Talk of a budget impasse turned to talk of budget passage in Frankfort around 11 PM Friday as lawmakers neared the end of a six-day special session by passing a $17 billion two-year spending plan that slashes spending by at least $1 billion from 2009 levels and doesn't raise a single tax.

 

The bare-bones 2010-2012 Executive Branch budget package, which includes the state spending plan and a revenue plan, includes virtually all the recommendations in the governor’s latest compromise budget, along with specific House and Senate provisions required to help the state weather a budget shortfall of at least $1 billion over the next budget cycle.

 

Both the governor and the General Assembly agreed early in the 2010 Regular Session -- which ended last month -- that there would be no new taxes in any budget that was passed. The plan, instead, was to reach a deal that would avoid a government shutdown while plugging the expected two-year shortfall.

• It’s a $17.3 billion, two-year plan, with no new taxes and no lay-offs of career employees.  We are living within our means.
• Much of state government will see 3.5 percent cuts in the budget’s first year and an additional 1 percent cut in the second to help overcome a deficit topping $1 billion.
• SEEK will not be cut for our schools, and Medicaid will be streamlined under a plan supported by Governor Beshear and the Cabinet for Health and Family Services.
• Postsecondary schools will be cut just 1.4 percent in the first year and an additional one percent in the second.
• Other agencies exempted or not subject to full cuts include: Kentucky State Police, prosecutors, public defenders, KET, community-based services, and economic development.

In addition, there will be more than $500 million in agency bonds.  These are four university projects that will generate their own revenue (dormitories, for example) and make their own bond service payments, and for water and sewer loans authorized by the Kentucky Infrastructure Authority.

 

Health insurance/Retirement:

• Our budget offers $70 million more than the last budget for employee health insurance.
• We will continue offering a free basic health plan that is better than what is currently offered and very comparable to the private sector.  We also provide 76 percent of the cost of a family basic plan.
• The state’s health policy board will determine other plans in time for open enrollment in October.
• Our budget fully funds the 2008 timeline designed to end the long-term deficit in our public pension systems.

Other efficiencies are on top of the across-the-board cuts and total about $300 million for the biennium. They includes a $166 million reduction in contracts, $20 million in savings from fewer political appointees; and $114 million in basic efficiencies.

NOTE: Many other states are in worse condition: Minnesota has about one million people more than Kentucky, but its deficit is twice as large.  Illinois has a deficit eight times as big, and New Jersey’s is a third of its budget.

Unemployment Insurance

• This new law is the result of more than a year of work done by labor and business leaders who were part of a task force created to study the issue.
• This plan will save businesses about $700 million over a 10-year period versus a federally imposed solution.
• The unemployment insurance fund is about $800 million in the red because of high unemployment.  That money, borrowed from the federal government, has to be repaid eventually.
• Many states are in a similar situation with their unemployment insurance fund.
• This law will help the Commonwealth’s 86,000 employers and more than two million workers.
• The law represents shared sacrifice: Employees will see a slight reduction in benefits, and employers will gradually see their payments increase.

The budget, passed and sent to the governor for his signature on Friday, accomplishes these goals through cuts of 3.5 percent in fiscal year 2011 and 4.5 percent in 2012 for most state agencies—with lesser cuts for postsecondary education and Corrections—increased government efficiencies, limited new bond indebtedness (which means no newly authorized water or sewer projects for Kentucky communities this next budget cycle) and funding from the revenue plan. Exempt from across-the-board cuts that most agencies will face are Medicaid, merit-based KEES scholarships earned by thousands of Kentucky high school students each year, and per-pupil funding that public schools receive through the state’s SEEK formula designed to equalize education funding among school districts. 

 

The two-year spending plan maintains all 177 instructional days currently on the public school calendar (with one day paid for by school districts and the rest paid for by the state), holds down additional General Fund-supported debt, limits agency-fund debt for universities and other entities to around $515 million, adds around $20 million to the state’s “rainy day” budget reserve trust fund, and allows the governor to order furloughs without disproportionately targeting lower-paid workers. Changes to employee and teacher health insurance also ordered by the budget are expected to save the state around $94 million over the two years.

 

Added to the budget in the final hours of the special session was a mechanism for school districts to fund aging schools most in need of replacement. Under that plan, the state will match funding for districts that levy what is called an “equalizing nickel”, or 5 cents per $100 in property value, to fund facilities construction. The money would only go to so-called “Category 5” schools-- those facilities considered to be in the worst shape.

 

The revenue plan, also given final passage and sent to the governor Friday, is expected to save the state upwards of $89 million over the budget cycle through tax code changes, including modifications to the state’s new home tax credit and a credit for the film industry. Tax incentives to benefit rural and low-income communities through business investment are also part of the revenue legislation.

 

Agreement on a two-year state road plan and a bill that will fund operations of the Transportation Cabinet were given final passage late Saturday night. The bills will provide funding in several key transportation areas through 2012, and lawmakers were determined to see the measures passed. Important work on roads, bridges, aviation and other areas can continue because of action taken on these bills in special session.

 

Sent to the governor for his signature along with the road plan and Transportation budget was a list of projects recommended for funding in the last four years of the state’s six-year road plan. Those projects will be completed as funding allows.

 

The final item on the governor’s special session agenda was a call to allow distilleries and wineries to offer free samples of their product at locations other than their private grounds. Both the House and Senate took up separate measures to allow the businesses to offer samplings—or tastings—of beverages like Kentucky Bourbon and wine at such events as the upcoming Alltech FEI World Equestrian Games and Kentucky Derby.  Neither bill was passed into law by the end of the session.

 

I am pleased that we were able to finish this special session within the one-week time period that we had set for ourselves (although we had hoped for five days instead of six). But the good thing is the extra day enabled us to take care of the transportation issues left hanging Friday night as midnight approached.  However, I remain sorely disappointed that the entire thing could not have been done during the regular session, and to that end I will write a check to the KY State Treasurer for what salary was paid to me for the 6 days of session.

 

The budget is stark, given our state’s economic situation, but we have hope that our finances will have improved enough by the 2011 Regular Session that more money can be put into education, human services and other critical areas that have suffered this recession along with so many Kentuckians.

As your representative in the General Assembly, my job is to serve you and make sure your concerns are heard.  Should you want to contact me, my address is Room 357C, Capitol Annex, 702 Capitol Avenue, Frankfort, KY 40601.  You can also leave a message for me or for any legislator at 800-372-7181.  For those with a hearing impairment, the number is 800-896-0305.  You can still reach me through my web page http://melvinhenley.com, or by sending an e-mail to melvin@melvinhenley.com.