Ed Lane: As CEO of the Kentucky Chamber of Commerce, you and your staff were very involved in the 2008 legislative session of the Kentucky General Assembly. How would you describe management of the legislative process by Kentucky’s legislative and executive branches?
David Adkisson: The 2008 session was disappointing in several ways. For the short-term bottom line of businesses, it wasn’t a bad session. The chamber fended off proposals to increase corporate taxes. The fact that those proposals were neutralized actually made it a decent session for businesses’ bottom lines.
But longer term, Kentucky’s needs in education and economic development were missed opportunities that caused the chamber to be disappointed with the overall outcome of the session.
EL: Is state government dysfunctional or is it an issue of partisanship between the legislative branches and the governor?
DA: Well, the legislature is always going to be hectic and a little confusing especially in its closing hours. That’s just the nature of the beast. However, this session seemed especially confusing at the end and frustrating in the sense that key leaders were talking past each other. Kentucky has some very capable people in leadership positions in Frankfort. Brilliant people, but they seem to be talking past each other and I didn’t see the collaboration that I think Kentuckians would like to have from their elected officials – regardless of their party affiliations.
EL: What do you anticipate will be the worst outcome of the state’s two-year budget (FY 09 and FY 10)?
DA: The most onerous is the possible loss of momentum in Kentucky’s education progress. I am convinced the state is making significant progress in education at the P-12 and higher education levels. Research the chamber has conducted in conjunction with the Long-Term Research Center shows that Kentucky, in less than one generation, has come from the basement, something like 43rd in the country to the middle of the pack.
For example, Kentucky is 34th on an index of multiple indicators. Progress is real. On the higher education level, enrollments and graduations are up, but the lack of state funding and the implications on tuition costs are sobering. Increasing fees could halt the progress. If the community college system has a 13 percent increase in tuition, will postsecondary education make its goals in 2020? Anybody who knows anything about the marketplace understands that raising prices will have a negative impact on demand. So that’s of great concern to the chamber.
The chamber has always been reluctant to endorse tax increases. We’re admittedly and proudly conservative in that department. The chamber in the early ’90s endorsed education reform, in 1997 endorsed and supported higher education reform, this year we conspicuously endorsed a cigarette tax increase. The chamber supported a cigarette tax increase not only because of positive health implications but to also help keep tuition costs lower. As the session moved on and the chamber learned more about the fiscal crisis that the state found itself in, it became a fairly simple equation of higher tobacco taxes versus tuition increases. Now we’re seeing headlines that indicate decisions made in the General Assembly will have a negative impact on the college student’s pocketbook.
EL: If you had been the governor, would you have recommended the cigarette tax?
DA: Yes. The chamber joined Gov. Beshear when he called for tax increase. Our position was different. The chamber only recommended the cigarette tax be increased to the level to the surrounding states. The governor called for 70 cents; the chamber’s was 45 cents per pack. The Kentucky House supported 25 cents and that ended up failing.
EL: In the knowledge economy, an educated workforce is critical to jobs creation. Are there still some legislators that need to be educated on that issue?
DA: Over the last 10-20 years, most Kentuckians have moved beyond an abstract notion that education and economic well being are closely related. Certainly the business community understands that. I believe most legislators understand that also, but funding levels often become so abstract. When you see a university with a hospital that’s growing like UK’s and you see construction going on, enrollments are up, you think surely anybody can take a 3 percent cut. Well, 3 percent will have implications. There will be scholars that UK could have recruited to Kentucky that will not come here. The chamber must continue to press the point – Kentucky has to invest in higher education. Not just spend – but invest.
EL: What was the chamber’s position on tax increases?
DA: The chamber wasn’t in favor a new sales taxes on services because the taxes proposed appeared to be very arbitrary and the cigarette tax was considered to be low-hanging fruit. Most of the public and 75 percent of our chamber membership supported higher cigarette taxes. If there were ever an opportunity to use a tool to help the state through difficult times, this was it.
EL: What about the corporate tax?
DA: Increasing the corporate tax was discussed behind closed doors primarily by some of the legislators; they were looking for revenue anywhere they could and wanted to know if the chamber would scream if the corporate tax went back to 6.5 percent.
The chamber resisted that for a couple of reasons. One, the cigarette tax was still pending. Second, the business community negotiated in good faith over three years ago for tax modernization – a reduction in the corporate income tax rate in return for a broadening of the tax base from business. Then, of course, there was the 2006 small-business adjustment. So the chamber felt like it was bad form for state government to turn around and say it’s having difficulty now so let’s up the corporate tax rate again after the General Assembly had just agreed to a certain set of circumstances that would allow the tax rate to be reduced. The chamber found legislators to be reasonable on that and that proposal did not get legs, even in the House.
EL: No legislation was passed to fix the serious long-term impact of the state’s underfunded pension liabilities. Should Kentucky’s taxpayers be concerned?
DA: The failure to fix the $26 billion in pension fund deficits was probably one of the greatest disappointments because a bill was within reach. There was an informal compromise and an agreement made about 8 p.m. on the evening of the last day of the session. The senate voted and approved the bill at 11 p.m. The members of the house – who seemed distrustful of their own leadership and the rush – let the compromise fall apart and did not enact the legislation.
