Kentucky Electric Steel: A Testament to
Cooperation and Incentives
It seemed certain that Kentucky Electric Steel had produced its
final bar of steel when the bankrupt mini-mill closed and laid off the last of
its 300-plus employees in December 2002. But that was before the Cabinet for
Economic Development got involved.
A few months later an equity investment firm, Libra Securities,
began expressing interest in buying the defunct Boyd County mill, but it had
misgivings because of the previous owner’s failure.
Libra created a new company, KES Acquisition Co. LLC, which
contacted the Ashland Alliance, the economic development agency for Boyd and
Greenup counties, to learn more. The Ashland Alliance in turn invited the
Cabinet’s East regional office to a meeting with the company, and soon
the company was applying for state financial assistance for its acquisition
proposal.
The results were swift. In July 2003 the Kentucky Economic
Development Finance Authority approved $4.7 million in tax credits under the
Kentucky Rural Economic Development Act (KREDA) program.
“It was a good incentive. It helped convince Libra it was
a good place to buy,” said John Scheel, the new company’s general
manager.
Scheel said other Kentucky state agencies were equally
helpful. The Environmental and Public Protection Cabinet helped
streamline the permitting process, he said, while the Education Cabinet's
Department for Workforce Investment helped take employee applications and
monitor skills testing. Such help "said the state is interested, and
that's an important thing."
Its proposal accepted by the bankruptcy court, KES Acquisition
Co. reopened the mini-mill in January 2004, and the company has enjoyed two
years of solid business performance. Sales for 2005 were $118 million, and
Scheel expects that number to rise significantly for 2006. Current employment
is at 144, most of whom had worked for the old plant. Scheel said Local 7054 of
the United Steelworkers union worked well with management, making the
transition smoother.
Because the Ashland Alliance got the Cabinet’s East
regional office involved early, the state was able to get financial assistance
approved in time for the new company’s bankruptcy bid. This relationship
reflects both a respect for addressing the needs of the business client and a
strong local-state partnership in creating the right solution.
J. R. Wilhite, the Cabinet’s Commissioner for Existing
Business Development, said the Kentucky Electric Steel story is a testament to
the value of good cooperation statewide – and important incentives such
as KREDA. “Sure, we put a lot of effort into recruiting new business to
Kentucky,” Wilhite said. “And we work hard to help existing
businesses expand. But helping bring a bankrupt company back from the dead is a
particularly rewarding aspect of our work.”
Not only did 144 Kentuckians get jobs directly as a result, but
the rebirth of the mill also generated work for contractors, materials
suppliers and others who do business with the company, Wilhite said.
Scheel was impressed. “I think Kentucky is very
aggressive,” he said. “More, maybe, than the absolute dollars, the
tax credit kind of embodied that the state was interested in making it
happen.”
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