STATEWIDE POLICY POSITIONS HOME BUILDERS ASSOCIATION OF NORTHERN KENTUCKY
1) Positions at a Glance ………………………………….. 2) The Kentucky Economy………………………….......... a) Jobs……………………………………………… b) Education……………………………………….. c) Population and Households…………………….. d) Household Income………………………………. e) Government Actions…………………………….. 2) Government Accountability……….…………………… 3) Land Ownership and Private Property Rights….……… 4) Workforce Development……………………………….. 5) Stormwater and Sanitary Sewer Regulations…………… 6) Construction Finance……………………………………. 7) Transportation Projects………………………………….. 8) The Cost of Doing Business in Northern Kentucky…….. 9) Limited Liability Entity Tax..…………………………… 10) Worker’s Compensation…………………………………. 11) Roofer Licensure………………………………………… 12) Funding KYNECT…………………………………………
p. 2 pp. 3-7 p. 3 p. 5 p. 6 p. 7 p. 7-8 p. 9 p. 10 p. 11 p. 12 p. 13 p. 14 p. 14 p. 15 p. 15 p.15 p.15
Compiled by Home Builders Association of Northern Kentucky State & Local Government Committee
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POSITIONS AT A GLANCE In order to improve Kentucky's economy the state legislature should enact legislation allowing for charter schools in our Commonwealth. Additionally the state should make legal vouchers for private schools. (p 5) To improve the economy in Kentucky the state legislature should draft legislation allowing for school choice, school accountability, magnet school systems, and open enrollment plans. (p 6) Right to work legislation should be introduced to the General Assembly in order to improve the Kentucky economy. (p 7) The Kentucky General Assembly should enact legislation mandating that laws and regulations with possible adverse effects on the business community should be scrutinized under the guidelines of feasibility and economic sustainability. (p 8) Due to the proliferation of special taxing districts in Northern Kentucky and across the Commonwealth, the state General Assembly should enact legislation that would mandate that any increase over a particular percent, year-over-year, would require a vote of the full Fiscal Court in each respective county where special taxing districts exist. (p 9) Any planning effort on a state funded basis or managed by the state should include a feasibility study as well as an economic impact model. These reports should be backed by sound science as well as rationalized by harsh economic criticism. (p 10) In order to improve the state of workforce development the General Assembly should enact legislation or encourage administrative programs that would allow for an appropriation from workforce development or education funding to go towards private career centers and apprenticeship institutions. (p 11) We encourage the General Assembly to work with the Kentucky Division of Water to lessen the impacts imposed by Stormwater permit regulations from the Environmental Protection Agency. (p 12) There should be made available with the Kentucky Housing Corporation funding for acquisition, construction and development loans for builders and developers. (p 13) The General Assembly should appropriate construction funding for Kentucky 536 road improvements. We encourage the plan for KY 536 road improvements to be reconsidered so that this road system is improved further west than Union, Kentucky. (p 14) Align Kentucky’s definition of Limited Liability Entity Tax with that of the IRS. (p. 15) Stop any harmful workers compensation legislation and enact business friendly legislation. (p. 15) Stop roofer licensure legislation adding another layer of bureaucracy to the building process. (p. 15) Businesses participating in Bona Fide Association Health Care Plans should not be subject to any assessment for KYNECT. (p. 15)
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The Kentucky Economy The market for homebuilding and remodeling depends on healthy economic components such as:
1. 2. 3. 4. 5.
Employment Quality educational opportunities. Population and household growth. Income growth. Government actions that affect the ability of people to afford new homes and remodeling.
This study of Kentucky’s economy compares the above market components to the nation and selected neighboring states.
.
JOBS State Illinois Tennessee Missouri
Unemployment Rate 9.2 % 8.5 % 8.5 %
Kentucky Indiana US Median
8.4 % 8.1 % 7.3 %
Ohio West Virginia
7.3 % 6.3 %
Virginia
5.8 %
The unemployment rates of all the states bordering Kentucky are shown in Table 1. As of August 2013 Kentucky’s unemployment rate is well above the national average. It has the fourth highest unemployment rate of all the adjoining states. This is only a snapshot of one point in time but it is indicative of the rate of unemployment Kentucky has experienced during the current and continuing recession Table 2 reveals that between August 2012 and August 2013 the Kentucky job situation improved a bit. Total nonfarm employment increased 2.65%, from 1,793,700 jobs to 1,840,700. That small increase is below the level it would take to start the market moving again. It is above the growth in the national workforce and our surrounding states during the same period.
