Beech Tree News Network

After three straight legislative session working with — and sometimes fighting with — former Gov. Matt Bevin, the Republican supermajority of the Kentucky General Assembly will now labor over an extremely tight budget with a Democratic governor wielding the final pen.

The 2020 legislative session of the Kentucky General Assembly kicks off Tuesday, the fourth consecutive session with Republicans holding over 60% of the seats in each chamber.

What’s new this year is the occupant in the Governor’s Mansion: Democratic Gov. Andy Beshear is set to present a two-year budget proposal to the legislature in late January, along with an ideological agenda that runs counter to that of his predecessor, Bevin.

What remains constant in this 60-day session is the extremely tight nature of the biennial budget. While only modest revenue growth is projected in the coming years, obligations to cover public pensions, Medicaid and other costs will sharply increase.

Beshear wants to find common ground and civility amid disagreement with the Republican-dominated legislature, but that will be put to the test as he attempts to make good on campaign promises of increased spending for education with new sources of tax revenue.

Talk has been civil between Beshear and Republican leadership in the legislature since the November election, but Republican Senate President Robert Stivers maintains that the governor’s main plan for new tax revenue — legalizing casinos — has no chance in that chamber.

Stivers has told The Courier Journal that while his Republican colleagues aren’t opposed to increasing teachers’ salaries and funding for K-12 and postsecondary education, money will be hard to find in this budget, and promises made during elections “sometimes can't be fulfilled by the realities of the environment and the economics of that environment.”

The budget

Three weeks after Bevin conceded defeat, his administration’s budget director laid a grim document at the feet of the new governor’s transition team: a memo estimating a $1.1 billion state budget shortfall over the next two fiscal years.

Though the Beshear administration and the nonpartisan Legislative Research Commission haven’t yet signed off on the accuracy of those estimates, Jason Bailey —the executive director of the progressive Kentucky Center for Economic Policy — has conceded that the coming two-year budget will be “a real train wreck” and require the most cuts over the past decade if significant new tax revenue isn't created.

State economists have projected revenue to increase by $146 million and $207 million in the next two fiscal years, but this is expected to be quickly eaten up by the rising costs of shoring up the state pension systems, expanded Medicaid, payments for state employees’ health insurance and housing the state’s 24,000 prison inmates.

On the pension front, the largest plan for state workers is set to have its employer contribution rate increase from 83% to 93% next year.

Kentucky’s portion of covering the expanded Medicaid population will increase from 8.5% to the maximum of 10% in 2021 and 2022, which is expected to increase costs by nearly $50 million next year.

According to the Kentucky Association of School Boards, the unfunded mandate of the school safety bill passed in the 2019 session will cost $121 million annually to implement, requiring new resource officers and counselors to be hired.

Additional funds that may have to be identified include a loan of $50 million to assist the University of Louisville's acquisition of Jewish Hospital and $23 million annually to lease, staff and operate a privately owned prison in Floyd County.

Adding to these known costs are the projected costs of several Beshear campaign promises to increase spending on public education — the exact figures of which won't be known until Beshear presents his budget proposal.

However, the memo from Bevin's budget director last month stated that Beshear's pledge to raise public K-12 teachers' salaries by $2,000 each would cost $97 million annually, while increasing funding for postsecondary education and the K-12 per-student SEEK amount by 1% would add an additional $42 million annually. Increasing funding for the Teachers' Retirement System above the required contribution was listed as costing an additional $110 million per year.

The last two-year budget continued to slash funding for most agencies to make way for a dramatic increase in pension contributions. The number of state employees has fallen by about 30% over the past decade as agencies work with less money.

New taxes and revenue

Just how deep the cuts are in the next two-year budget, and how many of the aforementioned budget priorities get funded, depends largely on how much new tax revenue is created by the legislature — if any.

Beshear campaigned on funding most of his new education spending through new tax revenue generated by legalizing casinos through a constitutional amendment. With much of that tax revenue directed toward pensions, Beshear said it would free up $550 million annually for spending on public education, though others have estimated the figure could be as low as $175 million and take years before such revenue is realized.

But if that doesn't happen, as Stivers predicted, the new governor would have to look elsewhere new revenue.

One of those places may stem from a bill by Rep. Adam Koenig, R-Erlanger, to legalize sports betting in Kentucky. It passed unanimously out of a House committee in 2019 but never made it to a vote on the floor.

Koenig has prefiled a similar bill this year to allow Kentuckians to legally bet on sports, online poker and fantasy sports contests, with one study estimating it would create anywhere from $20 million to $48 million annually in revenue from new taxes, registration fees and licensing fees. He says he is "extremely optimistic" his bill will pass the House this year. In the Senate, Stivers says he is "ambivalent" to sports wagering.

Advocacy groups for city and county local governments are also looking to Frankfort for budget relief through new methods of revenue, hoping state government provides them with new taxing authorities.

The Kentucky League of Cities and Kentucky Association of Counties is making a renewed push for a constitutional amendment to allow a local option sales tax, in which voters via referendum could approve a 1% sales tax increase with revenue directed to a specific project.

Faced with increased pension obligations and corrections costs, medium and large cities will also push for legislation to raise their restaurant tax, which could create an additional $31 million annually for Louisville Metro Government.

