Lexington mayor wants to use $2 million from surplus for Jobs Fund program

bmusgrave@herald-leader.comOctober 21, 2013 

Lexington is coming out of the recession faster than many cities, but its unemployment rate of 6.1 percent in August is still too high for Mayor Jim Gray.

"It's still double what it was six years ago," Gray told the Urban County Council last week during a council meeting on economic development. In October 2007, Lexington's unemployment rate was 3.7 percent.

To beef up Lexington's job market, Gray is asking the council to set aside $2 million of a $12.5 million surplus for an economic development fund called a Jobs Fund. The fund would be used for grants and loans to help create jobs at existing businesses and attract research and high-tech jobs to the state's second-largest city.

During the Oct. 15 economic development meeting, the council did not have time to ask questions about the jobs proposal and did not discuss its merits. But it will continue discussions on how to spend the $12.5 million surplus Tuesday. The jobs proposal probably will be discussed.

The program is new for Lexington and many other cities. Paducah is the only city in Kentucky with its own economic incentive fund to attract businesses. Other cities that use tax dollars to attract and keep businesses are Durham, N.C., and Cleveland, which allocates more than $100 million for its economic development fund.

Lexington's program would not duplicate state incentives but would fill in gaps in those incentives, city officials said last week.

Moreover, state incentives have declined in the past four years, from $44.7 million in 2010 to $19 million in 2014, said Jaime Emmons, Gray's chief of staff. The city fund also would target companies that do not qualify for traditional state incentives.

The city's program would offer grants and small loans to smaller companies that typically don't qualify for traditional state incentives. The incentives would be targeted to attract innovative companies that are on the cusp of turning research into a product or service, Gray said. Companies eligible for the Jobs Fund program already would have received U.S. Small Business Administration Small Business Innovation Research or Small Business Technology Transfer grants, which are for small, research-based companies.

"These are companies that have already been vetted by the federal government," said Scott Shapiro, a senior adviser to Gray. Traditionally, Kentucky and Lexington have underperformed in attracting these high-tech and innovative companies compared to peer cities such as Madison, Wis., and Ann Arbor, Mich., Shapiro said.

"These are companies that should be here, but they just don't know it yet," Shapiro said. "We want to be the best city in the country for these companies to locate and thrive. There is no other city that's doing this."

A Harvard Business School study found that just 25 percent of start-ups succeed. In contrast, 67 percent of high-tech companies under the U.S. Small Business Administration Small Business Innovation Research or Small Business Technology Transfer programs succeed.

Gray said last week that if a company did not perform as promised and did not create the jobs it said it would, the company would have to repay money, commonly called a "claw back." The loans or grants can be only 10 percent of the company's total financing. The loans are for up to $250,000.

Under the proposal, the fund would be overseen by the city's chief development officer and an economic development board. The Urban County Council would have final approval of any loan or grant.

That's more oversight than most economic development incentive funds, Emmons said.

Emmons said that if the proposal is not funded with some of the surplus funds, it's likely that the Gray administration would push for it again in April, when the may proposes his budget for the following fiscal year. Council member Julian Beard chairs the council's economic development committee and is a former chief development officer for the city. Beard said he could not say how the council would vote on the proposal during Tuesday's meeting. But Beard said he supported the initiative.

"There will be some in-depth vetting of these companies," he said. "If it doesn't work, we can shut it down any time that we want to."

Beth Musgrave: (859) 231-3205. Twitter: @HLCityhall.

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