State of the City 2017: One Berea Story

State of the City 2017: One Berea Story

Note: On February 9, 2017, Berea Mayor Steve Connelly delivered his annual State of the City Address before a meeting of Kentuckians for the Commonwealth (KFTC). The following is a draft of Mayor Connelly’s prepared remarks.

Berea’s local economy has changed a lot over the last 70 years. It began the 1950s with numerous small, locally-owned businesses like Moore’s Motel, the Tastee-Freeze, the Carlton, B&B grocery, Barker’s Clothing, Britton Chevrolet, and Purkey’s Hardware, and attracted its first modern manufacturing plant, the Berea Rubber Company, in 1951, and dedicated its first Interstate exit in 1966.

After the Interstate arrived, shopping malls opened in Lexington and Richmond, nationally franchised restaurants appeared in Berea, and our local economy changed drastically. Those early businesses closed, and fewer local investors risked their money in Berea’s retail economy.

However, since the mid-1970s, one group did dare to invest in Berea. It consisted of studio artists and “individuals and companies whose products and services originated in artistic, creative or aesthetic content.” This group of creative businesses, now embodied in Berea’s Learnshop and Artist Accelerator programs, emerged and adapted to the changes roiling Berea’s small-town economy.

Consultants suggest that economic development in small towns must be about more than recruiting manufacturing jobs. Even though Kentucky’s primary economic development strategy emphasizes recruiting manufacturing jobs, Kentucky has lost nearly 78,000 such jobs, or one-fourth of its manufacturing employment since 2000. Of these, 48,800 were lost in the recent recession between 2007 and 2010. Dr. Paul Coomes reported to the Kentucky Chamber of Commerce (June 22, 2015) that during 2014 Kentucky had added manufacturing jobs a three times the rate nationally but still remained 14,000 manufacturing jobs below its previous peak in 2007.

Since 1951, Berea has recruited a variety of manufacturing companies that now employ over 3,000 workers. But even though Berea retained these jobs better than the state as a whole, lagging manufacturing job growth illustrates how difficult economic development focused on recruiting industrial jobs today when companies cannot hire enough workers to fully staff their plants. Berea and other small towns should admit that a strategy of recruiting manufacturing jobs is difficult because it puts them in direct competition with economic centers like Lexington, Richmond, Louisville, and Bowing Green when fewer manufacturing jobs are being created and fewer employees are interested.

Berea has adopted an alternative strategy: to develop and maintain local infrastructure for existing and future companies while concurrently pursuing niche opportunities in tourism and local entrepreneurship with programs that fit our community like Learnshops and Artist Accelerator do. This dual strategy provides job-diversity and offers a chance at economic resilience.

I cannot talk about economic development in Berea without mentioning what a vital role the restaurant tax has played.

Berea’s local government became involved in Tourism in 1982 when the city council adopted a hotel/motel tax and formed a Tourism Commission. But the Commission was only marginally effective until 2007 when a 3% restaurant tax was adopted which provided the financial capacity to brand and advertise Berea as a town where art’s alive and, significantly, to develop programs like the Learnshop and Artist Accelerator. This difference can be seen by comparing operating revenue before and after 2007.

In 1982, Tourism revenue from the motel tax began at $39,000 and climbed slowly until in generated over $100,000 in 2002. However, the Tourism Commission had, for years, been subsidized by the General Fund of the City at between $30,000 and $60,000 annually. By 2004, hotel/motel tax revenue had reached $120,000, but the subsidy had increased to $72,500. The following year the subsidy as $100,000. By 2006, it totaled $186,000. Even with a subsidy from the General Fund, the Tourism Commission had no comprehensive advertising campaign and few projects other than supporting the festivals and events planned by individuals or the Kentucky Guild.

Berea passed a 3% restaurant tax in 2007 to diversify our revenue stream in the event of a recession. In 2008, motel/hotel and restaurant tax receipts collected $918,000. Our most recent audit (6/30/2016) reports transient room tax at $$176,142 and restaurant tax at $1,041,488, with total tourism revenues of $1,420,975, expenses of $1,460,811, and an ending fund balance of $1,109,75. As of December 31, 2016, Tourism’s checking account balance was $326,481 and its investments in CDs totaled $768,733.

How do you measure the condition of city government? One way is to compare the change in its net assets over time.

 

 

2008

Gov.

18,893,000

Util.

23,508,000

Total

42,401,000

2009 21,535,000 24,702,000 46,401,000
2010 22,052,000 27,521,000 49,573,000
2011 23,035,000 27,798000 50,834,000
2012 24,120,000 29,125,000 53,245,000
2013 25,400,000 30,906,000 56,307,000
2014 25,570,000 31,863,000 59,433,000
2015* 24,512,000 32,887,000 57,399,000
2016* 26,654,000 34,535,000 61,189,000

 

*These years reflect pension liability of state government. The figures for 2015 and 2016 are understated because of the required reduction in net assets because of contingent pension fund liability.

I have talked a lot about opportunities and budgetary numbers. I will now give you a list of challenges facing Berea’s local government in plain English.

CHALLENGES FACING CITY GOVERNMENT

The purpose of city government is to provide municipal services. In so doing, each city department faces particular challenges.

  1. Finance will need to organize its systems to account for Utility revenue and expenses separately from the General Fund once the two staffs are fully integrated in September 2017 when the Operations Center is completed.
  2. The Fire department already needs to hire more employees because fewer volunteers respond to emergencies. The Police department faces a constant challenge to recruit and retain certified police.
  3. Codes faces the dual dilemma of needing to maintain a high level of training and certification for its inspectors while simultaneously informing the public of available or required services.
  4. Public Works confronts many challenges but three are growing in size: first, the increasing costs of local road failures in older subdivisions caused by the absence of adequate drainage infrastructure; second, a dwindling amount of land on which to dispose of brush from pickups; and, third, the recurring need to replace expensive, aging equipment like bucket and dump trucks.
  5. Utilities is working diligently to implement a long-term plan to ensure an adequate, future raw water supply; to develop and negotiate a wholesale electric contract that is NOT dependent on vacillating market price; and to design and implement plans to increase the capacity of our wastewater treatment plant.
  6. The City, in general, has several big challenges. It needs to conceive and implement long term economic development plans to protect our local economy from the inevitable loss of a large employer. (If such planning had been done 20 years before the demise of coal, eastern Kentucky would have been better equipped to respond today).

In addition, the City needs to finalize succession plans for department heads (codes, public works) and specialized technicians (IT and utilities) to keep the level of services high in spite of retirements and resignations.

Finally, the City must seriously shield its information systems from cyber disruption and devise contingency plans and continue to account for it CERS pension liability.

These issues are significant because each impacts the quality of service that Berea local government will be able to provide.

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