A 50-cent tax increase on packs of cigarettes in 2018 has generated over $100 million in tax revenue, and legislators may return to that well this year. A bill prefiled by Rep. Jerry Miller, R-Louisville, would also add an excise tax on the sale of e-cigarettes, which is estimated to raise $35 million a year in new revenue.

The Kentucky Chamber of Commerce and local governments have also endorsed modernizing the revenue model for the Kentucky Road Fund, supporting a bill that would include raising the state gas tax by 10 cents per gallon, imposing new fees on electric vehicles, and raising existing annual fees on all vehicles.

While this proposal would direct more road funding to local governments, it also faces stiff opposition from conservative groups like Americans for Prosperity-Kentucky, which argues that current funding is sufficient and mismanaged by the Transportation Cabinet.

In addition to new tax revenue, there is always a chance the Republican-dominated legislature will pass additional tax cuts that decrease revenue, such as the 2019 bill that cut taxes for banks by $105 million.

Education

While many Republicans still favor new public funding for charter schools and legislation creating tax credits for those who donate to private K-12 scholarship funds, such conservative education policies now have an active opponent in the new governor.

The scholarship tax credit bill may still show signs of life, but its advancement may also reawaken teacher protests that have swept through Frankfort in the past two sessions.

Proposals to increase spending on public schools, expand kindergarten and pre-K, increase teacher salaries and fund the 2019 student safety bill are likely to fill much of the budget and revenue debate.

Education groups may also throw their weight behind efforts to curb the rising use of e-cigarettes among teens, with Miller prefiling a bill to reduce youth access to flavored e-cigarettes and a bill from Rep. Buddy Wheatley, D-Covington, seeking to ban the sale of flavored vape products entirely.

Rep. David Hale, R-Wellington, also prefiled a bill to ban transgender students from using restrooms that align with their gender identities, which he says could save non-transgender students from "potential embarrassment, shame and psychological injury." Past bills instituting such a ban have failed in the General Assembly, and North Carolina, the only state to pass such a law, has since repealed it.

Marijuana

Rep. Jason Nemes, R-Louisville, has once again prefiled his bill to legalize and regulate medical marijuana in Kentucky. The bill received a House committee vote for the first time in 2019, passing nearly unanimously.

But it never came to a vote on the House floor, despite nearly half of the chamber's members co-sponsoring it. Nemes is optimistic the House will pass it this year — although the Senate appears more skeptical.

Also in the House, Rep. Cluster Howard, D-Jackson, has gone a step further to prefile a bill legalizing and taxing recreational marijuana, which he estimates could create up to $800 million of annual revenue.

Howard's bill would decriminalize the possession of less than 1 ounce of marijuana and allow those previously convicted of a marijuana-related misdemeanors to have their offense expunged for free. Permits to grow cannabis plants at home also could be purchased for $250 per year under the bill, which faces long odds for passage.

Energy and environment

Four Republican members of the House from the Louisville region have prefiled a resolution asking the Beshear administration and a Louisville pollution agency to examine doing away with the federally mandated use of reformulated gasoline in the city and parts of Oldham and Bullitt counties.

If the U.S. Environmental Protection Agency approves such a request, as happened recently in Northern Kentucky, the legislators claim it could save motorists $73 million annually at the pumps at no cost to the environment.

As LG&E moves forward with its controversial plan to build a natural gas pipeline through a section of Bernheim Arboretum and Research Forest, Rep. Jim Gooch, R-Providence, has prefiled a bill to crack down on civil disobedience protests to block natural gas pipelines.

Gooch's bill would make "tampering with, impeding, or inhibiting operations of a key infrastructure asset" of such a pipeline a felony, in addition to making the employer of such a protester civilly liable. As of last summer, seven states had already passed a similar law.

Rep. Angie Hatton, D-Whitesburg, has prefiled a bill to require the state Public Service Commission to include rate affordability when determining utility rates, "to balance the interests of the utility, its investors, and the ratepayer."

Constitutional amendments and gubernatorial powers

In his first week in office, Beshear signed an executive order restoring the voting rights of 140,000 Kentuckians previous convicted of certain nonviolent felonies who had finished serving their sentence. But the movement to make this effort permanent with a constitutional amendment is continuing.

Three Democrats have once again prefiled bills to allow voters through a statewide referendum to approve such an expansion of voting rights for former felons, which has failed to advance through the Republican Senate over the past decade.

In response to former Gov. Bevin's controversial pardons during his final days in office, Sen. Chris McDaniel, R-Taylor Mill, has said he will file a constitutional amendment to limit a governor's power to pardon at the very end of his or her term.

Other legislative efforts may come forward to limit the executive powers of Beshear, such as a bill sponsored by Stivers that would take the power to appoint the secretary of the Transportation Cabinet out of the hands of the governor. Stivers and his Republican co-sponsors prefiled the bill on Election Day before Beshear was victorious, saying that it was not specifically targeting Beshear.

Critical of Beshear's total restructuring of the state Board of Education, Stivers has also floated the idea of the legislature preventing governors from completely abolishing and re-creating boards with all new members, but said he did not expect such a bill to pass this year.

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Date: 01-02-2020

By Joe Sonka

Louisville Courier Journal

Kentucky Press News Service