentucky. We’ve offered several students and faculty to help support the work of the various committees that have spun out of SOAR. I’ve been part of the conversation from day one. I was invited by the governor to be on the larger panel discussion that we had. The first one was in Hazard. Then we went out to Pikeville for the statewide one. Our service region flows directly into the SOAR area. We’re very keen on helping as best we can on issues like this but also helping residents of the area get access to educational opportunities.

MG: EKU’s board of trustees approved demolition of Dupree, Martin and Todd residence halls, which have nearly 1,100 total beds, and the 700/800 blocks of Brockton Family Housing, with new residence halls to be built. Do 50-plus-year-old residence halls no longer well serve today’s student? 

MB: Fifty years ago, to accommodate the huge influx of students, campuses were forced to make decisions based on limited property, limited space. The trend was to go vertically and to build high-rises; you’ll find them at UK, at Western Kentucky University, here, at Morehead State. You have dorm rooms off a long corridor with showers and bathrooms at the end of the hallway. That’s not what students like anymore, so we’ve got to be responsive. What we’re seeing more is lower-slung buildings with more communal space, maybe a shared kitchen and on each floor a place students can congregate. They call them “living and learning communities” because you can learn as much from your classmates and in the social interaction and the skills one develops in interfacing with people who are different as one can learn in the classroom. We are trying to remake and recalibrate our housing offerings and be responsive to what students want today.

MG: Many public universities in the state are undertaking campus housing projects without tax dollars via public-private partnerships. How is EKU planning to finance its campus housing? 

MB: We were approved during the legislative session for $75 million worth of public-private partnerships. Our plan is to do three $25 million pods of housing that will replace these 50-year-old residence halls. Our first new residence hall in 40 years opened last year – and it’s the only LEED Gold-certified residence hall in Kentucky. The demand for that hall is off the charts because students like that it only has three or four stories. It has a big common kitchen on each floor; there are more spaces to get together and congregate and interact. That’s the model we’re after.

We begin construction on the first one, to replace Martin Hall, in January. The schedule has this going through 2018, 2019. So this is a good four- to five-year process where we will build, take down, build, take down, and try to stagger it as best we can to make it as little of an inconvenience for students as possible.

MG: A larger plan for a $215 million Center for Student Life includes a new rec center, renovated student union, new dining facilities and residence halls and other improvements. Financing would come from public-private partnerships, private support, university funds and a recently enacted student fee. Is this on track?

MB: It is. The student fee that kicked in this year addresses two projects. One is a new rec center, because our current rec center is nice but way too small. And number two is a renovated Powell Building, which was built in the ’60s and has not had a lot done to it since then. The students supported that fee. We hope to get approvals from the legislature in January to begin construction on the first phases in early summer of next year. The $215 million includes all the things you mentioned. It includes a new dining facility; we intend to leverage our relationships with our food vendor like what they did at UK with Aramark. Private donors have stepped forward to help fund, for example, the new pedestrian gate at the intersection of Lancaster Avenue and Barnes Mill Road. A private donation helped with our renovation of Roy Kidd Stadium, which we’re undertaking now.

Again, this is a four- to five-year process. When it’s all done you’ll see a reinvigoration of the center of our campus and a building boom that hasn’t been seen since when Robert R. Martin was president for 16 years, and our square footage went up almost fivefold. It’s time to replace some of that infrastructure that’s 50 and 60 years old. Students today are very sophisticated; they know what they want.

MG: The EKU budget approved by the board of trustees for 2015-16 is $348 million, up about 2 percent from the 2014-15 budget of $342 million. Please give us some perspective. 

MB: For a school our size, it’s probably close to the mean. We’ve had to be creative. Before I got here, the board and the administrative team took parts of our budget and reallocated them. That allowed us to do some things with regard to salary increases and positions and really acute-need areas. We’re trying our best to be good stewards of what the state gives us. I tell our folks all the time, you are supported by the taxpayers of the state of Kentucky, and you have an obligation to them to do your best work. We take that stewardship very seriously.

The unfortunate thing in higher education is, states all over are having increased demands and encumbrances on their budgets as it relates to Medicare, Medicaid, social services, health services, and roads and prisons. We’ve had to rely less on state support and instead put it in the form of a consumption tax on our students. Tuition is a targeted tax. You target a consumer, that’s true, but everyone knows that we benefit as a state from an educated populace. The more our citizenry has postsecondary credentials, whether that’s a certificate or a degree or so forth, the less reliant those people are on services that the state renders. They’re less inclined to go to prison. They’re less inclined to get in trouble. They’re more inclined to have better health, to volunteer. There are all these collateral benefits. What we’ve chosen to do, however, is tax that group of people that choose to go to college. Tuition has gone up in recent years because state support has dwindled. We all benefit from an educated populace, and if we want the state to be on a sound financial footing, now and in the future, we’re going to invest in the greatest asset we have, which is human capital.

MG: What are the university’s overall budget revenue sources? What are the major spending categories in the budget? 

MB: About 85 percent of our budget is tied to personnel, so it’s salaries and benefits. About 35 percent of our budget comes from the state; 65 percent comes from tuition and other sources. So we’re very reliant on that consumption tax I talked about. But we’re in the business of people, and we have full-time faculty and staff that need to be compensated at a level commensurate with their abilities and their experience. It’s an ongoing challenge to make sure we have the resources to pay our folks.

MG: What is the role of today’s university president in fundraising?

MB: I’ve been doing fundraising since I started in higher ed; that was my first job. I really quite like it. Some people don’t. Fundraising is sales, and if you’re selling a commodity that you believe in, there’s nothing that’s more gratifying than being able to pair a need with the desire of a donor. When those two intersect, it’s incredibly satisfying and very, very rewarding. I love education; education is the portal to a better life, and to be able to sell that, and to paint a vision of what education means to a young person who may not have access to it except for a scholarship, for example, is terribly exciting. It’s one of my favorite parts of my job to sit down with a donor and say, “All right, Donor X, this is our need. We know that you have the wherewithal to support this. Do you believe in what we’re doing, and will you help us?” The most compelling stories with donors come from students. The story of someone who came from a disadvantaged background, who was maybe the first one in his or her family to go to college, and changed forever the trajectory of his life or her life and those to follow. If you’re not inspired by that, then you’re in the wrong profession. That’s what I love about it. I really do.

MG: You have academic administrative experience in multiple states. How do you assess and rate Kentucky state government’s handling of its public university system?

MB: Well, first off, there are eight of us (university presidents) at the public level. We include KCTCS. We’re in the higher education business. The greatest investment a state can make is in its human capital, investing in people’s skills and developing their aptitude and increasing their knowledge. That’s just the most important thing any state economy can focus on. Would I have liked to have seen more support in the last session? Absolutely, in terms of our ongoing budget. But I’ve never, in my two decades plus, seen a legislature say, “We’re going to make a $540 million investment in capital projects across the system.” That’s just unheard of. Our good fortune was a $66.5 million Phase 2 of a science building. And everybody got their top project. That bodes very well; I think that speaks to the support that higher ed has in the General Assembly. We’ve certainly felt that from the governor’s office. We’ve felt it from our local officials. An investment in education is going to make us less reliant on all those other things that the state has to fund – the prison system, or health and human services, or any of those other things. We’re the only thing that is a panacea to all those ills. Nobody else can say that. And that’s why I love doing what I’m doing.

MG: What actions do you encourage the private sector to take to support educational attainment in the state?

MB: If the private sector is interested in hiring the very best workforce, invest in that workforce in the form of both K-12 education and particularly public higher education. Kentucky has a breadth of institutions that I have never seen before. Berea College here in Madison County is one of the most remarkable institutions in America. And Centre, Transylvania, and Morehead State and UK. Somebody told me that within a 60-mile radius we have 16 public and private institutions. That’s just remarkable. It has an impact on every community and the workforce. The private sector recognizes that if they want to hire the very, very best people, they can support educational attainment in the form of scholarships and private support and encouraging their employees with tuition programs. That’s one of the best investments the private sector can make.

MG: Do you have any closing comments, or is there an area we haven’t discussed that you’d like to address?

MB: I’m in the process of writing a book right now that we’re hoping to get out next year on kind of the democratic underpinnings of our democratic republic, and this tie to educational attainment and commitment that started all the way from George Washington – who, by the way, did not graduate college, but he was in support of a national university – all the way through Harry Truman, who was the only president in the last century, and my hero, who didn’t graduate from college but was a huge supporter of the G.I. Bill and access for all American citizens. If I can use the bully pulpit as president of a public university in a place like Kentucky, along with my colleagues, and say, “The best investment we can make as a state is in public higher education,” then at the end of the day I’ll be happy with what we’ve been able to accomplish.

August 2015, Features, Features, One-On-One, One-on-One

One-on-One: Jeff Garrett, top U.S. numismatic-elect

Jeff Garrett is considered one of the nation’s top experts in U.S. coinage. In addition to owning and operating Mid-American Rare Coin Galleries in Lexington, Garrett is a major shareholder in Sarasota Rare Coin Galleries in Florida, and his combined annual sales in rare coins and precious metals total more than $10 million. Garrett has authored many of today’s most popular numismatic books, including “Encyclopedia of U.S. Gold Coins 1795–1933: Circulating, Proof, Commemorative, and Pattern Issues” and “United States Coinage: A Study By Type.” He is also the price editor for “The Official Redbook: A Guide Book of United States Coins.” Garrett is currently vice president of the American Numismatic Association, serves as a consultant to Numismatic Guaranty Corp., the world’s largest coin grading company, and plays an important role at the Smithsonian Institution’s National Numismatic Department, serving as consultant to the museum on funding, exhibits, conservation and research.

Jeff Garrett is considered one of the nation’s top experts in U.S. coinage. In addition to owning and operating Mid-American Rare Coin Galleries in Lexington, Garrett is a major shareholder in Sarasota Rare Coin Galleries in Florida, and his combined annual sales in rare coins and precious metals total more than $10 million. Garrett has authored many of today’s most popular numismatic books, including “Encyclopedia of U.S. Gold Coins 1795–1933: Circulating, Proof, Commemorative, and Pattern Issues” and “United States Coinage: A Study By Type.” He is also the price editor for “The Official Redbook: A Guide Book of United States Coins.” Garrett is currently vice president of the American Numismatic Association, serves as a consultant to Numismatic Guaranty Corp., the world’s largest coin grading company, and plays an important role at the Smithsonian Institution’s National Numismatic Department, serving as consultant to the museum on funding, exhibits, conservation and research.