Table 1 Bureau of Labor Statistics Aug 2013
State
Kentucky Indiana Ohio US Jobs Virginia
Jobs Added or Lost Non Farm Payrolls +21,300 +50,600 +32,500 +2,187,000 +33,300
% Change Aug 2012 Aug 2013 +1.2 +1.7 +0.6 +1.03 +0.9
Illinois Tennessee Missouri West Virginia
+55,400 +32,200 +36,300 +7,600
+1.0 +1.20 +1.4 +1.0
Table 2 Bureau Of Labor Statistics Aug 2013
Table 2 shows the relative non farm payroll job formation in adjoining states and the national growth rate. The time period used is August 2012 to August 2013. This time frame Includes 12 months. In terms of percentage non farm employment job growth, Kentucky, Indiana, Tennessee and Missouri beat the national average. Ohio and Indiana has increased their manufacturing jobs by 3,100 and 4,000 respectively in the measured time frame. The economies of Southeastern Ohio, Kentucky and West Virginia will continue to have difficulty because those areas rely heavily on the coal industry for jobs. The federal government has stated it will impose severe penalties and regulations on coal companies and coal fired generating plants. Kentucky ranks 10th out of the 50 states for its proportion of total revenue that comes from severance taxes. If federal mandates result in a loss of this revenue, the state will experience lower job formation. Such federal action will rob Kentucky of one of it’s best economic incentives for new business; cheap energy.
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JOBS (Continued) Employment Change by Job Sector August 2012-August 2013 Population
4.38 million Kentucky
11.54 million Ohio
6.537 million Indiana
Professional and Business Services
4,700
9,900
6,400
Trade, Transportation and Utilities
8,000
12,200
27,000
Leisure and Hospitality
12,600
7,400
9.300
Manufacturing
-1,300
3,100
4,000
2,000
13,100
7,800
-1,200
-7,300
8,400
Financial Activities
1,800
400
3,300
Construction
1,500
-6,100
-10,100
Job Sector
Education and Health Services Government
A comparison of Kentucky, Ohio and Indiana is worthwhile because these three states compose an economic area that both competes and cooperates. Northern Kentucky is a part of the Cincinnati and Southeast Indiana market place. What happens in one of those areas effects the others. Table 3 displays the jobs change by job sector for the 12 months from August 2012 to August 2013. Before comparing OH, KY and IN, the disparity in population needs to be addressed. Note that Kentucky’s population is about 40% of Ohio’s and 70% of Indiana’s. Table 4 presents a better comparison of growth because it measures the job changes per 1,000,000 people.
Table 3 Bureau Of Labor Statistics
Employment Change by Job Sector August 2012-August 2013 Per 1,000,000 population Population 4.38 11.54 6.537 million million million Job Sector Kentucky Ohio Indiana Professional and Business Services
1,076
868
982
Trade, Transportation and Utilities
1,831
1,070
4,141
Leisure and Hospitality
2,883
649
1
-297
272
613
458
1,149
1,196
-275
-640
1,288
Financial Activities
412
35
506
Construction
343
-535
-1,549
Manufacturing Education and Health Services Government
The chart points out the strengths and weaknesses of each state’s economy. Notably, Kentucky has the only improving construction environment of the three, gaining 1,500 jobs during the year while Indiana and Ohio have lost jobs in this sector. Kentucky’s Professional and Business service sector grew the fastest, Trade Transportation and Utilities was second while Leisure and Hospitality came in first. This shows the difference between Kentucky versus Ohio and Indiana. Ohio’s top three sectors are Education and Health Services, Trade Transportation and Government. Indiana’s top three are Trade transportation and Utilities, Education and Health Services followed by Professional and Business Services
Table 4 Bureau Of Labor Statistics
Employment Summary According to the U.S. Department of Labor, the bottom of Kentucky’s employment happened in 2009. It mirrored the national drop in employment. When national employment started to improve in 2010, Kentucky’s job growth continued to mirror the national growth rate, with some monthly variations. Kentucky’s 2011-2013 job growth rate exceeded the national average. It is expected to continue the trend through 2015. It will be the first time Kentucky’s employment growth out performed the national average since the years between 1991 to 1995. Kentucky’s job growth rate should outperform Ohio’s and Indiana’s. 4
EDUCATION
Position: In order to improve Kentucky's economy the state legislature should enact legislation allowing for charter schools in our Commonwealth. Additionally the state should make legal vouchers for private schools. In order for a state to have a good economy it needs to train its students in the skills needed to gain a job and advance. That is the job of the state’s education establishment. Many jobs require a high level of technical expertise. Students need to learn math, science, reading comprehension, technical vocational subjects, and advanced courses tailored to the individual student’s capabilities. The modern job market requires a high level of education in order to succeed. When companies are looking to relocate or start new businesses one of the main things they require is a pool of educated individuals from which to select their new