Lexington, KY - The new Bluegrass Economic Advancement Movement (BEAM) is tasked with crafting an economic development plan that will improve advanced manufacturing and increase exports from Lexington, Louisville and a contiguous 22-county area. It will be designed to generate higher paying manufacturing jobs in Lexington, as I have been advocating.
If Lexington is to attract higher-paying jobs, it will be by attracting new manufacturing employers, not by stopping the declines in the Thoroughbred horse business. The fundamental problem facing BEAM and Fayette County is that there is presently no large tract of land available for building a major manufacturing facility here. According to a 2011 study conducted by Commerce Lexington, Inc. (whose CEO Robert Quick is a BEAM member) and reported to the LFUCG Planning Department, there are only about 75 acres of properly zoned land (in scattered tracts of five acres or more) available for building a new manufacturing facility in Fayette County's Urban Services Area (54,664 acres).
On August 30, 2011, Bob Quick wrote Jim Duncan with the Division of Planning: "This situation often places Lexington at a comparative disadvantage when attempting to recruit new large-scale job creators to our community. They need land ready to build on quickly and do not have time for lengthy land-use process and development. It is an understatement to say that we need to have a sufficient supply of land that is readily available for economic development opportunities and job creation prospects."
Under Fayette County's Land Use Plan (which is now open for its periodic, four-year review), no manufacturing facility can be built in the Rural Services Area (127,818 acres), which comprises 70 percent of Fayette County's land. The Fayette County School Board has been unable to locate a 50-acre tract upon which to build the now-needed sixth public high school.
I have suggested that the Land Use Plan should be amended to permit 1,000 to 1,500 acres to be zoned and developed for manufacturing or industrial (but not residential) uses. Construction of the Toyota manufacturing plant (and plants for its suppliers) has not destroyed the rural character of Scott County. Permitting manufacturing development in Fayette County would not harm the county's character or undermine the horse business. Scott County now has a higher median household income than does Fayette County ($58,595 versus $48,400 in 2009), and its government has an ample tax base.
The November 10, 2011, Legislative Research Commission report, "The Kentucky Thoroughbred Breeding Industry and State programs that Assist the Equine Industry" shows that the Thoroughbred breeding industry constitutes less than 0.67 percent of Kentucky's economy ($912 million, (excluding the multiplier effect) out of $163 billion in 2010). Even in Central Kentucky, the thoroughbred breeding industry constitutes less than 3 percent of the annual economic output. According to the LRC report, the average earnings per job in the thoroughbred breeding industry were only $15,549 in 2010, compared with the Fayette County 2009 median income of $37,354. The Federal poverty threshold for a family of four is $22,314.
Particularly where compared to Jefferson County, Fayette County is now facing dire economic and government finance issues, despite its August 2011 unemployment rate of only 7.2 percent, compared to about 9.5 percent for Kentucky. Neither Jefferson County nor the rest of the 22-county BEAM area faces the land use constraints that hobble Fayette County in attempting to attract manufacturing jobs. In 2010, the median household income was down more than 10 percent in Lexington and Louisville. Lexington should have a comparative advantage over Louisville, since Lexington is among the top 10 communities in the United States in terms of the educational attainment of its adult population. In Fayette County, 38 percent of those aged 25 and older have at least a bachelor's degree, compared with the national average of 26 percent. Many Kentucky business leaders say their companies cannot find enough skilled workers to fill available jobs.
The people of Fayette County and its government are now facing serious economic and financial trouble. Between 2000 and 2010, the rate of childhood poverty in Fayette County grew to 26.5 percent from 14.7 percent, and it is now virtually identical to the rate for the whole state (26.3 percent in 2010), despite the low 7.2 percent unemployment rate here. Over 10 years, the rate of childhood poverty grew three times as fast in Fayette County as it did in Kentucky as a whole. Between 2004 and 2009, average income growth in Fayette County was only about 55 percent of that for Kentucky (9.6 percent versus 17.4 percent). Between 2004 and 2009, average income growth in the United States was 17 percent, virtually identical to Kentucky's 17.4 percent. Part of the problem is that most of the jobs recently attracted to Fayette County do not pay middle-class wages even approaching the 2009 median wage of $37,354. Newcomer ACS (a subsidiary of Xerox that operates call centers for other companies) is now among the top-five private employers (3,000+ employees), but most ACS jobs only pay $10 per hour (before overtime or bonus), or $19,200 per year.
The LFUCG finances are under so much strain that our local government may consider filing municipal bankruptcy, as Birmingham (Jefferson County), Ala., and Bridgeport, Conn., have in 2011. Pursuant to a recent settlement of litigation brought over Lexington's aged and inadequate storm sewers, the government must spend $300 million. The LFUCG also owns at least two major parking garages that need to be torn down and replaced, which would cost millions of dollars that it does not have. It is not clear where the LFUCG will get the money just to tear down the recently condemned Vine Street garage (from which a large concrete panel fell two stories to the sidewalk in May 2011), much less to build a new garage. The biggest financial issue facing the Lexington-Fayette Urban County Government is that its firemen's and policemen's pension and retiree health care funds are unfunded by $537.2 million. The government has already borrowed (via a bond issue) and has outstanding $103.6 million in debt, and it will probably have to issue additional bonds to satisfy these obligations. Using the assumptions from Councilman Doug Martin's November 2 presentation to the Lexington-Bluegrass Association of Realtors, if the government borrows $537.19 million to fund these liabilities, at 5.5 percent interest for 20 years, it would be required to find a way (20 percent property tax increases?) to repay $44.95 million per year. Over the 20 years, the principal and interest repaid would total $899 million. The Lexington-Fayette Urban County Government finances are so tight that it has laid off some workers and does not have money to erect street lights in one residential subdivision completed a year ago. In 2011, leaf collection has been reduced to a single run, from two.
Bringing a new major manufacturing plant to Lexington would not only provide higher paying jobs, but would also substantially increase tax revenues, which would help solve the local government's financial problems. The people of Fayette County and our elected representatives must now make some critical choices about land use if the economic and financial prosperity of our residents and government are to recover and increase. The other 23 BEAM counties will compete aggressively to get any new manufacturing plants to locate in their county. Some counties (but not Fayette County) even buy down the land costs of available sites to provide financial incentives for the manufacturer to locate there. By contrast, much of the available Fayette County land will include an exaction fee of between $40,000 and $80,000 per acre (an exaction fee is a fee paid by the developer for the use of government services relating to the development) and an "open space" requirement of 25 percent of the tract size. Thus, manufacturing land (if it can be found at all) in Fayette County costs up to $106,600 per acre more to develop than competing land from other counties. Some have suggested redeveloping "under-utilized" land inside the USA as manufacturing sites, but that land would be even more expensive.
Given these financial considerations, we cannot compete with the other 23 counties for new manufacturing facilities unless the Land Use Plan is amended to provide the large tracts of land needed for development and the LFUCG alters its financial requirements for manufacturing development sites. Unless these changes are made, Fayette County's economic decline will continue and the rate of childhood poverty will continue to increase. These land use issues are the most critical ones facing Fayette County at the close of 2011.