Ed Lane: You have had a numismatic career for more than 35 years and have been called “the expert’s expert.” You are the author of several books on American coins and were recently elected president of the American Numismatic Association (ANA). How did you initially get involved in buying, selling and collecting coins?

Jeff Garrett: When I was 10 or 12, a family friend gave me a Lincoln-head penny album to collect change. The goal was to fill all the slots in a Whitman album, which are still made. I started finding those coins in circulation and filling the album. What was a hobby as a boy became an obsession. I was hooked.

I grew up in the Tampa, Fla., area, and back in the ’70s there were six or seven coin clubs. I was lucky that some mentors saw my interest, and they would pick me up and take me to the coin club meetings. Today I’m a big believer in mentorship for young people, because when I was young, mentorships really helped me get started.

EL: What are some of the key factors that continue to attract you to coins and precious metals?

JG: The thing I like about rare coins is that every day can be a new discovery. I usually can’t wait to go to work in the morning, because the next phone call could be a coin someone discovered or something I’ve never heard of before. I tell people every day is like “Antiques Roadshow” for me because people call me and ask for advice. I really try to help people when something new is discovered, to help them research and figure out what it is. That’s why I get a lot of phone calls like that.

EL: How do you generally promote your business?

JG: I attribute most of my business to networking. I’ve been in the business for 30-plus years as a serious professional, and I advertise in trade journals, but most of my business is networking with people. I’ve got clients and other coin dealers whom I’ve been working with for 35 years.

EL: Sounds like reputation is very important.

JG: Yes. I take my reputation extremely seriously because a lot of times when I tell somebody what something’s worth, there’s a level of trust they have to have. People know I want to make a fair profit, and that’s OK as long as they think I’m being honest with them. The coin business is a very close-knit community. Everyone knows everyone. If you do something considered unsavory, word gets around very fast. Reputation is hard to gain but easy to lose, so you have to be really careful about that.

EL: How long have you operated Mid-American Rare Coin Galleries?

JG: I’ve been in Lexington since 1984.

This rare nickel, which sold at auction for $3.1 million, is considered one of the top coins in the U.S.

This rare nickel, which sold at auction for $3.1 million, is considered one of the top coins in the U.S.

EL: Would you be able to give me some idea of how big the business is?

JG: The coin business in general is a multibillion-dollar industry. Our business here and my coin shop in Sarasota, Fla., together sell over $10 million worth of rare coins annually.

EL: When you buy a rare coin at one price and sell it at another, what’s a range of profit margin? You were saying people know what is fair and equitable.

JG: Margins vary because a lot of coins are wholesale. When I buy a coin wholesale, there isn’t a fixed buy-sell margin. Sometimes I lose money on coins; sometimes I make money on coins. At the end of the year, it’s a pretty tight margin, but it varies. Some coins I lose 20 percent on; some I make 50 percent. Rare coins are not like stocks and bonds. They’re like pieces of art. If I show you a piece of art, it’s only worth what the next guy will pay for it. Rare coins are not a commodity by any means. Their value is an educated guess.

Six months later, previously valuable coins may be out of fashion. There are a lot of parallels between rare coins and the art market. The same coin can look different based on the toning and luster of the metal, and how people interpret that varies. So the buying and selling of rare coins is in itself an art, because there are a lot of subtleties to it.

EL: Recently there have been a number of political and economic events that have negatively influenced the global financial markets – Russia in Crimea, ISIS in the Middle East, Greece and its EU debt, decline in the Chinese stock markets, financial defaults by Puerto Rico, and the growing deficits of the U.S. government. How have precious metals and coins been affected by investors’ concerns?

JG: I’m not an economist, so I’ll just give my opinion based on observation. What I see going on right now is that the world is a mess, but the United States is viewed as the least messy so people are considering the dollar now to be a safe haven where in the past they had considered gold to be a safe haven. That’s why gold values have not gone up a lot, in spite of all the uncertainties you mentioned.

All governments have made promises that can’t be kept. That’s why people who invest in gold as insurance do it, because they don’t think the United States is that much better off than other countries. Currently, people see the dollar as the nicest house in a bad neighborhood.

The price of gold has gone up in terms of the euro, probably like 20 or 30 percent in recent months. Because the dollar now is much stronger than the euro, people are fleeing to the safety of the dollar. Like I said, I’m not an economist, but that’s my observation.

EL: How are the values of precious metals and coins determined and to whom can an investor sell precious metal investments?

JG: Rare coins and precious metals have two completely different pricing mechanisms; rare coins can go up at the same time bullion is going down. Rare coins are based on supply and demand. The supply factor depends on how many collectors are collecting something. The demand factor can change if a really fantastic coin collection comes to market.

Right now, the Pogue collection is being sold by a company called Stack’s Bowers Gallery in California. They just had the first installment sale of $25 million, but when it’s all said and done the total sale will be over $200 million. Supply factors change depending on whose big collection gets offered into the market. That can sometimes stimulate demand because some of these coins have been off the market for two generations. There are a couple of (Pogue) coins that they may be selling that haven’t been sold in 30 years.

Bullion prices, on the other hand, go up and down on the international markets, usually because of a headline event like a banking crisis.

EL: Do you sell bullion? 

JG: I do not sell bullion in Lexington. I refer customers to my coin shop in Sarasota. Bullion sales are more attractive there because in Florida there’s no sales tax on bullion, and in Kentucky there is.

EL: Would you recommend that an investor choose coins over bullion, because not only do they have the value of the weight of the coin but the numismatic value may go up?

JG: I tell people not to buy rare coins as an investment. You shouldn’t invest in something unless you are an experienced investor. If you want to invest in rare coins, start as a collector on a smaller scale and work your way up. It’s like me buying horses: I’ve done it a couple of times, and it usually doesn’t work out because I don’t know anything about the equine industry.

I’ve never had a collector who at the end of the day, when they decide to sell their coins, says it wasn’t a good investment. But I don’t recommend that a novice invest $100,000 in rare coins because it’s a nuanced field. You need to learn about it before you jump in with both feet.

Now, I don’t consider bullion to be an investment either. I consider it to be more like insurance. Most people who buy bullion don’t do it because they think it’s a great investment; they mostly buy it because they want insurance in case our country or the world economy has a financial collapse.

EL: Is bullion a protection against hyperinflation?

JG: Yes, hyperinflation or any kind of banking crisis – look at Greece, some people can’t get their money out of the bank. If they had bullion, they would have real money. That’s a really clear illustration of why bullion can be attractive. It’s more like insurance against losing control of all of your money.

EL: And that’s more straightforward, because gold has a daily quoted market price.

JG: Bullion, unlike coins, is a strict commodity and you can expect very close margins. Generally, on bullion, you’re talking about 3 to 5 percent between buy and sell. The biggest thing about bullion is you need to deal with somebody you know and trust, because bullion transactions are often larger sums of money. So it’s important to make sure you’re dealing with a well-established firm that’s been around for a long time. You can find people on the Internet easily who will sell you bullion, but you don’t know who they are.

EL: If you were buying bullion, what’s a good procedure?

JG: If you go into a coin shop like my store in Florida, you can go in, pay for it and walk out with it. If you want to do it by mail, you have to send a certified check, and then they can send it to you.

Most bullion houses – that’s what I would recommend, if you’ve known (them) for a long time; because if you have to send money in advance and then they send the bullion to you, you’re at risk. That’s why it’s important to deal with a well-established firm.

EL: Who pays the fees or commissions to buy and sell precious metals?

JG: Generally, bullion has a buy-sell spread. If you wanted to buy a one-ounce gold coin, for instance, you would probably have to pay about 5 percent over the bullion price. Then when you go to sell it, you’d probably get about 2 percent over the bullion price. So there’s about a 3 percent buy-sell spread if you were to do that in quantity, as a general rule.

EL: What is the minimum investment in precious metals you recommend to a client? Percentage of all investments?

JG: That’s one thing that’s beautiful about bullion or even rare coins; it’s a very democratic sort of investment. I’ve known people to go into coin shops and spend $100 a month on a rare coin or a piece of bullion, and they save them for years – or I’ve known people to spend $1 million at one time. You can do any increment, any level, that you like.

EL: What are the best storage options for precious metals?

JG: Put everything in safety deposit boxes. I wouldn’t leave anything at home. There are companies that advertise that they’ll hold your bullion for you, but I highly recommend against that because that defeats the purpose: If there’s a crisis, you might not be able to retrieve that bullion.

EL: Can precious metals be insured against loss from casualty or burglary?

JG: The American Numismatic Association, of which I’m about to become president, offers insurance benefits. Insurance for objects in a safety deposit box is pretty inexpensive because it’s such a safe place to put it.

EL: In a worst-case economic downturn, how will a person with precious metal investments be able to use them to conduct business transactions?

JG: There’s always been a market. Gold and silver have about a 2,500-year history of liquidity. In World War II, American pilots were given a little kit that had a gold ring and some gold coins in it, so if they got shot down behind enemy lines, they could use precious metal to get around in a foreign country. It illustrates that gold and silver have a 2,500-year history of liquidity.

EL: What are some bad experiences you have had in the precious metals business?

JG: One thing people have to be careful about these days is that the Chinese make a lot of counterfeit gold-plated bullion coins. If you go on the Internet and see bullion that seems like it’s too good to be true, it probably is. That’s why you’ve really got to make sure you buy from somebody reputable.

Several times I’ve had transactions where it ended up being scams. Any time there’s a lot of money involved, there’s the risk of someone making you a target.

EL: International organizations rate the quality of coins based on “wear and tear.” How can a buyer be assured the quality is as represented?

JG: It’s called third-party grading. There are two companies in particular – one in California and one in Florida – and for a fee they will certify the authenticity and condition of your coin. Condition is very important in coins; it’s just as important as it is in diamonds. Quality is a really big thing: The coin that’s nice, and the coin that’s really nice and the coin that’s unbelievably nice all trade for different values.

Prior to the 1980s, you had to take the word of the person selling it to you or be highly knowledgeable about coins. Now there are companies doing third-party certification. The coins are sealed for protection, with the grade on the coin and exactly what it is and describing it, which has added a liquidity factor. There are businesses that are so good at what they do that people trust it to a level that you can actually call up and sell one of these coins on the telephone without anyone looking at them. Grading has been a gigantic advance in the coin business.

EL: Since I am not an expert in this area, what questions should I have asked you?