employees. A state with an effective school system will attract those new businesses. The U.S. Department of Education does not rank the states on educational achievement. There are organizations that do rank the states in terms of results. Those organizations are usually ones that focus on education issues and are not dependent on the educational establishment. One of the best ranking systems is the annual American Legislative Exchange Council’s (ALEC) annual “Report Card on American Education”. The report is free to download at www.alec.org. The report has extensive data ranking all states on K-12 education. It ranks all states in educational progress, performance and reform. ALEC is a conservative organization. As such, it is interested in results not in effort. ALEC was established as a resource for state legislators and employees interested in change for the better within their state. It is a “think tank” of ideas that are purported to work. Their annual report uses information from the U.S. Department of Education’s “National Assessment of Educational Progress” report. ALEC combs through all the data in the National Assessment of Educational Progress - National Center for national assessment report and puts the information together in a simple, understandable format. That is the information that was used for this report section. This section will deal with only rankings of Kentucky, Ohio and Indiana. Education Performance Kentucky ALEC National Rank
Ohio
Indiana
37th
21st
17th
D+
B
B+
$10,238
$11,982
13,374
33%
37%
31%
Charter Schools Allowed
No
Yes
Yes
Delivering Well Prepared Teachers
D+
D
C+
F
D
F
No None
Yes C
Yes A
ALEC State Grade Card Score Money Spent Per Student % 8th Graders Scoring Proficient
Exiting Ineffective Teachers (dismissal) Charter Schools Allowed Charter School Law Grade Home School Regulation Burden
Low
Private School Choice Vouchers
No
Moderate
None
Yes
Yes
Table 5 ALEC and U.S. Department of Education October 2013
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EDUCATION (Continued) Position: To improve the economy in Kentucky the state legislature should draft legislation allowing for school choice, school accountability, magnet school systems, and open enrollment plans. Education Summary In 2012, the governor’s office issued a press release announcing that Kentucky had jumped 20 spots in national rankings from 34th to 14th in just one year as measured by “Education Week”. The truth is Kentucky education is a mixed bag. There have been some improvements but they are minor. As Table 5 clearly shows, Kentucky is ranked lowest of the three states on education performance. According to ALEC, it has lowered the state academic standards. There is some evidence that achievement tests are not accurate. Despite what the education community claims, there is little evidence of improvement in academic standards and performance in Kentucky. Kentucky’s approach to education leaves little room for competition. Home schooling is legal but charter schools are not. The state offers no vouchers for private schools. Education is in the hands of the teachers union and bureaucrats. There is a reluctance for change. When asked why Kentucky has no charter schools, the former state Education Commissioner, lifelong teacher, state legislator and school administrator answered “Because charter schools are unfair to regular schools.” No mention was made about the children who would benefit from charter schools. His only concern was for the schools not the students. That statement about sums up the state of education in Kentucky. While Kentucky follows the status quo, Indiana and Ohio are reforming their systems. In addition to charter schools, they have implemented public school choice, new standards and accountability, magnet schools, open enrollment plans that allow low-income city kids to attend suburban public schools and participate in various curriculum-based experiments and private school vouchers. This puts Kentucky at a competitive disadvantage for attracting new businesses.
POPULATION AND HOUSEHOLDS
Population Kentucky
Ohio
Indiana
2013 Population Estimate
4.38 million
11.54 million
6.537 million
2012 Population Estimate
4,380,415
11,544,225
6,537,334
2000 Actual Population
4,041,769
11,353,140
6,080,485
338,646
191,085
456,849
8.38%
1.68%
7.51%
Change % Change
During the years between 2000 and 2013, Kentucky had the highest growth rate while Indiana had the highest actual growth. The actual national growth rate for that same period was 9.7 percent. Kentucky, Ohio and Indiana had a lower population growth than the national average.
Table 6 U.S. Census
Households Kentucky
Ohio
Indiana
2011 Actual Households
1,681,085
4,554,007
2,472,870
2010 Actual Households
1,719,965
4,603,435
2,502,154
2000 Actual Households
1,590,647
4,445,773
2,336,306
90,438
108,234
136,564
6%
2%
6%
Change % Change 2000-2011 Table 7 U.S. Census
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Throughout the last decade, Kentucky gained households at a higher rate than did Ohio and even with Indiana. While they added more households than Kentucky, Ohio’s rate of growth was lower. The number and rate of household growth, by definition, mirrors the growth of housing. Those states that have a high rate of household growth have a faster rate of housing stock growth.
