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Big spending on mystery Derby guests is also a tradition of governor’s office (UPDATE)

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The view from Millionaires Row. | Photo by Boris Ladwig

Louisville Mayor Greg Fischer has faced criticism recently over his administration’s decision to not reveal the names of guests it entertains at taxpayer expense at the Kentucky Derby, but he’s not alone from this practice of spending in the name of economic development.

Past governors, including current Gov. Matt Bevin, have also made a practice of spending thousands of dollars on mystery guests to the Kentucky Derby and Kentucky Oaks, arguing that companies the administration woos to relocate into and expand within the state require absolute confidentiality, in order to hide their presence at the races for that potential objective.

For example, the Kentucky Cabinet for Economic Development and the Tourism, Arts and Heritage Cabinet have together spent over $350,000 on complimentary tickets for guests at these races over the last three years that they will not release the identify of, according to records obtained by Insider Louisville through an open records request.

Both cabinets have not yet returned additional requests for how much they spent on the travel, lodging, food and entertainment of such guests.

The reason given by the Bevin administration for not disclosing these names is nearly verbatim to that of the Fischer administration, citing the same state statute excluding public records pertaining to a business’ prospective relocation to or expansion within the state from the disclosure requirements of the Kentucky Open Records Act.

Fischer has taken heat in recent months for similar spending on mystery Derby guests in the name of economic development, with Republican Councilwoman Angela Leet — his opponent in the mayoral election this fall — arguing that taxpayers have a right to know their identities and suggesting he’s used the tickets as a way to secure campaign contributions. Councilman Brent Ackerson, D-26, has even filed a new ordinance that would require the mayor to disclose the identity of these Derby guests to the public within three years.

The mayor’s administration has countered these criticisms by arguing that making the identities of Derby guests public would put the city at a major competitive disadvantage and halt potential investment. They have even asserted that some guests have since pulled the trigger on major economic investments in Louisville, though they have not disclosed such names.

According to city records, Fischer’s economic development team at Louisville Forward has spent nearly $400,000 entertaining mystery guests on Derby weekend over the last four years, including nearly $110,000 this year — mostly comprised of the $72,441 spent on 32 “Millionaire’s Row” tickets for each of the two race days at Churchill Downs.

Such spending on tickets last year was exceeded by Bevin’s economic development team, which spent $86,982 on 42 tickets for guests to attend each race. This amount surpassed the $75,096 they spent on such tickets last year, and the $84,656 spent in 2016.

The Tourism Cabinet has spent $104,122 on complimentary Derby and Oaks tickets over the past three years, spending $37,278 on tickets for 18 guests this year. Altogether, the administration has spent $350,844 on these tickets since 2016.

In their denial of the request for the names of the individuals who received complimentary tickets, the general counsel of the Cabinet for Economic Development cited the same KRS statute and wrote that “disclosure of the identities of the companies and-or individual attendees would divulge information about potential locations or expansion of businesses or industries that have not yet been publicly disclosed.”

Cabinet for Economic Development spokesman Jack Mazurak told Insider over email that entertaining such prospective business guests at Derby is a valuable “marketing opportunity” that “returns that dollar value to the state many times over” if it leads to even one new plant or project.

“We invite corporate leaders in industries the state targets, such as automotive, aerospace, primary metals, chemicals, manufacturing, health care — as well as site selectors whose experience and knowledge of Kentucky is critical in helping their corporate clients choose locations,” stated Mazurak. “The ability to market Kentucky directly to our target audience in the context of state’s most well-known event is an outstanding opportunity and a great value for the investment.”

Mazurak said that the administration would not disclose the names of any companies that decided to locate or invest in Kentucky after being invited to The Derby.

Asked about the local criticism that the Fischer administration has received for the same strategy, Mazurak said that while he can’t speak to Louisville’s situation, “the reality is businesses require confidentiality on new-location and expansion projects and, when working with the commonwealth, state statutes provide the necessary exemption for our cabinet to extend that privacy.”

He added that of the hundreds of projects the cabinet worked on last year, very few — such as the Toyota-Mazda and Amazon HQ2 projects — made their search public.

Asked if Leet had the same criticism of the Republican governor spending tax dollars entertaining mystery Derby guests as she did of her Democratic mayoral opponent, her campaign manager Kyle Hagerty wrote that “if the tickets for Governor Bevin’s Derby guests were paid for with taxpayer dollars and not with private funds, then he should release his guest list, or in the very least show taxpayers a return on their investment.”

‘A chilling effect’

At a Metro Council committee meeting on July 31, Councilman Ackerson presented his ordinance that would require Fischer’s office to disclose the names of guests it entertains with more than $10,000 in city funds.