JG: There are a lot of advantages in coin collecting, but one that people don’t often think about is that it teaches history. Almost everything that happens in coins has some sort of historical event tied to it. Like when they stopped making gold coins and recalled gold from citizens, it was during the Depression. It also teaches people about art – the coins are very beautiful – and money management.

When you buy coins, you kind of buy them one at a time, you can accumulate them, and it’s a good way for kids to understand value. If you were to buy a video game, a year later that video game is probably worthless. If you buy a rare coin, and you accumulate them, over time you can accumulate some wealth.

EL: Do you have a closing comment?

JG: The highlight of my numismatic career was an interesting event that made news a couple of years ago. I bought a nickel for a client at auction for $3.1 million. It’s considered one of the top 10 coins in the United States. I call it my Mount Everest coin, like the peak of my career. n

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

One-on-One: Connie Harvey, COO of Commercial Healthcare Business Group, Xerox Services

Connie-Harvey

Connie Harvey is chief operating officer of the commercial healthcare business group for Xerox Services, which encompasses service offerings for the healthcare industry. In her position, Harvey has focused on various initiatives to improve operational performances to better serve Xerox customers and diversify the service offerings. Prior to joining Xerox, Harvey was an early adopter of utilizing offshore operations and spent 18 years in consulting and operations management in the Caribbean. She joined Xerox in 2001 when the company acquired National Processing Co. Harvey is involved in various organizations, including serving on the board of directors for the Kentucky Chamber of Commerce and Commerce Lexington. She also serves as the corporate champion for the Hispanic Association for Professional Advancement at Xerox. Harvey holds a bachelor of science in industrial engineering degree from Iowa State University.

Ed Lane: In 2010, Xerox acquired Affiliated Computer Services (ACS), a Dallas, Texas-headquartered company with significant business operations in Kentucky. ACS, a business process management company, was achieving sales of $6.2 billion in 2009 and had 74,000 employees prior to its acquisition by Xerox. You have been employed with Xerox since 2001, and in 2014 you were selected as the chief operating officer of the Commercial Healthcare Business Group for Xerox Services. In 2012 you were made a vice president of Xerox Corp. How large is Xerox’s Commercial Business Process Outsourcing today in terms of annual sales and number of employees? 

Connie Harvey: Almost two years ago, Xerox reorganized its business process outsourcing into vertical segments. Commercial BPO has been broken down into specific industries. I now manage the commercial healthcare segment and serve as chief operating officer and industry business leader for commercial healthcare. The commercial healthcare segment generates about $1 billion in revenue and employs approximately 25,000 employees.

EL: What are the other major customer categories that are included in Xerox’s vertical segments?

CH: Our other services business
segments include financial services; government; high-tech and communications; retail and consumer services; and transportation.

EL: In the area of transportation, what back office services would Xerox provide?

CH: Most of Xerox’s transportation segment serves the public sector. For example, Xerox operates the back offices for New Jersey E-ZPass (toll collection). Other services include parking services, toll roads and toll bridges.

EL: How would you describe the scope of services provided by Xerox to the public and private sector?

CH: Services are always changing to meet our clients’ needs. Xerox really talks about itself in two areas. One is Xerox technology, which is the legacy equipment business, and the other is Xerox services. Xerox services is a combination of what used to be ACS as well as the managed print service business and some other services that Xerox brought to the table as well. That combined business is roughly $13 billion in services. And more than 60 percent of Xerox’s annual revenue ($19.54 billion in 2014) is now generated by services.

EL: Approximately how many workers does Xerox employ in Kentucky, and how many total employees do you manage corporation-wide?

CH: In the state of Kentucky, Xerox has roughly 4,500 employees; 3,000 of those are in Lexington. And those employees support commercial healthcare. A big part of Lexington-based employees do work inside of my division. We also have employees who support government business, including KYNECT, as well as telecommunications and technology clients. This segment includes telecom customers, electronics, technology and the financial services industry. Xerox services also provides services to several large non-healthcare insurance companies. Probably the majority of our Kentucky employees are within those four groups.

EL: How would you demographically profile the typical employees who deliver the outsourcing services Xerox provides and interface with your clients’ customers?

CH: Most of our employees are full-time. In terms of age, eight or nine years ago the average age of employees in our call centers was probably 23 to 27 or so. That changed a lot in 2008 when a lot of people found themselves unemployed later in life, and Xerox was able to hire some really fantastic employees who had more business experience and were a little more mature. Our average employee’s age now is more like 30 to 35. All our call center employees are high school graduates. Most have some college. When you get into the management ranks, most have college degrees.

EL: Lexington is ranked nationally has having one of the best-educated workforces in America. Is that a major plus factor for having Xerox operations in Central Kentucky?

CH: Yes. Xerox needs people who are well-educated, who are articulate, and who are friendly. And Lexington, and Kentucky in general, has provided a great workforce for Xerox.

The quality of employees Xerox has recruited in Lexington is good – we’ve always been happy with them, but more importantly, our clients have always been happy with them. Again, a lot of our employees are being pulled from surrounding communities, too, so it’s a combination of Fayette and the surrounding counties. In addition to those educated at UK, Transylvania, EKU, Georgetown and other local area universities, the quality of the employees that Xerox has gotten from BCTC also has been phenomenal. BCTC provides an affordable education for those who aren’t attending one of the local universities, so there’s still an opportunity for a person to continue past
high school.

EL: Lexington’s current unemployment rate is 4.0 percent. Has a low unemployment rate been a factor in recruiting new employees at Xerox?

CH: For the most part, Xerox is able to fill the jobs it needs. Because a lot of what Xerox does in Lexington includes supporting healthcare open enrollments, which have big peaks of activity in the fall, staffing needs can sometimes be a challenge. But overall, Xerox has been very happy with the quality of employees it’s been able to recruit in Lexington.

EL: Louisville’s Metro Council has passed an ordinance, currently being contested in appeals court, increasing the minimum wage in the Louisville Metro to $9. Lexington’s Urban County Council has a pending ordinance in committee that raises the minimum wage to $10.10 per hour plus an annual CPI adjustment. How will these types of ordinances – enacted by local government – affect Xerox’s future operations in Kentucky if they are ultimately upheld as legal by the court?

CH: Most of our employees, when they get out of training, are above any minimum wage increase that’s currently being discussed. I think a city, a state or local entity needs to be competitive, and if unemployment rates are so low that you can start to get very choosy about the jobs that come into your community, maybe setting the higher minimum wage doesn’t hurt a community. I don’t know that there’s any place in the state of Kentucky where that is really true.

When expanding, Xerox can select from the different cities and states in which it operates today. We’ll make business decisions based on where Xerox can cost-effectively operate, and we’ll hire good-quality employees who can deliver services to our customers at a price that we can bill our customers that will keep Xerox competitive. If you look at our employees in Lexington, I would estimate that 50 percent of them don’t live in Lexington. Xerox is strategically located at the four corners of Fayette County; one facility is on Fortune Road, and we pull a lot of employees from Clark County. New Circle Road, we pull from Franklin County and Georgetown. In this building (on Yorkshire Boulevard in East Lexington), we pull from Berea, Richmond, Madison County. So setting a higher minimum wage in Lexington doesn’t just affect Lexington; it could potentially affect wages in communities around Lexington.

EL: In which Kentucky cities does Xerox have corporate business operations?

CH: Our largest operation is in Lexington; probably the second-largest is in London. We also have operations in Frankfort, Louisville, Erlanger and Richmond.

EL: When Xerox hires a new employee to deliver outsourced services for a client, what type of special training does a new hire receive?

CH: Xerox typically does on-site training for new employees. Obviously it’s very different depending on what the employee is being hired to do. If we’re hiring somebody in a professional role, for example, finance or software development, that’s a different training process. But most of the production employees that Xerox would hire, whether it be in a customer care space or a document processing space, would receive on-site training. Usually that training is a collaboration – using materials from our end client being delivered by our training. We do partner with BCTC to provide ongoing training for our employees where Xerox actually pays for college credit classes for our employees at BCTC. We started that program last year.

EL: Now that the need for highly trained employees is becoming greater, “work-and-learn” or “earn-and-learn” type programs are becoming more popular. Many companies like Toyota, GE and Ford have these programs. Is Xerox utilizing more of this kind of training?

CH: Xerox provides on-the-job training to its employees so they can do their day job. I would consider the BCTC classes that Xerox offers for continuous education to be an employee benefit, because it’s a skill that they can take with them. If our employees stay with Xerox, they can use it to get promotional opportunities. If they choose to go back to college full-time or whatever, they’ve gained college credits along the way. As a corporation, Xerox is looking at a whole career path of opportunities for its employees, and from an HR perspective there are currently several alternatives being explored. So it may look differently than what Xerox has done in Lexington with BCTC or it may look the same – that’s being explored as we talk – but from a corporate perspective, employee development is very important.

EL: Sometimes it’s difficult for an employee to work full-time, take care of a family and continue postsecondary education. In a recent interview with Jay Box, president of the Kentucky Community and Technical College System, he indicated the community colleges are offering more online classes and training.

CH: Yes, we’ve used that at Xerox. I’m on the board of BCTC’s foundation and have had a lot of conversations about online learning. I would love to figure out a way Xerox can partner more with BCTC, because the community colleges have their hearts in the right place. Xerox has a large base of employees who would benefit from continuing education. Call centers, which we do a lot of in Lexington, are not a lifetime career for most people. If our employees move up to management that is great, but that’s a few select employees. Xerox looks at career development as an opportunity to move into the management ranks. That’s great; and if not, continuing education prepares our employees for the next step.

EL: How helpful have the Kentucky Cabinet for Economic Development and local economic development entities been in helping Xerox expand its Kentucky operations? 

CH: I’ll give you an example. When Xerox opened its New Circle Road facility (in Lexington), we had a division of one of our largest customers, also a Kentucky-based company, that wanted Xerox to open a call center for them. We had about 90 days to have approximately 600 people employed. Xerox worked with Commerce Lexington (the chamber of commerce), which has a been great partner whenever Xerox needs to expand operations. The mayor’s office was also very helpful in getting the word out and helping recruit employees. We tended to work with the state agency for economic development more when we opened our Erlanger facility, starting a brand-new facility. We had good support there from both private and government entities.

EL: How can Kentucky’s local and state economic development agencies better assist Xerox?

CH: I can’t think of anything that I would ask them to do above and beyond what they’re doing today.

EL: KYNECT is the poster child for one of the best-implemented Obamacare websites in the country and was successful in signing up uninsured Kentuckians for healthcare insurance. What was Xerox’s involvement with KYNECT?