HOUSEHOLD INCOME Median household income is an indicator of the ability to buy new homes. The higher the median household income the more residents can purchase a new home. Table 8 below traces the growth in household income for the previous decade in Kentucky, Ohio and Indiana. Between 2000 and 2011 the Kentucky median household income increased by a strong 25%. This was the strongest growth among the three states. Kentucky has the lowest median household income of the three states. Over the last decade the gap between Kentucky and the other states has narrowed but Indiana median household income is $6,145 more than Kentucky. Ohio median household income is $5,823 higher than Kentucky. This disparity among state incomes will hinder Kentucky home sales. The state needs to implement measures to raise median household income. This means bringing more high paid jobs to the state. In 2011 national household income was $52,762 which was $10,768 higher than national household income in 2000. This was an increase of 25 %. None of the subject states exceeded the national growth rate. Kentucky matched that at 25%. The state is still behind the other two states in overall median income. Household Income Kentucky
Ohio
Indiana
2011 Median HH Income
$42,248
$48,071
$48,393
2010 Median HH Income
$40,062
$45,090
$44,613
2000 Median HH Income
$33,672
$40,956
$41,567
$8,576
$7,115
$6,826
25%
17%
16%
Change % Change 2000-2011 Table 8 U.S. Census
GOVERNMENT ACTIONS Position: Right to work legislation should be introduced to the General Assembly in order to improve the Kentucky economy. Kentucky’s elected officials need to realize they are competing with surrounding states. They need to look to the other 50 states for ways to increase prosperity in the Commonwealth. One glaring issue is the “Right to Work” movement. The Bureau of Labor Statistics (BLS) has two monthly surveys that measure employment levels and trends: the Current Population Survey (CPS), also known as the household survey, and the Current Employment Statistics (CES) survey, also known as the payroll or establishment survey. The household survey tells us the right to work states gained 3.6 million jobs over the last decade while the union states lost 900,000 jobs, The payroll survey states that right to work states gained 1.6 million jobs but the union states lost 2 million jobs over the last decade. The conclusion of both surveys is union states are losing jobs and right to work states are gaining jobs. Loss of manufacturing jobs is one of the reasons Michigan and Indiana recently became right to work states. Much of the job growth has been in the southern states all of which are right to work states with the exception of Kentucky. See map below. Another issue that needs to be addressed is the “Prevailing Wage” law. State and local governments could save the Kentucky taxpayers tens of millions of dollars each year. Public buildings, structures and infrastructure necessary for growth could be erected at a fraction of the cost while providing employment for local businesses in the construction of these facilities. This would open up the bidding process, reduce costs and provide more infrastructure which would spur economic growth.
Right to Work State Union State
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GOVERNMENT ACTIONS (Continued) Position: The Kentucky General Assembly should enact legislation mandating that laws and regulations with possible adverse effects on the business community should be scrutinized under the guidelines of feasibility and economic sustainability. Education in Kentucky needs serious reform. Other states are implementing reforms that are lowering the cost of education and improving the results. States are now grading schools on the A thru F report card system. Some are hiring private companies for schools with a five-year or longer record of academic failures. Charter schools are improving academic performance for students. Some allow parents to create charter schools for poorly performing district schools. Some reformers are implementing digital learning and eliminating the cap on the number of students that can attend. School vouchers would empower poor families to send their kids to private schools if their students are trapped in bad public schools. All of this creates competition between private and public schools which raises academic achievement in all schools. These are just some of the ways states are fighting the educational bureaucracies across the nation. Kentucky has implemented none of these reforms. Kentucky’s tax system is very inefficient and counter productive. It is modeled after the federal tax system. Many states have simplified their tax system so taxes can be paid on a one or two page return. Kentucky has a very regressive tax system. Each year a number of bills are introduced and passed in the legislature. Many of those bills have adverse effects on business and job creation. The legislature should devise a procedure to consider the costs and benefits to business for any new legislation that has some effect on business and jobs.
