LEXINGTON, Ky. – The pandemic’s effect on the economy in Kentucky has been extreme. As COVID-19 cases climbed, postponements and cancellations continued. The Kentucky Derby, the first leg of the Triple Crown, was postponed until September, marking the first time in 75 years the race would not take place on the first Saturday in May. Even in September, it took place without spectators.

What You Need To Know

  • Major revenue-generating events were canceled or postponed in 2020

  • Businesses adapted to adversity to stay open

  • State and federal programs provided vital lifeline

  • Startups and other innovative endeavors could be a cornerstone of recovery

Overall, Kentucky has suffered an economic downturn not experienced since the Great Depression. Businesses that rely on crowds of people, such as food service, arts and entertainment, and hospitality, have been hit especially hard.

The hotel industry may have been hit hardest by the COVID-19 pandemic and struggling, or closed hotels have a far-reaching economic effect on a community.

A record one-fourth of hotels in America were behind on their mortgage payments this past September, which forced industry representatives to ask Congress for a lifeline to avoid a potential collapse.

News reports have largely focused on the retail and home mortgage crises, but hotels nationwide and across Kentucky are linchpins of any city, nuclei for activity, and major job and tax generators.

The Kentucky Travel Industry Association (KTIA) is a trade group that represents businesses in the travel and tourism industry, including hotels. KTIA President and CEO Hank Phillips said the state’s hotels started suffering financially in February of 2020. 

“Hotels in Kentucky and nationally have, to a large extent, been devastated by virtue of the drop off and in travel,” Phillips said. “They never had to close, like restaurants, bars, and other places, although hotels that have restaurants and bars, they had to close those and adhere to the same rules as a free-standing restaurant. They have been feeling this pain just as the overall industry.”

The hotel segment faced historic numbers of delinquencies and is the most heavily hit sector of the commercial mortgage-backed securities (CMBS) market, according to a report by analytics company Trepp. Nearly 4,000 hotel industry leaders sent an urgent letter to Congress asking for immediate action to help hotels avoid foreclosure and the loss of tens of thousands of jobs.

“Hotels were among the first to feel the pain, among those most deeply affected and will take the longest to rebound,” Phillips said. “Not just hotels, but the travel and tourism industry overall.”

Many restaurant owners in Kentucky were worried about closing permanently.

“Leisure and hospitality industry has counted for over 20% jobs loss in Kentucky,” said Edward Lee, the James Beard Award-winning chef with two restaurants in Louisville in July of 2020. “As a restaurateur and someone who had seen my personal revenue drop by over 75%, right now, we’re looking at basically having more debt and more loans is not going to solve the question, or my restaurant inevitably closing in the next few months.”

Unemployment claims surged throughout the pandemic, and technical issues and a backlog of filers left many jobless Kentuckians waiting weeks for relief. As COVID-19 cases surged and economic hardship deepened in late 2020, several federal and state assistance programs, such as unemployment benefits, rental and utility assistance, eviction moratoriums, and student-loan-debt relief were set to expire, which could have affected hundreds of thousands of residents across the Commonwealth.

Jessica Klein, a policy associate at the Kentucky Center for Economic Policy, said the expiration of these programs would affect Kentuckians that were already struggling to make ends meet, and providing additional relief would prevent “substantial harm” to residents and keep the state’s economy from weakening further.

More than 100,000 Kentuckians would have lost unemployment benefits at a time when the state’s unemployment rate was at a historical high, economic recovery was slowing down, and low-wage jobs were far below pre-pandemic levels, Klein said.

Innovation may be the key to the economy rebounding in Kentucky, however, as startups have opened at record numbers, business owners adapt to new ways of shopping and even distilleries bottling hand sanitizer alongside bourbon.

Data from the U.S. Census Bureau shows business applications across the country were up a record 40% from 2019 as of Oct. 3, the highest level in 13 years, including for “high propensity” businesses, which are linked to firm creation and staff employment, according to an article in The Economist.

The recent surge in startups can draw a straight line to the government pandemic relief efforts, which prioritized income protection-- stimulus checks plus high unemployment insurance-- over job protection.

Nearly 800 new business applications were filed in Kentucky in 2020, a 32.2% increase from the 590 filed in 2019. Lexington has long been a hotbed for startups in the Commonwealth and leads Kentucky in “innovation capacity,” which is the ability to produce and exploit new ideas across a range of organizations or companies in an industry.

“The Lexington startup ecosystem remains young, but is strong and growing rapidly,” said Eric Hartman, associate director of New Ventures at the University of Kentucky Office of Technology Commercialization. “Lexington provides a strong environment for startups to succeed with access to a highly educated workforce, startup infrastructure and resources, and access to startup capital. We believe that Kentucky startups have the ability to compete nationally to solve problems of paramount significance to society.”

The Kentucky Cabinet for Economic Development expanded its support of entrepreneurs and startups in Kentucky by offering a myriad of resources, such as a list of “accelerators” operating in the state. One accelerator is Lexington-based Awesome Inc., which provides a home for high-tech startups through its Awesome Fellowship program that provides mentorship and expertise, along with access to a network of more than 60 experienced entrepreneurs, investors, and business community members.

Kentucky Chamber of Commerce President and CEO Ashli Watts said one reason for the increase in startups during the pandemic could be because it allows people and entrepreneurs the time to think and create solutions that become a reality.

“Unfortunately, the pandemic will have winners and losers,” Watts said. “Right now, it's going to be probably difficult for restaurants to continue with the indoor-dining restrictions and not being able to offer outdoor seating in cold weather. The hotel and hospitality and drink industries have suffered. But businesses, like Amazon, have boomed and so have home delivery services for meals. Whenever there is a crisis or a downturn, it gives entrepreneurs the kind of the freedom to try to figure out the possible solutions and meet consumers’ needs.”

Commerce Lexington President and CEO Bob Quick said Lexington is often among the nation’s most recession-proof cities because of its diverse economy, well-educated workforce, and entrepreneurial spirit that drives innovation and creativity.

“Even in the face of the ongoing pandemic and economic challenges, Lexington’s entrepreneurial community proved once again that its ecosystem for startups is strong and growing through its recent economic impact survey that reflected robust figures for job growth, capital funds raised and revenue generated,” Quick said.

“The creativity of our business community has been on display all throughout 2020, as companies large and small continue to pivot their operations to meet the needs of the constantly evolving economy.”

The Kentucky Small Business Development Center (SBDC) announced this past August an e-commerce initiative with the support of the leading global e-commerce platform, Shopify, in an effort to assist in the online presence of Kentucky small businesses. Entrepreneurs and business owners are offered a series of free webinars, tools, training, and tutorials that will present great potential for online success -- a necessity during the COVID-19 pandemic and beyond.

“The global pandemic has presented everyone with obstacles and challenges, but it has also allowed for creativity in new ways of delivering services,” said Kristina Joyce, Kentucky SBDC state director. “Through platforms like Shopify, we are able to provide resources for small-business owners to begin or expand on what they have already built. E-commerce is a powerful tool and one of many new ways Kentucky businesses can deliver products and services.”