CH: Xerox launched the call center to help Kentuckians either enroll or answer questions if they were enrolling online. We have about 200 people in that program today and have been supporting that program since it was launched in 2013. Another firm developed the website, and Xerox is providing the support services.

EL: How does Xerox support local communities?

CH: Through both our employees and the Xerox Foundation. With help over the past few years from Chris Gilligan (manager of executive communications for the commercial healthcare segment), we’ve been able to really tap into some Xerox Foundation opportunities and get funding into Lexington. The foundation really focuses on education, particularly in the STEM fields: science, technology, engineering and math. So for instance, two years ago Xerox was able to sponsor robotics kits for all the elementary schools in Fayette County so they could start to build a robotics program at the grass roots. Another program was started a couple of years ago in conjunction with United Way of the Bluegrass: the STEAM program, meaning science, technology, engineering, arts and math, at Leestown Middle School and Bryan Station High School. That STEAM program is specifically for Hispanic students, because the statistics in Lexington indicate the number of Hispanic students who enter those fields was low. This month, Xerox will also be announcing a big grant of $100,000 for principal training in Fayette County from the National Institute for School Leadership. That’s one of the things that a company the size of Xerox is able to bring to the community.

EL: Do you have a closing comment?

CH: From a Xerox standpoint, Lexington has the largest employee population in services in the United States, the second-largest in all of Xerox, only behind the company’s original headquarters in Rochester, N.Y. When ACS was acquired by Xerox, it could have gone different ways. Xerox could have started to migrate more jobs to the areas where they had heavy employee populations, or it could have continued to grow its services in Kentucky. I am delighted that Xerox is now one of Kentucky’s largest employers.

Economic Development, Education, Features, Features, One on One, One-On-One, One-on-One, Workforce Development

One-on-One: KCTCS President Jay Box

Jay Box was named president of the Kentucky Community and Technical College System in November 2014. Box, a native of Texas, joined KCTCS in 2002 to serve as president of the Hazard Community and Technical College. In 2007, he moved into the position of KCTCS vice president and in 2009 was named chancellor of KCTCS, where he worked to streamline the transfer process between KCTCS and the state’s public universities, helped revise the dual-credit program, and became the state lead for the Accelerating Opportunity Kentucky initiative to provide the basic skills and technical training needed for Kentucky students to earn credentials that lead to high-wage, high-demand jobs. Box received his associate’s degree from Howard College, a bachelor’s degree in education at Southwest Texas State University, a master’s degree in education from Texas Tech University and a doctorate degree in educational administration with a higher education/community college specialty from Baylor University.

Jay Box was named president of the Kentucky Community and Technical College System in November 2014. Box, a native of Texas, joined KCTCS in 2002 to serve as president of the Hazard Community and Technical College. In 2007, he moved into the position of KCTCS vice president and in 2009 was named chancellor of KCTCS, where he worked to streamline the transfer process between KCTCS and the state’s public universities, helped revise the dual-credit program, and became the state lead for the Accelerating Opportunity Kentucky initiative to provide the basic skills and technical training needed for Kentucky students to earn credentials that lead to high-wage, high-demand jobs. Box received his associate’s degree from Howard College, a bachelor’s degree in education at Southwest Texas State University, a master’s degree in education from Texas Tech University and a doctorate degree in educational administration with a higher education/community college specialty from Baylor University.

Ed Lane: Before being named the second president of the Kentucky Community and Technical College System on Nov. 9, 2014, you served as the KCTCS Chancellor for more than five years. As chancellor you provided systemwide leadership for academic affairs, economic development, workforce training, and research policy and analysis. How important was your prior performance and management experience in being selected as KCTCS’s new president in relation to other criteria established by the selection committee?

Jay Box: My knowledge of the history of how KCTCS had been operating was critical. But even more important, I believe, I presented a future vision to the board of how KCTCS can continue to grow and improve its system for the 21st century.

EL: Since having been appointed president, what significant changes at KCTCS have you made or announced?

JB: I’ve conducted a complete tour of the state, visiting each of our 16 colleges, meeting with over 5,000 people – faculty, staff, students, local boards, foundation boards, community leaders, business and industry leaders, and superintendents.

The point of what we called the “Out of the Box” tour was to listen to what people at the local level believed KCTCS needed to be for the next five to seven years. This is the beginning of our strategic planning process. Of course, I came in as president with ideas, but I wanted to know what the people want. As we develop KCTCS’s new strategic plan, we need to embrace what the state really needs.

EL: KCTCS enrollment increased for several years during the Great Recession (2008-2012), but it has been declining for the past two years as the economy has picked up and unemployment has fallen. How will a decrease in enrollment affect KCTCS’s future plans?

JB: It’s been a double whammy for KCTCS. In 2008, when the recession started, KCTCS saw tremendous enrollment growth. At the same time, the state legislature started cutting KCTCS’s funding. KCTCS has lost a total of $38 million, which is 17 percent of our state funding, since 2008. That’s the recurring dollars, so we have $38 million less to operate with now than we did in 2008. And because of that, and the increase in enrollment, which increased operating costs for three solid years, KCTCS was falling further and further behind.

The Council on Postsecondary Education dictates what the percentage increase of KCTCS’s tuition can be. CPE set a maximum increase that’s averaged about 3 percent over the years. The community college has increased its tuition every year to offset the loss of state funding. But what people really don’t understand is that KCTCS has a minimum of $5 million of fixed cost increases every year – utilities, facilities operations and insurance rates are all going up.

KCTCS had a $38 million reduction in state income, plus an additional $5 million a year in operating cost increases for seven years, which is another $35 million. The tuition increases haven’t enabled KCTCS to break even. Spring 2012 is when KCTCS started seeing a decline in enrollment, and it has declined every semester since. With fewer operating dollars, KCTCS has had to make tough decisions. The system doesn’t have the money to continue all the programming that’s been offered in the past. This next year, we’re looking at reducing KCTCS’s operational budgets by $11 to $15 million. Approximately $11 million of that will be personnel costs. There will be layoffs, but most will come from retirements and positions that KCTCS is just not filling.

EL: Has the number of people attending KCTCS declined primarily because of demographics?

JB: It has. Our enrollment of 18- to 24-year-olds has actually stayed fairly constant since 2008; our growth was almost entirely with the 25-year-old-and-up demographic – the people who were unemployed. KCTCS’s decline in enrollment has been almost entirely in that group as they found employment.

EL: A major requirement in economic development is the availability of an educated workforce to meet employers’ needs. How is KCTCS helping in workforce development?

JB: It’s a two-pronged approach. First, KCTCS provides customized workforce training through our Workforce Solutions Division. Our employees meet with the company and design the training program the company needs to either enhance the skills of their current workforce or to “onboard” new employees. Now, the critical piece that will help that company’s future success is developing a pipeline of new workers, so our Workforce Solutions Division then meets with our academic division and quickly works with faculty and the company to design a curriculum and a program to put students into a pipeline, so they can graduate and go directly into those companies.

EL: Do students like this educational option?

JB: Yes. Several years ago, Toyota and Bluegrass Community Technical College worked together to develop what’s called the Advanced Manufacturing Technician Program, which is now a national model. Students in that program go to school two days a week and then work for Toyota three days a week. Toyota offsets their tuition costs, pays them for the work they do, then guarantees them a job if they successfully complete the program. The curriculum was designed by the faculty at BCTC and Toyota executives to pinpoint the competencies needed in advanced manufacturing. The actual curriculum is delivered by the Bluegrass faculty on-site at Toyota, and then, as their lab experience, the students are in the work environment at Toyota three days a week.

The work-and-learn program is outstanding. It’s the kind of workforce development program that KCTCS believes should be replicated across the state in all the different employment sectors, not just advanced manufacturing.

EL: How enthusiastic are Toyota, Ford, GM and auto suppliers about the Kentucky Federation for Advanced Manufacturing Education, or KY FAME, which uses the general template created by the AMT program to teach industrial workplace job concepts in conjunction with the professional “soft skills” employees need?

JB: Very much so. KCTCS has a representative on the state board of KY FAME (which began in Central Kentucky in 2013). As the state KY FAME group has reached out recently to create chapters in different regions of the state, it has not had any problem getting groups of interested manufacturers together. Skilled workers for manufacturing jobs are a high priority right now.

EL: Is KY FAME a good example of using the free-market enterprise system to get several companies together and to organize a training program without a lot of government intervention?

JB: KCTCS has received numerous calls for information about our program and the Toyota Advanced Manufacturing Training model. It is really exciting. Because of the partnership between the manufacturers and our colleges, and the faculty relationship with the manufacturers, KCTCS can upgrade and deliver the curriculum quickly to meet a company’s specific workforce needs. We think that’s the wave of the future.

EL: Does the fact that an individual company is fulfilling its training needs make the program more powerful because it is designed for a specific business?

JB: Yes. It is also exactly what higher education needs to help drive changes in the educational system. Community colleges are known for being responsive, and KCTCS tries its best to do that. But to have these organizations jump in there and say, we want to help you and we’ll give you the road map and let’s go after it – that is great. They’re sponsoring some of those students. At any time, they can say, OK, our needs are met, we’re going to pull out of this, and then maybe some other manufacturer will step in at that point.

EL: Does the Jefferson Community College have a similar work-and-learn program with Ford Motor Co.?

JB: Yes. And Greater Owensboro just finalized its KY FAME group last week and Lincoln Trail (Elizabethtown and Bardstown) has finished its manufacturing partners list. Both Bowling Green and Somerset are looking at their models. Northern Kentucky and Louisville are the others with new KY FAME chapters. Maysville, Murray, Paducah and Pikeville are assessing. KCTCS has six colleges involved right now and will probably have eight to 10 colleges working with KY FAME as organizations get up and running.

EL: In different parts of the state, manufacturers may have different needs. Would the planning of those programs follow the same formula?

JB: Yes. KY FAME is a statewide organization, and it helps the regional KY FAME design their programs. Most manufacturers are pretty much in agreement with what competencies and skill sets they want, so it’s just a matter of designing the delivery. That can vary according to the region and manufacturers agreeing to pay for a certain number of slots; one manufacturer may say, “I will provide two (student-worker) slots,” and another manufacturer says, “We’ll provide 10.” But normally a cohort in the manufacturing program is around 15-22 students per class. We might start a cohort in the fall, and they will go through an 18-month program, and then another cohort will start, and we’ll rotate those.

EL: How are students recruited for these programs? 