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GOVERNMENT ACCOUNTABILITY Position: Due to the proliferation of special taxing districts in Northern Kentucky and across the Commonwealth, the state General Assembly should enact legislation that would mandate that any increase over a particular percent, year-over-year, would require a vote of the full Fiscal Court in each respective county where special taxing districts exist. Each and every government agency should be accountable to the public which it was established to serve. This includes not wasting tax funds paid by the citizens, and not introducing unreasonable and overbearing regulations. It includes all of the special districts which have been established. Some of the independent taxing authorities need to be eliminated or reformed. According to the State Auditor’s office there are over 1,200 special taxing districts in Kentucky. They account for $2.6 billion in taxes annually. This is a layer of government taxation that has very little taxpayer control. The controlling boards are not elected by the people to serve on those boards. They have the power to raise taxes without the vote of the people as long as the tax increase does not exceed 4% per year. If a district imposes a 4% tax per year that represents about a 50% tax hike over 10 years. A list of these authorities follows. Agricultural Extension
Drainage and Levee
Mental Health
Air Board
Fire Protection
Public Health
Air Pollution Control
Flood Control
Rescue Squad
Ambulance
Hospital
River Port Authority
Area Development
Housing Authority
Road District
Area Planning Commission
Industrial Development Authority Sanitation District
Community Action Corporation
Library
Sewer District
Community Improvement
Mass Transit Authority
Soil and Water Conservation
Sometimes the taxes are higher than the government agency which established the district. However the voting process or appointment process for board members to these districts is political, secretive, confusing, and sometimes all of the above. If any special district is created, have the board or trustee members be selected by voters rather than the current process. The budgets for each of these special districts should be made readily available to the public including on their website, and should be subject to regular audit by the City, County, or State. All taxes and special fees enacted by these special districts should be included in the computation for the 4% annual cap. Laws should be passed which restrict every government agency and district from encumbering taxpayers and their descendants with unreasonable taxes, unaffordable projects, outrageous pension and retirement benefits, etc. Governments need to be restructured and reorganized to reduce inefficiencies and waste. The number of government employees needs to be reduced since there is a tremendous amount of waste as it now exists. There is no reason for fire stations, libraries, courthouses, city buildings, and other government buildings from being overbuilt for the purposes intended. There are hundreds of examples of this in Northern Kentucky and thousands in the State. The legislature should consider introducing legislation that mirrors the Wastewater legislation championed by Senator Damon Thayer. This legislation should create a system that any increases in taxes by special taxing districts should require a vote of the County Fiscal Courts that are in the districts’ service area.
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LAND OWNERSHIP AND PRIVATE PROPERTY RIGHTS Position: Any planning effort on a state funded basis or managed by the state should include a feasibility study as well as an economic impact model. These reports should be backed by sound science as well as rationalized by harsh economic criticism. Land is a finite resource and its availability, unencumbered use and re-use of, and ability to transfer title to, is the necessary “a priori” resource for housing and the built environment. Any legislation, regulation, restriction, tax, fee or lien placed upon real property should be approached with the utmost caution. These “shadows” could ultimately weaken the private property rights that we all aspire to hold and enjoy. Since our country’s founding this unique experiment of capitalism and private property rights has produced, privacy, sanctuary, pride, care, husbandry and a source of wealth and security for millions of our citizens. These rights are the bedrock upon which the foundation of our government and way of life are anchored. Conservation easements, which are created to hold land in perpetuity from one generation to the next and beyond, can place unnecessary burdens and denial of ownership and loss of tax revenue on future generations. In light of national, state and local set asides, thoughtful consideration as to the right to define forever for land that is available for private ownership should involve a long national and statewide debate. Property owners must be justly compensated for reductions in value of their property caused by actions of any level of government, taxing district, or quasi-governmental agencies. Citizens should have faster, easier and lower cost access to federal court review on takings issues. Local and state government planning efforts should take into consideration and publish that determination, on any adverse impact that proposed land and transportation planning decisions may have on private property ownership. Examples: The new Mt. Zion Road interchange design will deny the opportunity for adjacent landowners’ potential use of this land for commercial enterprises. The North Bend Road redesign has caused undo hardship on property owners to the west of North Bend Road as access to potential and existing commercial operations has been reduced as a result of the road design. The exit design for the potential new bridge to span the Ohio River may cause an economic difficulty for the city of Covington.
