Legislation Spurring Innovation in Kentucky

Kentucky has been working hard to entice cutting-edge companies to invest in the state through a variety of incentive programs targeted at fostering innovation.

Population (2006): 4,206,074

Largest Cities (2006): Louisville, 554,496; Lexington-Fayette, 270,789; Owensboro, 55,525; Bowling Green, 53,176; Covington, 42,797

Targeted Industries: Automotive, logistics, food processing, IT, biosciences, environmental and energy technologies, materials science, advance manufacturing

Key Incentives: Kentucky Rural Economic Development Act, Kentucky Jobs Development Act, Kentucky Industrial Development Act, Kentucky Environmental Stewardship Act, Kentucky Enterprise Initiative Act

In 2007, Kentucky attracted nearly $2 billion in business investment and over 13,400 jobs, thanks in part to several initiatives, some of which are aimed at assisting high-tech companies in the state turn ideas into valuable commodities. One such program, Kentucky’s High-Tech Investment Pool, helped three companies in the state launch expansion projects in early 2008. The three beneficiaries of the High-Tech Investment Pool funds are Advanced Genomic Technology, LLC; Conexxus, LLC; and Smoothstone IP Communications Corporation. The companies, all located at the Louisville Innovation and Commercialization Center, are receiving a combined total of up to $891,000. It is estimated that these projects will together create 43 full-time, high-tech jobs for the state.

The High-Tech Investment Pool was created along with the High-Tech Construction Pool during the state’s 2000 legislative session as part of a New Economy initiative. Funds from these programs are administered by the Department of Commercialization and Innovation (DCI) within the Kentucky Cabinet for Economic Development and are used to help high-tech and knowledge-based businesses get started and thrive in the state. Through January 2008, over $111 million has been approved for use in 114 different projects as a result of these programs.

Advanced Genomic Technology, LLC, a biotechnology company that developed a line of microRNA microarrays (MMChips) for the medical diagnostic markets, was granted up to $153,000 to purchase equipment and to help with regulatory and certification costs. The company anticipates creating nine full-time jobs by the end of 2010. Software development company Conexxus, LLC was awarded up to $238,000, which will be used to purchase hardware, software, and other technology, as well as for costs related to securing intellectual property. The company expects that in addition to its existing workforce of four, it will create a minimum of 14 full-time jobs by the close of 2010. The last of the companies to receive this round of awards is Smoothstone IP Communications Corporation, a managed Internet protocol services company. Up to $500,000 of funding is available to the company to help with equipment and infrastructure upgrades. Smoothstone anticipates that, in addition to its current workforce of 73 full-time employees, it will create a minimum of 20 full-time jobs by the end of 2009.

Innovating for Innovation

On top of the High-Tech Investment Pool, Kentucky also uses its SBIR-STTR Matching Funds Program to help support innovation. The only program of its kind in the nation, the SBIR-STTR Matching Funds Program is unique in the sense that it matches both Phase 1 and Phase 2 Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants made by the federal government to help companies bring promising new technologies to the marketplace. DCI is managing the program through a contract with the Kentucky Science and Technology Corporation.

Last year, 20 of Kentucky’s high-tech start-ups, from industries as diverse as human health and development, IT and communications, bioscience, energy and environmental technologies, materials science, and advanced manufacturing, were awarded a combined total of $1.9 million through the state’s SBIR-STTR Matching Funds Program.

The announced matching grants range from $69,999 to $100,000 per company for its Phase 1 research, which tests the feasibility of a concept or technology. Kentucky also has started matching federal awards for Phase 2 research and development, during which a company aims to make its technology ready for commercialization. The maximum state match for Phase 2 federal awards is up to $500,000 per year for up to two years. The opportunity for recipients of Phase 1 and Phase 2 federal awards to earn up to $1.1 million in matching funds from Kentucky has drawn attention to the program from high-tech firms in other states that are interested in relocating to Kentucky. Companies eligible for the matching funds must be located in Kentucky or commit to relocating to Kentucky within 60 days, after which they can begin receiving the matching grant. The companies must also agree to remain in Kentucky for at least five years.