JB: When a program is promoted, there are many more students who are interested than there are slots available. Selecting students is a joint process between the manufacturer and the college, because it is a competitive type of program. The student has to commit to going to school two days a week and working three days a week. So it’s not like a traditional college program where the student goes to class and then is free to do whatever they want outside class. The student is going to be working and realizes they will get the job upon successful completion of the program.

EL: Is there a waiting list to get into these programs?

JB: KY FAME is just getting started around the state, but Bluegrass (chapter) has had a waiting list for its program with Toyota. To offset that, Bluegrass has an industrial maintenance technology program on another campus. Students who don’t get into the Toyota AMT program can enroll in the other program. Most of the applicants are traditional students, 18 to 24 years old.

EL: How is KCTCS’s relationship with the Kentucky Cabinet for Economic Development (KCED)?

JB: It’s been going great for the last two years. Gov. Steve Beshear brought the Economic Cabinet, the Workforce Cabinet and KCTCS together, and said, we need you all to be more unified in your efforts for economic development. KCTCS committed a new position, a vice chancellor of economic development, whose primary focus is to basically work within KCED to know what’s going on in the recruitment or expansion of new businesses around the state. We immediately then bring to the table the workforce training that KCTCS can provide for those companies and make available funding that we call “KCTCS Trains” dollars. Those are dedicated incentives to help offset the training costs for companies when they expand or locate a new business in Kentucky.

EL: What are some of the other training programs KCTCS offers to individuals who are eager to earn higher income by learning new skills?

JB: Sticking on the workforce side, there are five major sectors that KCTCS focuses on that are tied back to the major employment sectors in Kentucky. We’ve already mentioned advanced manufacturing. Then there’s energy, healthcare, logistics and transportation, and business/information technology. Healthcare is, of course, huge, and it’s big at each of our 16 colleges.

KCTCS doesn’t forget that more than half of its students are transfer students, who earn an associate’s degree and then transfer to a state university.

EL: What is the present relationship and level of cooperation between KCTCS and the commonwealth’s public university system? Do KCTCS credits transfer to private colleges?

JB: One of my first accomplishments as chancellor in 2009 was to work with provosts at the University of Kentucky and Western Kentucky University to write a transfer action plan to make credit transfers more seamless. KCTCS worked with state Rep. Carl Rollins and state Sen. Ken Winters to write the transfer bill that was passed in 2010 and makes all KCTCS courses transferable directly into Kentucky public universities. For the private universities, KCTCS has really good transfer agreements with each of them. Private universities are often the first transfer choice for our students.

EL: Eastern Kentucky is working hard to boost the quality and expertise of its workforce so the region can provide well-trained employees for available jobs. How is KCTCS involved with Shaping Our Appalachian Region (SOAR)?

JB: The SOAR initiative is another exciting initiative for our state, to help change the future economy of Eastern Kentucky. The first emphasis is on information technology (IT) fields – in particular, coding. KCTCS has some outstanding IT programs, and we’re quickly ramping up more courses and programs at our five colleges that are involved with SOAR.

But we’re not stopping at just IT fields; we’re also looking at entrepreneurial and business-related type programs. That is also a focus of SOAR.

EL: Do coding jobs pay well because they are technology jobs?

JB: Right now they pay very well; there’s high demand. Jobs will probably be in the $50,000 to $60,000 range. That was the first emphasis: How do you help a coal miner who was making that much money find a new career that can pay a similar amount but does not take years and years of retraining and retooling?

EL: How is KCTCS helping entrepreneurially inspired individuals who want to start their own business?

JB: Right now most of the entrepreneur programs are within our business programs, but we’re looking at expanding that. We’re hoping students will be able to incorporate entrepreneurial courses into other fields, so they can use good business practices in starting up a new company using their talents.

EL: Does KCTCS need funds for any critical capital investments?

JB: In the 2014 legislative session, a bill was passed that allows KCTCS, for the first time, to use (government) Agency Bonds to build one project at each of its 16 colleges. It’s called the BuildSmart Initiative. Seventy-five percent of that funding is from agency bonds, which the state must authorize; KCTCS charges a fee to its students over a period of years to help retire the debt. The other 25 percent of the funding comes from private donations. Three of our colleges are completely through with their fundraising and able to start with their designs. One building is under construction in Paducah, located in the downtown arts district.

EL: Will KCTCS be initiating any other new educational programs soon?

JB: It’s not necessarily new programming; it’s the way KCTCS will deliver its programs. What KY FAME and the AMT program have taught us is that there’s much more need for KCTCS to be working with apprenticeships and internships: work-and-learn programs such as the Toyota-Bluegrass connection, where the coursework is delivered in a timeframe that allows the student also to do an internship or apprenticeship. That gets the student connected to a career early on and helps reinforce what we’re doing in the classroom in a true work environment. That’s the No. 1 thing we’re looking at.

No. 2 is online education. KCTCS has been one of the national leaders and innovators in this area. We’re now finding ourselves needing to upgrade what we’re doing in online education. Even though we’re doing a great job, we feel we need to review because the technology for online learning has improved so much.

EL: KCTCS’s statewide headquarters, where we are doing this interview, is in Versailles, Ky. Are you pleased with the quality of life and work environment in Versailles?

JB: Woodford County has been great for our state headquarters. It’s a great location, 15 minutes from Frankfort, 15 minutes from Lexington, 55 minutes from Louisville. It’s also fairly centrally located for our 16 colleges. As you’ve seen downstairs, we have a wonderful conference center, which allows us to conduct statewide meetings with our college representatives in a nice conference center. Also, our side of the bargain with Woodford County when KCTCS revamped this building was that it would make the conference center available at no cost for community events and organizations. People from all over now use our facility.

EL: Do you have a closing comment?

JB: One of the things I’m most proud of is KCTCS’s recognition across the nation. The National Center for Higher Education Management Systems, an independent organization that does research across the United States, recently studied KCTCS. NCHEMS reviewed KCTCS from 2000 to 2013 to evaluate what a statewide system can do on a national level. KCTCS ranked in the top five in almost every category – for improvement, degrees delivered, enrollment growth and credentials earned. KCTCS’s reputation across the nation is without a doubt one of the best. We’re proud of that, and we don’t want to see it decline. That’s why I say my vision is to “Take us forward.” n

 

Faster Lane, One-On-One, Uncategorized

Hurley gave Lane Report in depth interview shortly before resigning from UPIKE

Shortly before he abruptly resigned last week as University of Pikeville president, James L. Hurley sat down for an in depth interview with Ed Lane, publisher of The Lane Report magazine, for the April issue’s centerpiece One-on-One feature, which explores major issues Kentucky faces in the public and private sector. Hurley gave no indication of any plans to leave his position during the late March interview. UPIKE announced the resignation Monday, providing no reason for the change. The Appalachian News-Express newspaper today reported that Hurley stated in an email to university staff regarding his resignation a desire to put his family first and “prioritize what matters most.” In his email dated April 6, the News-Express reported, Hurley recognized the members of the “UPike family,” thanked them for their role in his six years of service with the university, and said that he agreed to remain with the university “as a transitional consultant until the end of the year” and that former UPike President Gov. Paul Patton “will transition back into an interim role at the university” as president.

The following is the text of the April One-on-One feature in The Lane Report:

Dr. James Hurley

Dr. James Hurley

James L. Hurley was named president of the University of Pikeville in 2013 and is the first alumnus in the school’s history to lead his alma mater. Hurley earned his bachelors degree from UPIKE (then Pikeville College) in 1999 then went on to receive a master’s degree in Educational Leadership from Indiana University, a Rank I in Instructional Supervision from the University of Kentucky and a doctorate in Higher Education Leadership and Policy at Morehead State University. He spent 11 years in the public education system, serving as a principal, assistant principal, dean of students, teacher and athletic coach before returning to UPIKE in 2009 as executive vice president. In that role, he provided leadership in the administration of campus operations, program development, strategic initiatives, recruiting, financial aid and retention efforts. Hurley continues to be involved with students in the classroom, serving as professor of education and leadership at the university.

Ed Lane: The University of Pikeville (UPIKE), formerly Pikeville College, is a private liberal arts university founded in 1889 by the Presbyterian Church. You were selected as UPIKE’s 20th president in July 2013 and are the first alumnus to lead the university. What is UPIKE’s top mission?

James Hurley: It’s obviously very special to be the first alum to serve as president in our university’s 125-year history. Tina, my wife, who serves as first lady, is an alum as well. Tina and I are both from Appalachia, so it means a great deal to be able to lead the institution that we love so much and afforded us a better way of life. Certainly in this time of critical change in Appalachia, to be able to be part of the solution – instead of part of a problem – is always important.

UPIKE was founded in 1889 by the New York Presbyterian Church for the sole purpose of creating access and opportunity to the youth of the mountains. Obviously, over 125 years UPI KE’s mission has expanded. Today, UPIKE has students from 45 states and 25 countries, and has three campus partnerships in China. UPI KE has grown beyond the youth of the mountains, but its core mission remains unchanged; 70 percent of UPIKE’s students come from Central Appalachia.

EL: In 2009, you affiliated with UPIKE as vice president for enrollment and retention and special assistant to then-President Paul Patton. You were active in the process to convert Pikeville College to a university. What key issues had to be addressed to change UPIKE’s status?

JH: Some of the thought process behind moving from a college to a university really started with something that Paul Patton created, and that was a very robust Kentucky Community and Technical College System. Kentucky has a very successful community college system and most – but not all – high school graduates look at a “college” as community college, and they think of a university as being a four-year institution. That’s something that shouldn’t be looked upon negatively, because KCTCS, in my opinion, is one of the very best community colleges in the nation. With that mindset, we felt UPIKE had to create a clear distinction between being a college or a university. Coupled with the fact that UPIKE has one of only three medical schools in Kentucky and was considering adding additional professional programs, UPIKE was much more than a college; it was truly a university.

The decision methodology was very open and transparent. We sought input from alumni, community members, current students, faculty, staff and our board of trustees. All of the stakeholders of the institution also were involved in the naming process, which was very open. We had many meetings and an online forum. Our board of trustees ultimately decided upon the University of Pikeville. That’s when we created the UPIKE brand.

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UPIKE president abruptly resigns

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EL: Did UPIKE have to go through an accreditation process?

JH: No. We contacted the Southern Association of Colleges and Schools and submitted a letter from the chairman of the board and President Paul Patton, simply identifying the college as the University of Pikeville from this point forward and attaching board mandates where the resolution was passed by the trustees.

EL: How has enrollment at UPIKE increased?