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WORKFORCE DEVELOPMENT Position: In order to improve the state of workforce development the General Assembly should enact legislation or encourage administrative programs that would allow for an appropriation from workforce development or education funding to go towards private career centers and apprenticeship institutions. Studies show that in Greater Cincinnati alone 200 new skilled construction trades people are needed per month to fill the job openings in the construction market [1]. 30% of that number is needed in residential construction. Over the past few years and during the housing depression many secondary educational intuitions and public high schools dropped their traditional construction trades education curriculum. The Bureau of Labor Statistics (BLS) report that the construction sector of the U.S. economy declined by 1.26 million workers during the housing depression. Their projections for workforce growth in the construction sector are 7.37 million are needed in the next ten years. That is equivalent to a 2.9% annual increase between 2010 and 2020. A National Association of Home Builders microeconomic study of Northern Kentucky shows that in 2010 only 2,021 skilled trades people were employed in Northern Kentucky in the construction of single family residences. Projections by NAHB backed up with data from the BLS show that 2,125 new skilled trades people will be necessary to meet housing demand in Northern Kentucky in the next ten years. The Home Builders Association of Northern Kentucky has operated the Enzweiler Apprenticeship Training Program since the late 1960’s. Today, the program boasts its largest enrollment in history. This is due, in part, to the fact that there is a lack of traditional trades training opportunities in public education and a lack of sufficient trades training in secondary education institutions. The program is at a sufficient level to graduate 1,088 skilled trades people over the next ten years. That leaves a gap of over 1,000 skilled trades jobs left unfilled or not properly trained. The HBA needs help in capital expansion funding to grow its programs to meet the needs of the industry in the coming years. Since many public high schools have either dropped their traditional trades training curriculum altogether or only offer a curriculum that disinterests students, there is a serious concern that a career pathway from youth to apprenticeship to work in the construction industry even exists. The HBA is currently engaged in speaking to other local HBA's in the state of Kentucky about their need for traditional trades training opportunities. In the near future it could be expected that other centers like the Enzweiler Apprenticeship Training Program are born around the state. At the same time a vacuum exists in career pathways from high school to apprenticeship to full-time work. Due to this fact there needs to be opportunities around the state of Kentucky that offer high school students (both juniors and seniors) access to traditional trades training. The HBA has been working with Northern Kentucky legislators, the Kentucky Office of Career and Technical Education, and the Chamber of Commerce in order to access revenues from private benefactors for traditional trades training and to locate state funding to setup a pilot project in Northern Kentucky. In order to fill the construction career gap there needs to be sufficient funding from workforce development, education and private benefactors to allow students to pursue trades in our industry. There are other apprenticeship programs around the state that would also be able to provide traditional trades training to high school juniors and seniors. However with the lack of adequate school funding coming from the state it makes it difficult to be able to fully fund these programs and support a career pathway from high school to full-time employment. As a result of this broken pathway, and for other factors we are currently experiencing, high labor costs are affecting housing affordability. This affects housing for all in Kentucky. If the cost of new homes rises there is a priced out affect where people leave the market to pursue used homes. If demand in used homes increases there is an additional priced out affect that pushes people out of that market towards a rental situation. As the demand for rental units rises so does the price that landlords are able to assess their tenants. In short any increases in the price of new homes has an effect upon housing affordability for all.
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STORMWATER AND SANITARY SEWER REGULATIONS Position: We encourage the General Assembly to work with the Kentucky Division of Water to lessen the impacts imposed by Stormwater permit regulations from the Environmental Protection Agency. In order to comply with the Clean Water Act and EPA regulations related to the act local sanitation districts and other such governmental agencies have become the de facto regulators of federal regulations. Historically the Kentucky Division of Water has done an adequate job in exercising its primacy with regard to EPA storm water regulations. However the crux of the concern for the HBA is how permits and regulations administered by the state’s division of water are interpreted and exercised locally. Historically the permits have been designed to allow for flexibility in application within a local market. Sanitation District 1 for example has had a recent history of bowing to pressures from the EPA and goldplating their regulations. The cost of such practices has had a tremendous effect upon the price of housing. For example, due to a state audit, Sanitation District 1 turned away from previous procurement practices that ultimately saved the taxpayers and the home buying community a considerable sum of money and encouraged growth. Also statewide permits for stormwater allow for Sanitation District 1 to exercise flexibility in the maintenance, monitoring, repair, and replacement of storm water quality features. Due to Sanitation District 1's financial situation the de facto regulator has however decided upon a course that would tax the landowner and homeowners associations with the maintenance, monitoring, repair, and replacement of such systems. Sanitation