Economic development

Commerce Lexington's relationship with city may change

Mayor wants lead, transparency

jpatton1@herald-leader.comApril 10, 2011 

The role of Commerce Lexington — which has received $2.6 million in taxpayer money for economic development in the last five years — is about to change.

In recent years, the local chamber of commerce organization has guided local economic development efforts as the city took a largely hands-off approach. Commerce Lexington, which says its role is to market Lexington to businesses, provides limited public information about what it does with that city money.

But Lexington Mayor Jim Gray said he believes the relationship should be more transparent, and control of economic development should rest with city hall.

"I expect to have a much more active role" in economic development, Gray said in an interview last week. "My sense is, on a (day-to-day) level, the work has been competent. Where we have been lacking is in vision and leadership and strategy."

Bob Quick, Commerce Lexington's president and chief executive officer, in a statement Saturday in response to Gray's comments, defended the chamber's work.

"We have been successful despite a downturn in the economy, as evidenced by a number of projects: Tiffany & Co., Lockheed Martin, Allconnect, Orthopeutics, Galmont Consulting, to name only a few. All of this has been accomplished in an increasingly competitive environment," he said.

The companies — a jeweler, a defense contractor, a call center, a biotech researcher and a software analyzer — all figured prominently in Commerce Lexington's jobs and local investment announcements in the last year.

Quick indicated that the public and private sectors will continue to work together.

"We welcome the mayor's involvement and expertise, and look forward to building a stronger and more robust economic development initiative," Quick said in the statement. "The coordination of our economic development efforts with the Lexington-Fayette Urban County Government and the University of Kentucky are vital to our overall success."

It is less than clear, from documents recently obtained by the Herald-Leader, exactly what the city gets for its Commerce Lexington investment, which grew from $50,000 a few years ago to more than 10 times that under former Mayor Jim Newberry.

Commerce Lexington maintains that because less than 25 percent of its overall budget comes from public money, it is not subject to open-records laws. The group declined to make additional documents public or to disclose how thousands of dollars in travel money is spent.

Gauging the effectiveness of economic development efforts can be difficult, but accountability is even more crucial in difficult budget times, according to Gray and his top officials.

"This mayor expects total transparency and we're going to have it," said Geoff Reed, Gray's senior policy adviser. "Our money is going to be accounted for and we're going to measure what's done with our money as to successes and failures."

Reed said Commerce Lexington has indicated it is amenable to this.

The biggest chunk of the public economic development money — about $170,000 a year, according to recent Commerce Lexington budgets — went to marketing and advertising.

"That might sound like a lot, but we need to do so much more," Quick said in an interview.

Marketing efforts, according to Commerce Lexington, included a set of color postcards for direct mail; advertising in various magazines, state economic development guides and Keeneland and World Equestrian Games programs; welcome banners for groups visiting the city; and beefing up the group's Web sites.

"I think the question for us is, 'Is that money being spent in effectively marketing Lexington?' " Reed said. "It's not necessarily that it's being poorly spent. But can it be better spent?"

More strings

Gray, whose background is in construction and economic development, challenged the value of some of Commerce Lexington's methods.

"I can tell you right now, 25 years ago Gray (Construction) quit doing print advertising," he said. "I don't understand (why they do) that."

In a business driven by relationships, face-to-face is what counts, he said.

Gray said that, while he respects "the historic relationship and the benefits of the experience they bring to the table," future appropriations will come with more strings and better methods of gauging how the strategy's working.

Much of Commerce Lexington's work is behind the scenes — building relationships and putting the city's best face forward to prospective new businesses.

Commerce Lexington officials recount the wooing of Tiffany, the luxury jewelry maker that announced last year it will come to Lexington and hire 125 people, as an example of their skills in helping companies come here.

Mike Mullis, the Memphis-based site selector who served as matchmaker, said describing Commerce Lexington's role in the deal as "critical would be an understatement."

But, he said, both private and public sectors made it happen. (The state came up with a $2.75 million tax incentive deal.)

"Both have to be there," Mullis said. "Commerce Lexington cannot make a deal. But they are good brokers."

Quick said that Commerce Lexington's role is to bring people to the table.

"In almost every one of these cases, we're competing with other places," Quick said in an interview. "A lot of people will say a company would have come here anyway. For the most part, that's not true."

Tighter budgets

About 41 percent of Commerce Lexington's current $1.2 million annual budget for economic development came from the city.

Commerce Lexington applied for $464,000 in the 2012 budget, but said that the request would need to be adjusted based on recommendations from AngelouEconomics, a private consultant, on a new economic development strategy for the city.

But with Lexington facing a $25 million budget shortfall, all appropriations for outside agencies face drastic reductions in the 2012 budget that Gray will unveil Tuesday.

The AngelouEconomics report came under fire after a first draft was criticized for recycling recommendations from work done for other cities. At the behest of Gray, the consultants refunded half the money to the city and rewrote it. In the new version, a recommendation to expand Commerce Lexington apparently has been watered down while the role of the mayor has been emphasized, perhaps foreshadowing the power shift.

Commerce Lexington said on its grant applications for city dollars that it consistently meets or exceeds goals for jobs creation and business investment (from 2007 to 2009, 2,380 jobs were brought to the Bluegrass, with a reported capital investment of $292 million).

But Vice Mayor Linda Gorton said that not all jobs are created equal.

"Call center jobs are fine, but I don't think they are particularly high-paying," she said. "It's not real easy to look at the money we give (Commerce Lexington) and see the jobs we get back. It's a little nebulous."

Julian Beard, who heads the council's economic development committee, said most of Commerce Lexington's city-financed development efforts "are not home runs, by any means. ... Maybe it isn't working to the desired level. There are some things they are attempting to do that just won't work."

Council member Steve Kay said that going into his first budget discussions, he has concerns about the traditional approach.

"What I do know is the shift from the city to Commerce Lexington is fairly recent and I'm interested in knowing what difference it's made," Kay said

But council member Doug Martin said reducing economic development spending is not the answer.

"I'm a supporter of the public-private partnership," Martin said. "I think it's not whether we need to cut it; it's whether we need to quadruple it."

More 'angel' investors

Commerce Lexington officials said cutting the city funding would seriously damage existing efforts.

"A lot of these programs would disappear," said Gina Greathouse, Commerce Lexington senior vice president for economic development.

Programs include summer internships with Lexington businesses for high school seniors and help for minority businesses. But for most of them, public financing is only a portion of the budget.

"We use city money to leverage private dollars," Quick said. (Much of Commerce Lexington's economic development funding comes from a separate capital campaign that raised $3.5 million from private businesses, he said.)

But Gray noted that, while the current development model of trying to attract new businesses through site selectors is great, that might result in Lexington making the cut for just one big project every few years.

Helping local businesses expand or get off the ground may not be as splashy, but can provide steady job growth, Gray said. He said he thinks 80 percent of the growth should come from that strategy.

To that end, Gray said, he plans to focus on the venture capital infrastructure and attracting "angel" investors who can help turn UK research into jobs and businesses.

Quick said last week that he still sees a "significant role" for Commerce Lexington.

"I think it's going to take a cooperative partnership to move forward," Quick said.

Gray agreed, but said the city must see a better return for its money.

"What I expect is the strategic thinking and the outcomes will significantly improve," Gray said.

Staff writer Cheryl Truman contributed to this report.Reach Janet Patton at (859) 231-3264 or 1-800-950-6397, Ext. 3264.

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