JH: Six-plus years ago, when I was hired by Paul Patton as vice president, UPIKE had roughly 960 students. Today enrollment is a smidgen under 2,500. So it has dramatically increased. In terms of percentage, UPIKE has been the fastest-growing institution in Kentucky for five consecutive years and the fastest-growing institution in SACS in the Southern region. The Chronicle of Higher Education, a publication for U.S. colleges and universities, just identified UPI KE as the 20th-fastest-growing institution from 2002 to 2012. We estimate that UPIKE will rank somewhere between third- to fifth-fastest-growing U.S. institution in 2015.

EL: To what to do you attribute student enrollment growth at UPIKE?

JH: Population in certain parts of Appalachia has decreased, but on the flip side, in other areas of Appalachia the population has increased. UPIKE had to strategically rethink its boundaries. We started recruiting internationally; domestically we recruited students from more states instead of just recruiting from east Kentucky. We started really focusing on contiguous states that are in close proximity to the university.

EL: What are the major schools or colleges that comprise UPIKE?

JH: At UPIKE’s founding in 1889, the first college was the College of Arts and Sciences. UPIKE then established the Elliott School of Nursing in 1983. In 1997, it launched the Kentucky College of Osteopathic Medicine. Our next college was the College of Business, opened in 2013. In 2014, UPIKE announced the College of Optometry. In January 2015, it announced the Patton College of Education.

EL: The academic offerings appear to be strongly related to the economic needs in Eastern Kentucky. Is that UPIKE’s strategy?

JH: Absolutely. That was the whole premise behind creating separate colleges that have the autonomy to really go out and get things done. If you create a nimble atmosphere for deans, professors and faculty to go out and create change and opportunity, you have to give them the power to do so. Sometimes higher education, like some other organizations, is slow to change.

EL: Why did UPIKE decide to add optometry to its curriculum?

JH: When conducting a needs assessment, UPIKE has been working with a firm to help it create a strategic vision and plan through 2020 and then ultimately through 2025. A road map to address the needs of central Appalachia. And in doing so, we started with our state’s health index. Some of the “Kentucky uglies” (poor population metrics on health, education and income) – we’ll be very blunt – solely reside in east Kentucky. The University of Kentucky and University of Louisville – our state’s two research institutions – are great institutions, but they can only do so much to address major health issues. I am a proponent of research, and I applaud the Kentucky General Assembly for passing legislation and Gov. Steve Beshear signing the bill to authorize bonds for the development and construction of a new medical research facility at UK. We have to have relevant medical research in the commonwealth to address health issues and to improve the state’s economy. When UPIKE researched the need for optometrists, 25 percent of the counties in Kentucky didn’t have a practicing optometrist who resides in the county. That’s an issue. And when you look at the bigger picture, UPIKE is the first college of optometry in the states of Kentucky, West Virginia, Virginia, North Carolina, South Carolina, Georgia, Mississippi and Louisiana. So think about that huge unmet need the University of Pikeville will strategically be able to serve.

EL: Where do you stand on public-private partnership legislation?

JH: I’m very much a proponent of P3. It’s essential for the commonwealth to move forward. The public and private sectors have to work together to share in investment and in opportunities to really grow this commonwealth. (It did not pass in the state Senate.)

EL: How has UPIKE’s College of Osteopathic Medicine grown since it was founded 18 years ago?

JH: In 1997, the first class contained approximately 55 students. UPIKE is now the second-largest medical school in Kentucky. Sixty-two percent of our grads are practicing within a 90-mile radius of Pikeville, Ky. That’s phenomenal. UPIKE has produced now over 900 graduates in those years. Three years ago UPIKE commissioned a substantive change with the Commission on Osteopathic College Accreditation (COCA); it increased the class size from 75 to 140 students. There are around 130-plus M.D. programs and roughly 40 D.O. programs nationally, and collectively UPIKE ranks among the top 10 in rural medicine. It also ranks second in the production of primary- care physicians. If you look at the very basics of the Affordable Care Act and even prior to that, more primary care doctors are needed, especially in rural areas. Over half of our doctors are practicing in rural areas.

EL: Since UPIKE is a Presbyterian university, it must arrange for private-sector equity investments and long-term financing for its new colleges and its educational facilities, as opposed to receiving financial aid from state government. What types of funding and financing does UPIKE use?

JH: UPIKE’s affiliation with the Presbyterian Church is very refined at this point. Over the last 25 years, UPI KE has experienced a sharp decrease in the support from the Presbyterian USA. But on the flip side of that, UPIKE has several Presbyterian churches that have been donors to the institution for 125 years. UPIKE understands and recognizes its Presbyterian roots, but it’s now more open and nondenominational.

EL: What are some examples of new construction or renovations of UPIKE facilities?

JH: In 2011, UPIKE opened a $40 million facility, the Coal Building, that is the new home of the expanded Kentucky College of Osteopathic Medicine. UPIKE just recently (re)acquired a building from the City of Pikeville – it was actually UPIKE’s first building (circa 1889) – to house the new Coleman College of Business. And most recently, construction began on a 108,000-s.f., $50 million facility called the Health Professions Building that will serve as the home of the new Kentucky College of Optometry along with the expanded Elliott School of Nursing.

EL: UPIKE has to have a certain amount of cash equity to build new facilities and start new colleges.

JH: To start a College of Optometry is very expensive. So UPIKE had to creatively combine resources. We just simply put cash into a reserve fund and let it build over the last three years so UPIKE could start the project. Also, we received an ARC grant from Gov. Steve Beshear and Congressman Hal Rogers of $1.5 million for two years. That helped fund the startup and allowed UPIKE to hire a dean, an associate dean, and adequate and appropriate staff to start developing the curriculum, recruiting students, navigating the accreditation process. Also, UPIKE received grants from the U.S. Economic Development Administration (EDA) and from other organizations and foundations, not only in Kentucky but across the country. Roughly $10 million in startup funds has been raised just to get the optometry program up and going.

EL: How does UPIKE’s medical college rank against UofL and UK as far as tuition cost?

JH: UPIKE is more expensive, simply because it’s a private university and only charges one rate (with no lower in-state student price). Tuition is about $38,800 annually. One of the programs that’s unique to the Kentucky College of Osteopathic Medicine was started when the Kentucky General Assembly created a scholarship called the Kentucky Coal Severance Scholarship for medical students. It was an (tuition) equalization scholarship, and it’s roughly $1 million per year for students who are from coal-producing counties and who will return to a coal-producing county and serve as a primary-care physician for at least four years. It’s a loan forgiveness plan and equalizes (reduces) the cost for UPIKE medical students to equal the in-state tuition for medical students at UK and UofL.

EL: What is UPIKE’s annual budget for all operating expenses?

JH: It’s $46 million.

EL: Shaping Our Appalachian Region (SOAR) has its strategy summit 2015 scheduled for May 11, 2015. What will the summit meeting involve and what key issues will be reviewed?

JH: Gov. Beshear and Congressman Rogers created SOAR as a safe platform for leaders in Appalachia to talk about a new economy. I applaud their work and their vision. I would give them the very highest rating on any scale. Some people incorrectly associate the “new economy” as a “post-coal economy,” and that’s a little unfair because coal is our region’s abundant resource. I don’t usually use the term “post-coal economy” but rather a new economy, because the 8,000-plus mining jobs Eastern Kentucky has lost are not coming back. Even if the coal industry returns to the zenith of production, which was around 2004, those jobs are not going to come back because of automation and more efficient mining techniques. Before SOAR, it was almost taboo to talk about a new economy or any other economy that wasn’t coal-based. And now coal leaders, great leaders in our community, are talking about the fact that Eastern Kentucky must have other sources of income and jobs other than coal. SOAR will help propel east Kentucky and Appalachia well into the future.

EL: What are some of Kentucky’s state government initiatives to help boost Eastern Kentucky’s economy?

JH: Using “dark fiber” (installed but unused fiber-optic Internet cable) to provide high-speed service to East Kentucky is critically important. The great equalizer, as we both know, is not rail systems, access to waterways or highways; it’s access to technology. And with access to technology, any area can do anything. Communities can create new economies around technology. You can’t always create a new economy around infrastructure, but the technological infrastructure is a great equalizer. It’s just like education.

Four-laning the Mountain Parkway is also critical, again for mass transportation. East Kentucky does not have direct access to the interstates, and that does create less opportunity. But with the widening of the four-lane from Lexington to Pikeville, the region will have that same access to Lexington and also to Charleston, W.Va., which gives Pikeville four-lane access to all of the interstates.

EL: What educational offerings will UPIKE offer to enhance the quality of Eastern Kentucky’s workforce?

JH: East Kentucky for many years has experienced the great brain drain syndrome, where our very best and brightest are leaving, moving to metropolitan areas and never returning. Institutions like the University of Pikeville have to work at a double rate, if you will, to try to recruit that same intellect into Eastern Kentucky. Our focus has been retaining that intellectual capacity, because those young professionals are the thought leaders, the future visionaries, that will help change and create this new economy. But if we don’t retain our brightest and best, then the problem becomes more widespread. And so that’s why UPIKE is creating these colleges of opportunity and access.

I have two sons, and someone asked me a couple of months ago, why are you working so hard and so quickly to establish all of these colleges? And my answer is simple: Tina and I want our two sons to have opportunity in Appalachia so they don’t have to leave because of the lack of access. And I can assure you, the colleges UPIKE has created are only the beginning. We’ve got a strategic plan to meet every comprehensive need, and that’s because I selfishly want my two sons and every other son and daughter to have that opportunity to be able to stay and not have to leave. Eastern Kentucky has to create that contemporary, urban mentality. And that’s why UPIKE is working very closely with the City of Pikeville to create all of these expanded opportunities.

EL: Eastern Kentucky has extremely mountainous terrain, limited four-lane interstate and state roadways, has experienced outmigration of young people to urban areas because job opportunities in Eastern Kentucky are limited, and has a real or perceived lower quality of life because of the lack of retail, entertainment, cultural and social venues. Outmigration creates declines in population and aging demographics that also make the region less attractive as a home for young people and more challenging as a trade area in which businesses can successfully expand or open new businesses. How will the downward-spiraling business cycle be modified to stimulate a new, vibrant and expanding economy in Eastern Kentucky?