District 1 knows not the cost of such practices or the cost to local landowners and homeowners associations. Sanitation District 1 entered into a consent decree in the mid 2000’s regarding sewer overflows in their separate and combined sewer systems. Prior to entering into the decree Sanitation District 1 did not do any calculations regarding the cost of such an agreement. Additionally, Sanitation District 1 has recently taken over the stormwater systems for many counties and cities in Northern Kentucky. As is evident by past practices Sanitation District 1 did not know the cost of taking over these systems. The district has put itself into a situation where debt service, poor financial planning, high costs for maintenance, adherence to the consent decree, and adherence to gold-plated regulations has resulted in a diminished amount of room for growth. In fact their current budget has no capital improvement projects for growth of the system beyond the consent decree. Moreover, due to the fact that Sanitation District 1 has implemented high rate increases in recent history the taste of the community has turned sour with regard to rate increases. Due to that fact, recommendations from Sanitation District 1 staff, and the high debt service there is no money in the Sanitation District budget for any growth. As a result the Hebron area is basically closed for business. There is no capacity at their pump stations and no money budgeted to allow for the Hebron area north of interstate 275 to grow. This area is a historically fast growing area in Boone County. Other areas of Northern Kentucky will shortly see the same result. Sanitation District 1 staff has indicated that areas of Southern Kenton County and Southern Boone County around the Richwood exit on I -71/75 will soon experience the same inability to grow. This area incorporates industrial uses and commercial uses that could supply job growth for Northern Kentucky. In the future we expect more conversations about areas in Campbell County near the Double A Highway and Route 27 that are just like the ones we are seeing in Boone and Kenton. This situation is unacceptable for the economy of Northern Kentucky. We encourage the Northern Kentucky Caucus to work with the Home Builders Association in demanding the Sanitation District identify areas in its budget that are unnecessary or nonessential in order to provide cuts to facilitate growth. Additionally, the Sanitation District should accelerate its talks with the EPA in order to renegotiate the consent decree. This could cut the need for rate increases by more than half. Procurement should be immediately addressed in order to allow for a more efficient and economical plan to facilitate growth now and in the future. Most importantly the Sanitation District should take over the maintenance, monitoring, repair, and replacement of storm water quality features.
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CONSTRUCTION FINANCE Position: There should be made available with the Kentucky Housing Corporation funding for acquisition, construction and development loans for builders and developers. With the increased demand for new housing across the state smaller companies are unable to acquire construction loans. Many financial institutions will only lend to builders who have contracted sales and not lend to builders building on a speculative basis. National studies show that in many areas the majority of homes that are purchased in new construction are purchased while that home is being constructed. As a result, the market share for large builders is the highest in recent memory. In the year 2005 and 2006 the top four producing builders in Northern Kentucky enjoyed a market share of 52% and 55% respectively of the overall new home market. In 2013 that market share jumped to 78% as those larger builders are able to either self finance or secure financing due to their high level of assets. This situation leaves smaller builders and smaller developers out of the market. Combine in increased regulations and the days of the small developer may be at an end. The Home Builders Association encourages the state legislature to investigate new and innovative means to finance housing construction. This would allow smaller companies to reenter the market, employ more workers and further improve the housing recovery across the state.
HOUSING AFFORDABILITY Housing affordability across the state of Kentucky and the United States is suffering from several factors . First, materials used to construct homes are rising considerably. Lumber, drywall, brick, siding, and most other components used to construct a home are increasing at a rapid pace. The causes of this increase are many fold. Producers of housing components, during the housing depression, delayed passing on price increases of their cost of production. Many material producers shut down operations and only brought on plants to fill orders on an as needed basis. This is an inefficient way to conduct business. Due to the lack of building materials these component providers are able to fetch a higher dollar value for the materials they supply. This is compounded by the fact that many skilled trades people have left the industry. Due to the overall labor shortage needed to create these materials the cost of the labor component of these materials has also risen. Second, the overall lack of skilled trades people needed to actively construct homes has had an effect upon housing affordability. There is a real lack of skilled trades people across all trades essential to construct homes. With the lack of supply of skilled trades people the compensation rate for the existing skilled trades people is much higher than in recent history. Third, with a low supply of new homes available for purchase and increased demand the asking price has additionally increased for new home purchases. While this allows some builders to pass through increased costs it does not keep up with the pace of housing materials production prices. As a result, many people across the nation and in Kentucky are priced out of the new home market. Due to these factors the time value of money is more costly as the build process schedule has become elongated. It is important here to note that the new home market produces on average 3.3 jobs per home.