Addressing the administration’s concern about protecting the identity of those businesses as they are considering confidential proposals to locate in Louisville, Ackerson added a stipulation that such records could only be released three years after such an event when that company has presumably already decided whether or not to go forward with the project in question.

Mary Ellen Wiederwohl | Courtesy of Louisville-Jefferson County Metro Government

However, Louisville Forward chief Mary Ellen Wiederwohl told the committee that even with this three-year look-back period, the disclosure of these names — even the names of guests from local businesses that aren’t necessarily looking to expand — would have a “chilling effect” on their ability to attract guests and have a successful event that lures businesses to the city.

She added that many of the companies Louisville Forward deals with require nondisclosure agreements to be signed, calling that a very standard practice that is also used by the state economic development team.

Even though Wiederwohl said that most companies decide whether or not to locate or expand in Louisville within a year, she said having three-year look-back period or release of their identities under any time frame would be “problematic for us,” because companies “don’t want it known about their decision-making process at any point” and fear tipping off competitors or the investment market.

Asked if such disclosures would put Louisville at a competitive disadvantage compared to other peer cities, Wiederwohl answered that it would “without question,” as she knows of no other cities that would require such disclosures, and “it would basically be removing us from this game” of competing for business investment.

Wiederwohl categorized their guests to The Derby events in three separate groups, the first of which being the private businesses they are attempting to either lure to the city or already present ones that are considering an expansion. The second group includes economic development staff — herself and three others had tickets this year — in addition to Mayor Fischer and his wife.

The third group of guests are not exactly businesses being wooed, according to Wiederwohl, but business leaders invited to act as “cheerleaders” for the city in their efforts to win over the out-of-town guests.

This group is also made up of local businesses that serve as last-minute fill-ins to take remaining tickets, as Wiederwohl said they “often go to local startups” that need to “rub elbows” with local business leaders. She added that inviting such fill-ins is “being proactive,” as startups are “tempted to follow capital” and they want to make sure they aren’t lured away to other cities.

Asked if these “cheerleaders” and fill-ins in the third category also sign nondisclosure agreements, Wiederwohl said they did not, though “they have the expectation that we won’t reveal them.” She added that requiring the city to disclose their identity “would have a chilling effect on our ability to bring in those types of persons to our event, and therefore it would hinder the success of our event and our economic development activities.”

“If they thought that their names were going to be published in the media, that would make it harder to ask that health care CEO to spend the weekend with us recruiting this company,” said Wiederwohl, “if they knew that the next thing they were going to have was media on their door asking about it.”

Asked whether it was proper to withhold the names of these individuals from the public, she said this was a legal question, but that the economic development exemption in the statute “can be broadly applied.”

Asked by Councilwoman Barbara Sexton Smith, D-4, if she could provide a financial impact statement on the positive effects of bringing in Derby guests, Wiederwohl said that she would be happy to by their next meeting, but also had some figures already prepared.

According to Wiederwohl, their 2017 Derby guests have already located over a dozen expansion or attraction projects with $911 million in new investment and 125 new jobs in Louisville, while 11 are still actively pursuing expansion projects. She added that “for that $100,000 that you give us, we have a significant multiplier effect.”

Asked for details about these assertions, Louisville Forward spokeswoman Jessica Wethington told Insider that Wiederwohl was not suggesting that this investment happened “because of Derby,” as this event “is just one very special arrow in our quiver; we work with projects year-round in multiple ways. This just happens to be the results to-date of those who were in our Derby festivities this year.”

Councilman Brent Ackerson, D-26

In response to emailed questions from Insider, Wethington said that one company has signed an NDA with the city in the past two years, but would not answer how many of the dozen-plus projects from 2017 Derby guests were existing companies expanding or new business from outside of Louisville, citing the same KRS statute.

Noting that the city has executed an NDA with several companies, Wethington added that “Metro is comfortable reporting overall numbers in the aggregate, because the aggregate numbers are unlikely to identify an individual company. Reducing the aggregate to a subgroup increases the chance of an individual company/project being identified based on the numbers, which would have just as harmful an effect as listing the company by name.”

In the committee hearing, Wiederwohl closed her pitch by saying that The Derby is a unique gift that her team must use to attract businesses: “We can’t just sit back and play catch. We’re going fishing.”

“We have something that no other city has, and that’s the Kentucky Derby. It’s a bucket list item, and we shine that weekend like nobody else can,” said Wiederwohl, adding that alone won’t seal the deal, “but we can get people’s attention, we can change their impressions of Louisville, we can start fresh impressions for them, and we can create new opportunities for all of us.”

The ordinance will get another hearing at the Government Oversight, Audit and Ethics Committee next week. Ackerson said at the last meeting that the council might want to consider subpoenaing these records from the mayor so they can review them, “because right now we are in the dark.”

This story has been updated with the spending figures of the Tourism Cabinet, and additional comments from Wethington.

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