JH: We really have to narrow our focus, because Eastern Kentucky can’t be all things to all people. And unfortunately, just like central Kentucky, not every city in central Kentucky has the vibrancy and the sustainability Lexington offers. And that’s what we’re facing in East Kentucky. In all honesty, there are some parts of East Kentucky, some small towns and cities, that are going to struggle, and I don’t know that they will ever see their populations replenished. Four or five of our key cities – Pikeville, Hazard, London, Somerset and I could probably name several more – have very, very bright futures. You will see growth in cities of excellence and opportunity. Strategically, we need to invest in key cities, because it’s simply impossible to invest in every city. Our region can focus on healthcare, education and technology. Those are three things we can do very well in East Kentucky along with our natural resources. With an abundance of coal, natural gas and timber, we need to continue to build upon those resources. We need to build a healthy economy around coal byproducts. That’s our region’s most abundant resource, and there are other forms of energy that coal can produce.

EL: How have programs like Southeastern Kentucky Economic Development, the Appalachian Regional Commission, the U.S. Department of Agriculture, the U.S. Department of Health and Human Services, HUD, the U.S. Small Business Administration, and the Kentucky Small Business Development Centers added to improving the local business environment?

JH: UPIKE works with every group that you mentioned here, and all of those groups are critical. And the one thing I would caution taxpayers to think about is this: I would not look at those entities as an entitlement; I would look at them as an investment. If public and private entities do not continue to invest in places like East Kentucky – and there are other parts across the country that are in a similar position – then it’s going to cost more in related issues: poor health, jobless rates, etc. All of these organizations, especially ARC, have made an unbelievable investment in infrastructure. These investments are long-term, over the next 25 to 50 years, and they will make a major impact in helping create a new economy across East Kentucky.

EL: Some of the smallest counties in Kentucky, with populations of less than 8,000, are located in Eastern Kentucky. If these counties continue to decline in population, how can they be financially viable with a smaller and diminishing tax base? Do you foresee a time when several counties merge to become financially more efficient through consolidation of services like schools, courts, jails, executive and legislative branches, public safety, utilities and infrastructure?

JH: Consolidating services for greater efficiency was discussed at SOAR as a possible solution. And I’m not opposed to that thought process. It’s very complex because of the topography – the sheer geology and the lack of infrastructure. A drive through only three counties in Eastern Kentucky can take literally a full day, because of inadequate road systems. That’s one of the challenges. But the opportunities lie in cost savings. I firmly support the idea of looking at consolidated resources and county governments. Kentucky has 120 counties; West Virginia has 55.

EL: You worked closely with Paul Patton when you first started at the University of Pikeville. Can you comment briefly on Gov. Patton?

JH: With all due respect to all other leaders in Kentucky, I believe Paul Patton will go down as the greatest leader this commonwealth has ever seen. And I don’t say that politically; I say that based on the things that he did, especially in education reform. Patton’s focus on education and his ability to get things done by working across the aisle and being able to rally people collectively were his best attributes. When he left the governor’s office to return to Pikeville and become the president of the University of Pikeville, he really elevated the profile of UPIKE into one of the great institutions moving forward. I have never worked with anyone who cares more about people and the success of people than Paul. He genuinely wants people to have a better life than he has, and some leaders, quite frankly, don’t carry that mentality every day. He’s a phenomenal leader.

EL: If somebody asked you why a high school student might want to consider attending UPIKE, what would you tell the parent?

JH: As an alum, I can tell you firsthand that the experience will change your life. UPIKE’s focus is on affordability, access and opportunity for all our students. When parents drop their children off on the hill – UPIKE is on top of a hill – they do so with the hope and the dream that their sons and daughters will have a better life than they have had. And as educators, that’s our job: to create an opportunity, access to learning about new things and places, and to learn that we’re all different. We’re diverse. No one is more major or less minor than someone else. So I don’t use the term “minority.” As Kentuckians, we’re all in this together. We’re one world, striving to work together to help each other find a better way. And that better way is finding your passion. At UPIKE, we help students find their passion, and then we try to strategically place them in positions where they’re going to be very successful in living that passion. Because if they’re passionate, they’re going to do good. That’s what UPIKE is about, from our faculty to our staff to the president. I have an open-door policy, and I try to learn every student’s name. It’s difficult, but I want to know who they are, what their aspirations are, and I want to help them get there, because I had a president and faculty when I was at UPIKE that did the same thing. That’s critical.

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One-on-One: Kentucky auto manufacturing finds its voice

Tatman 81414-4

Dave Tatman was recently named as the inaugural executive director of the Kentucky Automotive Industry Association. He also serves at Western Kentucky University as associate vice president for advanced manufacturing. Tatman retired after a 34-year career at General Motors, where he most recently served as plant manager for the Corvette Assembly Facility in Bowling Green. During his time at the Bowling Green plant, Tatman led five consecutive model-year launches and oversaw a $131 million investment to upgrade the plant and equipment, adding 350 new jobs, to produce the all-new 2014 Corvette Stingray, which was named as the NA Car of the Year in January 2014. Tatman, who holds a bachelor’s degree in science, industrial and systems engineering from Ohio State University and a master of business administration, corporate policy from Michigan State University, recently co-authored a book on leadership entitled “Building Cathedrals – The Power of Purpose.”

Ed Lane: In April 2014, Gov. Steve Beshear announced the formation of a new entity, the Kentucky Automotive Industry Association (KAIA). The association has a 12-person board of directors and is chaired by Larry Hayes, secretary of the Cabinet for Economic Development. Secretary Hayes in July announced your selection as the executive director. You have been in your new position about eight months. What are your specific duties as executive director of the KAIA?
Dave Tatman: Let’s step back to March 2014, when I retired from Corvette (as manager of GM’s Bowling Green Assembly Plant). I decided to retire because my family and I wanted to stay in Kentucky. I had a terrific 34-year career at General Motors; I loved every minute of it. There are some challenging times, as you well know, but the Corvette plant had been my 13th GM location, and I didn’t want to have a 14th. My wife and daughter and I had fallen in love with Kentucky. I chose to leave General Motors, without a real clear plan for my next career steps. But I had this notion that I wanted to work on a little larger scale. I had enjoyed tremendous success with General Motors, capped off by the incredible launch and success of the new Corvette Stingray.
I was starting to explore some options when I got a phone call from Secretary Hayes. He congratulated me on my GM retirement and then asked what my next steps would be, and I said I wasn’t sure. He said he had an idea. And so that began our conversations, even before the announcement had been made about the (formation of) KAIA. On the first of July, I started full-time as executive director with the association. It was very important to the governor and the KAIA board of directors that the organization be seen and perceived as industry-driven. The KAIA fit perfectly into what I wanted: to work on a larger scale. My charge, at the direction of our board of directors, is to build the KAIA into a common voice for the auto industry in Kentucky. The industry is vital to the economy of the commonwealth, but prior to last summer Kentucky really didn’t have an organization that represented the state’s auto industry.

EL: What are the primary missions of the KAIA?
DT: The KAIA has established four objectives. The first is branding. The auto industry doesn’t have a brand in Kentucky. When the governor goes to speak to the conferences in Germany, they’ll often scratch their heads and say, “Kentucky?” When I talk to groups around the state and the country about Kentucky being the third-largest state in terms of automotive production, they’re like, “Really?” So we need to brand the industry and demonstrate that Kentucky is a great place to operate an automotive business.
The KAIA’s second objective is advocacy – to be a voice for the auto industry. This is actually a very comfortable position for me because I understand the life of my colleagues in the industry throughout Kentucky. The fact is, the pace of the automotive business is such that managers rarely have time to look beyond today or tomorrow. And the issues that we face as an industry in terms of our opportunities for growth and overcoming obstacles to expansion are issues a plant manager doesn’t address because he doesn’t have time. You worry about it, but it never gets to the top of your to-do list. I spent 34 years running operations.
I know how to run a factory. I know I ignored important objectives during that time because they were outside the four walls of my plant. I didn’t have to worry about “that” issue; I was hoping somebody else was doing that. Well, I’m doing that now for the automotive industry. That’s the advocacy piece.
toyotas-crew Our third objective is leadership. Because auto manufacturing lacked a common voice as a Kentucky industry, it never really stood up as an industry and said, here’s our perspective. (It didn’t answer questions about) what does the automotive industry think about this?
The fourth and final objective, and really probably the one I spend the most of my time on, is workforce development. The biggest challenge we face in the automotive industry is having talented workers ready to take the jobs that are becoming available. And so that’s how I spend a lot of my time. I’m in middle and high schools; I’m at colleges and universities; I’m in the community and technical schools, working to ensure that exceptional occupational opportunities of our industry are known.

EL: How big is Kentucky’s automotive industry?
DT: The automotive industry in the state of Kentucky is comprised of about 460 different manufacturing plants, employing almost 90,000 employees. It’s a huge impact. It exports over $5.5 billion worth of automobiles and automotive products every year. In 2014, the state of Kentucky built over 1.2 million light vehicles and passenger cars. When you think about that in the context of things, that puts Kentucky third, behind only Michigan and Ohio. The epicenter of the automotive business is moving south, and Kentucky is right in the heart of that growth area and has the ability to take advantage of its central U.S. location.

EL: Is the KAIA underwriting a state auto industry economic impact study?
DT: The KAIA has partnered with UofL’s Urban Studies Institute to do an economic impact study for the automotive industry in Kentucky. It’s very similar to the study UofL did for the distilling industry – primarily the bourbon industry – that they released last fall. We want to fully understand that (dollar and job) multiplier effect of the auto industry. Is it four, is it nine, is it 12? There are a lot of jobs created for every job created in an auto manufacturing plant. We want to understand the metrics of economic development growth as it compares to neighboring states and to our competition. So we’re going to use that study to conduct nine regional workshops throughout the state in the spring and summer. Eighty of Kentucky’s 120 counties have some form of automotive business in them.

EL: Is the move to the South partly because of right-to-work?
DT: That’s a great question. I expected to talk about right-to-work today. I tend to agree with Gov. Beshear’s position. Right-to-work is very much a sensitive political issue today. We’re seeing the debate going on. About 25 of the 50 states now have some right-to-work legislation. We’re seeing the debate in Wisconsin right now. Michigan and Indiana both chose to go right-to-work recently. It is a tool for economic development. I think it was a very attractive issue for a lot of the European and Asian automakers who have located in the South. But in our state, we find both union and nonunion firms working very effectively.
I’ve got members on both sides of the equation, so I don’t take a firm stance on right-to-work. I say, let’s leave it to the legislature; see what the government decides to do about it. There are potentially companies who won’t consider Kentucky because it is not a right-to-work state, and I suppose – but I don’t know for a fact – the reverse could be true as well, that there are companies who located here because Kentucky does welcome unions. The evidence suggests that Kentucky’s done a tremendous job of attracting businesses in spite of a lack of right-to-work legislation.