“This innovative program is a perfect example of the type of outside-the-box thinking that will enhance and grow Kentucky’s new economy,” says Kentucky Cabinet for Economic Development Secretary John Hindman. “It shows we are committed to supporting our high-tech small businesses as Kentucky moves toward a more knowledge-based, high-tech economy.”

Where Ideas Become Goods

The Innovation and Commercialization Center (ICC) program was created in July 2001 to aid the creation of knowledge-based companies in the state of Kentucky. The Department of Commercialization and Innovation (DCI), within the Kentucky Cabinet for Economic Development, contracts with the Kentucky Science and Technology Corporation to administer the ICC program, which consists of six regional ICCs (each affiliated with a state university) and six local Innovation Centers (ICs). ICCs and ICs are public/private partnerships that assist entrepreneurs and scientists in the state with commercializing promising technologies.

Ultimately, this program increases the possibility that Kentucky’s smaller high-tech businesses will form locally and find private investors or other external funding, such as the High-Tech Investment Pool and the Rural Innovation Fund. From 2002 through December 2007, the ICC program helped start up 390 new client companies, create a total of 1,933 jobs, and generate $12.8 million in new state tax revenues.

Lexington Lures Health Services Employer

Home respiratory therapy provider Pacific Pulmonary Services announced in January that it will locate a customer care center in Lexington, KY at an existing 26,500-square-foot facility on Georgetown Road. The company will create over 200 full-time positions and invest over $1.6 million in the central Kentucky city.

The Kentucky Economic Development Finance Authority preliminarily approved Pacific Pulmonary Services for tax benefits up to $2.5 million under the Kentucky Jobs Development Act, an incentive program designed to attract and expand technology- and service-related industries in the state.

“We are excited to open our first customer care center in Lexington,” says Chad Martin, CFO of Pacific Pulmonary Services. “We conducted a national search for a location that would provide us with a supportive community, high labor quality, and great growth opportunities. Lexington, and the state of Kentucky, exceeded our expectations. I am confident this new facility and its employees will provide world-class support to our patients and physicians.”


Kentucky passed innovative new legislation in 2007, titled the Incentives for Energy Independence Act (IEIA), in hopes of positioning itself at “the forefront of national efforts to achieve energy independence by reducing the state’s reliance on imported energy resources,” according to former Governor Ernie Fletcher. Not long after the legislation was passed, Dr. Pearse Lyons, founder of Alltech, announced the company’s newly formed subsidiary Ecofin, LLC would construct a 10-million gallon, self-sustaining biorefinery in Washington County, KY. The $40 million project is the first of its kind to be awarded incentives under Kentucky’s new IEIA, which allows Kentucky to offer inducements for facilities for alternative fuel, gasification, and renewable energy. This new venture could create as many as 93 high-wage jobs in the state.

The Kentucky Economic Development Finance Authority preliminarily approved Alltech for tax benefits up to $8 million under IEIA, which was contained in House Bill 1, passed during the Second Extraordinary Session of the 2007 Kentucky General Assembly.

The facility is part of Alltech’s rural community integrated biorefinery project, the first such model in North America that integrates feed, food, and fuel production. It is designed to validate the feasibility of commercializing an environmentally sound, integrated process to convert a potentially wide range of feedstocks to ethanol and other vendible products.

In addition to the planned ethanol production, the facility is also anticipated to produce approximately 35,000 tons of distiller’s grain annually, which will become a component of animal feed. Any carbon dioxide produced will be further processed and sold into industrial markets.

Feedstock for the facility will consist of approximately 72,000 tons of corn and 32,000 tons of lignocellulose per year. Lignocellulose is comprised of corn cobs, husks, and other waste material from corn. The corn feedstock necessary for the plant will come from 11 surrounding counties.

“This has enormous implications not only for our farmers, but for all people as it signifies a fundamental shift in not just energy dependence, but energy security,” says Dr. Lyons. “Alltech is committed to the future of agriculture and making Kentucky a national leader in that area, and this incentive represents a big step toward making that happen.”