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TRANSPORTATION PROJECTS Position: The General Assembly should appropriate construction funding for Kentucky Route 536 road improvements. We encourage the designed plan for KY 536 road improvements to be reconsidered so that this road system is improved further west than Union, Kentucky. Route 536 is a road that needs funding for the construction of the widening project. Without construction funding for this project housing will continue to decline in southern Kenton County. It is imperative that the General Assembly fund construction for this road project. Also, the design of the project ends in Union. This project should be extended past Union to the West. While the Home Builders Association has not taken an official stance on the Brent Spence Bridge project, we do have concerns that such a project would be funded through tolling. Northern Kentucky has long benefited from the more affordable cost of living in comparison to areas in Southern Ohio. This benefit is quickly receding as increased costs for sanitation, storm water regulation compliance, taxation, and lack of jobs has impacted Northern Kentucky. We ask the Northern Kentucky Caucus to reassess the need to move traffic from both I -71 and I -75 through downtown. The largest period of economic growth in the United States and across Kentucky was experienced during the interstate traffic highway system expansion. It would only make sense to separate interstate 71 and interstate 75 and move interstate 71 across a cross-county highway to connect east of Cincinnati. This would create new interstate interchanges and allow for economic expansion around interchanges for both industrial and commercial uses, thus expanding the potential workforce in Northern Kentucky.
THE COST OF DOING BUSINESS IN KENTUCKY
Due to increasing regulation of storm water, sanitary sewers, taxation, and increased construction costs Northern Kentucky is losing its advantage to surrounding areas looking to expand their workforce. Dearborn County, Indiana economic development is actively engaged in pulling Northern Kentucky businesses over state lines. Due to casino revenues to local government, and aggressive state taxation policy for new businesses and industry, cheap land, and the lack of regulation through agencies such as the Sanitation District 1, Dearborn County, Indiana is at an advantage over Northern Kentucky. If this situation continues we will see a loss of jobs, industry, taxes paid to local governments, and people's personal income. As a result, Northern Kentucky will no longer benefit from a lower cost-of-living than surrounding areas. They have the infrastructure, the right taxation, lower regulations, and a more business friendly environment to make things work while Northern Kentucky stands at a disadvantage. Additionally, areas north of Cincinnati are at the same advantage. They do not have to contend with burdensome regulations from a Sanitation District, high state taxation, or a business unfriendly environment. Without changes to this situation Kentucky stands to lose. We ask the Northern Kentucky Caucus to pursue legislation that would create a more business friendly environment in the state of Kentucky. Additionally, we ask the Caucus to work with the Sanitation District and the Kentucky Division of Water to look at the statewide permit that the de facto regulator operates under to create a situation that is far more flexible, physically feasible, and affordable for citizens, companies and industries in Northern Kentucky.
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LIMITED LIABILITY ENTITY TAX Position: Align Kentucky’s definition of Cost of Goods Sold deductions with that of the IRS. The Kentucky Department of Revenue (DOR) has been conducting desk audits and disallowing various deductions in the Cost of Goods Sold (COGS) calculation, resulting in large assessments for some businesses. The DOR is auditing these businesses for up to four years and then assessing interest and post-amnesty penalties, which in some instances amount to half of the tax allegedly owed. Because the statute is ambiguous, DOR is able to interpret it in an aggressive manner that favors additional revenue. The solution we are proposing is to amend the statute and clarify the definition of COGS.
WORKER’S COMPENSATION
Position: We ask the General Assembly to stop any legislation that would harm small business and to enact business friendly legislation in the 2014 session. Workers compensation legislation, has appeared in every recent legislative session, which would harm small business. Workers compensation legislation should be pursued that would protect homebuilders in the Commonwealth. This legislative session promises the same. Due to the large number of issues within workers’ compensation, such as, employee misclassification, subrogation, making Kentucky a “Drug-Free Workplace” state, adoption of evidence based medical treatment guidelines, adoption of a pharmaceutical schedule fee, establishment of a fee schedule for durable medical equipment, and establishing a limit on the use of Special Fund Assessments. Understanding legislation concerning Workers’ Compensation and the plethora of issues it demands, are vital to the health of the construction industry and this organization.
ROOFER LICENSURE Position: Stop legislation adding another layer of bureaucracy to the homebuilding process. This bill came up last session and failed. Advocates of this legislation desire to license yet another part of residential construction, with consumer protection as their reason. Adding this license to the already licensed requirements of homebuilding adds further cost and more bureaucracy with the establishment of an entire board within the Department of Housing, Building & Construction.
FUNDING KYNECT Position: Businesses participating in Bona Fide Association Health Care Plans should not be subject to any assessment for KYNECT. Currently, an assessment is levied on employers for the funding of Kentucky Access; Kentucky’s high risk pool. The Commissioner of Insurance has the option to levy a full 1% (currently levies ½% which produces $13 million in revenue). Hypothetically, the leverage of a full 1% would produce $26million in revenue. To fund KYNECT, Kentucky’s statewide healthcare exchange, will require an estimated $39 million in 2015. To allow this would require a change in the statute because Kentucky Access effectively dissolves with the creation of the statewide health insurance exchange.
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