Tatman-Vette-textEL: How was your working relationship with unions when you worked for GM?
DT: I worked 34 years in a union environment, and I never found a union official that I couldn’t work with. At the end of the day, we’re just a couple of people trying to make a living for our families. You approach it that way and you don’t say, “You’re wrong and I’m right.” Collaboration is the name of the game, so I’m not overly pro-union or right-to-work. I think both concepts can peacefully coexist, as they have in Kentucky for a long time.

EL: Does the free-market system equalize prices and wages in the auto industry? If you are a manufacturer and nonunion, you have to pay competitive wages to attract quality employees.
DT: Yes, especially in this environment of scarce labor. You know, we’re seeing that happen all the time. Walmart, for heaven’s sake, raised its minimum wage. All the guys at McDonald’s and Burger King are starting to scurry, and we just heard yesterday that Target is raising its wages. It is so interesting that states are having a debate on (raising their) minimum wage. Meanwhile, free market forces have taken over, and employers are starting to respond.

EL: Even though Ford had been manufacturing cars and trucks in Kentucky since 1913, do you think Toyota locating in Kentucky 30 years ago was especially important because it was a catalyst to expand the state’s automotive industry? At the time, the state’s economy was weak and population growth was static because not that many people were inmigrating to Kentucky, and some were outmigrating because they didn’t have jobs.
DT: Certainly Toyota deciding to build its operations in Georgetown was a huge benefit for the state of Kentucky. I congratulate all the leaders who recruited Toyota. Georgetown is now one of Toyota’s largest manufacturing facilities in the world and, of course, Toyota is going to launch the new Lexus there. But moreover, Toyota has exercised terrific corporate citizenry in the time they’ve been here in Kentucky. As Toyota worked to develop infrastructure, it also worked to develop relationships with government and jurisdictional entities, and Toyota has brought other businesses with them.
crossoverThere’s a huge incentive and impetus in the automotive industry to locate supplier plants in proximity to assembly plants. And as we move further in the technology of vehicle assembly, the original equipment manufacturers, or OEMs, do less and less in their plants utilizing their employees and rely more and more on service providers. So that industry is growing as well. Toyota has been here about 30 years; GM has been in Bowling Green about 30 years; Ford has been in Louisville over 100 years. Those OEMs are the foundations upon which Kentucky has built a terrific base of automotive business.

EL: How will the KAIA be funded?
DT: Upon founding the KAIA, each board member was regarded as a founding member. Our board is comprised of the three OEM members, a member from the Kentucky Economic Development Cabinet (Hayes as chairman) and eight other significant suppliers. And each of these firms primed the pump for the KAIA with a founder’s fee. And every member pays annual dues, so as the KAIA grows, dues revenue grows. And we’ll continue to see additional funding from special events and sponsorships to auto-related events that will continue to propagate the organization.

EL: What is your relationship with Western Kentucky University?
DT: At the same time that I was having conversations with the state and the KAIA, I was approached by WKU to talk about how the university could leverage my background, skills and experience to further auto industry relationships with the university. And so I work on a very limited part-time basis for WKU, connecting the dots in the south-central Kentucky region, in WKU’s region of influence, to try and ensure that when industries seek university assistance or partnerships, I can help facilitate that.

EL: Would WKU provide specialized training for people in the automotive industry, or would that be specifically through the Kentucky Community and Technical College System, which created the successful Advanced Manufacturing Technician program?
DT: It could be all of the above. One of the things we’re having a lot of discussion about is that there’s this very significant aluminum business development in south-central Kentucky and up along the Owensboro corridor, and the industry needs materials science and metallurgical engineering. The University of Kentucky is now setting up a terrific program in those areas, but short-term certification training is also needed, so WKU is focusing on that. The relationships that are most leverageable for an educational institution like WKU or UK or the University of Louisville are those collaboratively working with the auto industry on applied research. The auto industry doesn’t have the time, resources or desire to do a lot of research for research’s sake, but universities do, and they’ve got terrifically talented great young minds available. Those kinds of partnerships and industrial relationships have been developing for a long time and continue to develop in a significant way.

F-150EL: One of the highest priority issues for the auto industry is workforce development. What are some of the training programs available for persons who are interested in an auto manufacturing career?
DT: You’ve hit on a really critical issue here in Kentucky. Our situation, in terms of workforce readiness, is quite frankly no different than we see in other auto manufacturing centers around America. I heard all about it in South Carolina (in late February). Toyota and GM have been here about 30 years, which is the duration of a normal automotive career path – 30 or 35 years. Employees are now starting to retire. Job openings are also occurring because the auto business is globally expanding – the North American market is continuing to expand unbelievably – it hasn’t been that long ago 9 million cars a year were built in North America; now the industry is looking at building 18 million cars this year.
So not only is there increased auto sales, but we have a huge attrition of (retiring) employees also going on. The auto industry has a significant crisis on its hands with having people ready for these jobs. So I applaud the efforts of the Kentucky Federation of Advanced Manufacturing Education (KY FAME). KY FAME is spreading statewide out of a program that was started in Georgetown by Toyota and the Bluegrass Community and Technical College. It’s a five-semester cooperative internship educational experience where the student goes to school two days a week full-time – and this is not two or three classes; they go from 8 a.m. to 5 p.m., a full work day – and they work three days a week. And after five semesters, students graduate with a dual-tracked apprenticeship now that allows them to become skilled maintenance technicians.
The skill sets that Kentucky FAME also teaches include problem solving, teamwork, and many other so-called softer side skills. Those are very important in the world that we work in today. I would venture to guess there are very few automotive employees in the state of Kentucky who don’t work in small groups, working on problems that their group faces. So all of those dynamics are in play as well.
There are a number of companies involved in FAME; it’s been around for about 13 years. In a conversation at a KAIA event in October 2014, I was talking with some of our members up in Northern Kentucky, which is a hotbed for some German auto (parts) manufacturers. At this event, we discussed what’s going on in Georgetown at the KCTCS school there, and the idea to start copying and pasting that training program around the state. So now we’ve got this terrific initiative going on with Kentucky FAME: A chapter is now operating in Northern Kentucky at Gateway Community College; in Louisville, Ford has a program at Jefferson Community College; a chapter is planned in Elizabethtown.
Much like Toyota, Ford had been working on this effort for a while, and the domestic big three have had a long history of apprenticeship programs. General Motors had stepped away from them for a long period of time because its auto production was shrinking; GM still had all these employees, so it didn’t have any need to train new employees. Well, now all of a sudden GM is saying, oh my gosh, we need qualified employees. If Ford were to graduate apprenticeships into regular skilled trades type of work, those employees could transfer under the provisions of the Ford UAW international agreement to other Ford plants around the country.

KFAM-EdBdEL: You started your career at GM as a college intern and retired from the company in 2014 as the plant manager of GM’s Corvette plant in Bowling Green. Are you a “poster boy” for a career in advanced manufacturing?
DT: I certainly was blessed with a terrific 34-year career at GM. I actually was selected in my sophomore year of college, in a competitive interview process, to be what was then called a “GM scholar,” where GM paid for my tuition and books and gave me a summer internship my last two years of school. So that set me on the path that said maybe this was a potential career. There was no obligation to go to work for GM when I graduated. I interviewed – it was a very good time to graduate; I had a number of offers – but I found myself comparing the other offers to the job I was going to do at GM. In some respects my career path at GM could be considered a case study. I got my master’s degree at night; I worked all day and went to the University of Michigan at night, and GM paid all my tuition and books for that degree.
That certainly facilitated my learning and knowledge of business systems. And things progressed from there. If one chooses that kind of career today, that’s certainly a typical or potential career path that may require sacrifices. You’d better be prepared for moving your family, working in a number of different locations, and that would usually include some international locations. I worked in three different countries: Canada, the U.S. and Brazil. And I moved my family five times. The four-year degree, starting with a business or engineering degree, and then working your way up, is absolutely a clear career path. But as I said, not everybody is motivated that way. When you look at a trillion-dollar student debt problem in this country, maybe college isn’t the right answer for everybody. Successful is a relative definition. Success could be having a satisfying career in advanced manufacturing that allows you to provide a quality lifestyle for your family.

EL: Since a limited number of the general public has actually been inside an “advanced manufacturing auto plant,” is there a perception about working in an auto plant that does not reflect reality?
DT: Absolutely! That’s a big problem. Not only do auto employers need to convince elementary, middle and high school students of the attractiveness of auto manufacturing jobs, but they’ve got to convince their parents of that as well. The Corvette plant is open to the public for tours every day that it runs cars. There are four public tours a day. In many ways, that was the only impression of GM and of automotive manufacturing that many people would ever get. Now Toyota does tours, and Ford does some limited tours, so there are those opportunities, but it was very important to me that whoever came in the door to see our plant walked away saying that it was a clean plant, well-lit, with workers fairly tasked with the jobs they have to do, that they’re ergonomically sensitive, that all those kinds of things were true.
That’s the manufacturing world we work in today. Now there are some tough jobs in manufacturing; don’t get me wrong. But by and large, the auto industry has elevated the whole scheme of things in manufacturing to where the jobs are good jobs. It will probably take another generation of workers until the perception that manufacturing is ‘dark, dirty and dangerous’ is completely eliminated. Employers expect you to come to work every day, to stay drug-free, to be at work on time, and to work until the end of the shift. But what’s wrong with that? That’s just a good work ethic.

EL: What are the pay ranges (for new trainees to highly experienced workers) in auto manufacturing jobs?
DT: It varies a lot from company to company. Probably the bottom end is around $15 an hour, and the top end can be north of $30, plus overtime. Plus Ford and GM both have, as part of their national agreements with the UAW, a profit-sharing plan that kicks in extra money. It’s a pretty good compensation package with benefits.

EL: Do you have a closing comment?
DT: As I said, I woke up every day and was excited to go to work at GM. I am so blessed to have a second career chapter that is equally exciting and fun for me. For 34 years I was confined to the four walls of a factory; I could hardly leave for lunch, and my life went in 6-second increments. So I’m enjoying very much the opportunity to travel the state, to get into different suppliers and automotive companies, to talk and to learn what really is on people’s minds. A huge amount of the automotive supplier business is done by very small firms. There are also some megaplayers in the supply business, as big as the OEMs, but the reality is that there are a lot of small shops around the state that, prior to the KAIA’s formation, never knew how they could get their voices heard. Well, there’s a way now, and I love being the person to talk to about Kentucky’s auto industry. ■