The chamber called on Gov. Beshear to call the General Assembly back into special session to fix the pensions. So far that has not happened. The governor said “there is no point in calling the legislators back and paying all that money for a special session, if the House and Senate have not agreed on legislation.” There’s logic to that. I would hope that our key government leaders would be meeting day and night to try to solve the pension crisis. Big dollars are involved.
EL: If you had to give an A to F rating for the 2008 legislative session’s performance what kind of rating would you give?
DA: I’m reluctant to do that, because the issues are so complex. Overall, I would have to say and I think most Kentuckians would say they are disappointed.
EL: Gov. Beshear’s casino gambling proposal was a bust with the legislators. What is the future for expanded gaming in Kentucky?
DA: The chamber’s position has been consistent for at least five years (which predates my arrival back to Kentucky) and says the state should expand gaming in a limited way and the citizens certainly should vote on it. The chamber’s membership is not unanimous on that position. We’ve lost members. Most of our members see gaming as an economic development issue. More than a billion dollars a year is crossing state lines. Kentuckians are spending their recreational dollars in other states. A lot of people feel really strongly about gambling but what better way to resolve that issue than to vote on it?
Some people have pointed their fingers at Gov. Beshear for the lack of movement on this issue; I guess there’s plenty of blame to go around because no one was the quarterback. I was never called to a meeting in which gambling was the issue. The state chamber represents the business community. There’re six other chambers that supported gaming, but none were involved with the kind of strategy meetings you would need to move a delicate piece of legislation through the General Assembly. Some soul searching needs to be done in terms of who will lead that charge in the future.
EL: Universities wanted the General Assembly to grant the institutions the right to issue bonds without state approval. What happened on this legislation?
DA: The chamber was for bonding by the universities and I think this legislation was lost in the dust of bigger issues such as the budget and gaming. The chamber felt like localized bonding is the right thing to do, especially for university projects that have a revenue stream – like dormitories and parking facilities that generate adequate cash flow to resolve the bond debt.
EL: Does the chamber have any position on the president of the Council for Postsecondary Education?
DA: Yes. But in a broader sense than who should be the president, the chamber’s postsecondary education study last year was a very serious undertaking and one of its key recommendations was to restore discipline to the higher education funding system. Instead of having a bi-annual free-for-all for funding based on which university president has the most support from which legislators, there should be a state strategy on why it is investing the money.
The chamber’s specific recommendation is to restore the former SCOPE group (Strategic Committee on Postsecondary Education), which is supposed to be comprised of state government’s key legislators and set the strategies for higher education. CPE would then implement the SCOPE plan.
SCOPE hasn’t been meeting for a couple of years. SCOPE has become very ineffective. My personal feeling is that if the governor and four or five legislators decided that higher education would again operate on a strategic plan instead of a political free-for-all that would be good for Kentucky education. Right now Kentucky doesn’t have an effective planning system.
EL: If you were governor in the current situation, what would be your recommendations on how to handle CPE?
DA: I would re-establish SCOPE. As a matter of fact, I think in the next day or two, I will write Gov. Beshear to remind him that the study the chamber conducted last year addressed a bigger issue than “who’s the president” and it was “What’s the function of CPE.” CPE’s function is being lost in all the personality debates.
EL: How would you evaluate Kentucky’s economy relative to the U.S. economy?
DA: Kentucky’s real estate market has not been hit the same way the coastal areas and Florida have. There have been some job losses in Kentucky. Clearly, when people have to pay $3.50 or more a gallon for gasoline, they won’t drive SUVs quite as much as they did in the past. So Ford Motor in Louisville lays off 800 people.
The chamber has noticed, in terms of its own membership, potential members are saying the economy is soft and they can’t afford to join the chamber. So to some extent, our own membership base serves as a barometer of what’s going on in the broader economy. That being said, I don’t have any empirical evidence that Kentucky is worse or better off than the national average. But the state is certainly better off than the coastal areas, where real estate has been hit so hard.
EL: Does Kentucky need a better focus on its future?
DA: Negotiation and some hardball politics, as it should be, are always going to be a part of any deliberative body. But when the legislature spends an inordinate amount of energy on those kinds of contests, Kentucky is losing its ability to really imagine and articulate its future.
I don’t expect legislative bodies to be particularly visionary. That’s not the nature of legislative bodies. To the extent that our elected representatives consume their time with the political give-and-take and non-productively use an inordinate amount of energy, then I think that does distract from what the legislature could be doing. It’s more than lost opportunities in terms of legislative items that could have been resolved; it’s lost opportunities in terms of a vision that’s not being pursued.
EL: Do you have a closing comment?
DA: The Kentucky Chamber of Commerce tries to be a non-partisan spokesman for the business community. The business community wants growth, progress, an educated workforce, and more college graduates. Those are not Democrat or Republican notions. The chamber plans to play a constructive role in trying to bring the members of the General Assembly and the governor together to pursue and achieve these kinds of goals – regardless of their political affiliation.