The closing of the 2013 General Assembly officially ushered in a new day in Frankfort. New coalitions of leaders worked together in ways not seen in Kentucky since divided government came to Frankfort in 1999 – the year Republicans assumed the majority in the state Senate. Democrats worked with Republicans, majority parties collaborated with minority parties, and the governor engaged with the legislature as a whole, all in a spirit of give-and-take compromise with the primary focus on policy over politics.
Even though most of the important legislation all piled up in the last 48 hours, when the General Assembly adjourned sine die at the stroke of midnight on March 26, there was one overwhelming theme: Mission accomplished! Jokes about beer cheese and Ale-8 soft drink legislation abounded for the last three months, but the legislature used every minute available to it during the 2013 session, and in doing so appear to have avoided a politically and financially costly special session.
The 30th and final day of this session was highlighted by a bipartisan compromise on state pension reform and a funding mechanism for pensions – a task that was so monumental it has political stalwarts and pundits saying this may be the most important – and historic – legislative session since the passage of KERA (Kentucky’s landmark education reform bill) in the early 1990s.
However, by striking an agreement on the pension funding mechanism without incorporating any major tax reform elements, it is now unlikely the governor will call legislators back to Frankfort to attempt some form of comprehensive tax reform. Instead, that task will likely fall to legislators in the 2014 legislative session when they tackle the next two-year budget cycle – if tax reform is addressed at all.
While the passage of the pension bill was the highlight, the House and Senate both lasted into the wee hours to override Gov. Steve Beshear’s veto of the religious freedom bill. HB 279 affirms government shall not infringe any person’s sincerely held religious beliefs unless it shows clear, convincing evidence there is a compelling interest for doing so. Gay-rights and human-rights groups opposed the bill, saying it could be used to challenge local laws in Louisville, Lexington and Covington designed to protect gays and lesbians from discrimination. In the midst of high-level pension negotiations, the governor vetoed HB 279 and the General Assembly calmly gave due consideration and overrode his veto.
In scoring the legislative session as a major success with a numerous accomplishments, lawmakers cited the passage of a plethora of significant bills, including:
• Authorizing bonds for universities to build or renovate dorms and other academic buildings.
• Adjustments to the state’s Tax Increment Financing incentives that will allow projects like Lexington’s CentrePoint to proceed.
• Providing regulatory framework for growing hemp, should the federal ban be lifted (championed by Agriculture Commissioner Jamie Comer).
• Allowing overseas military to receive a ballot electronically for voting (championed by Secretary of State Alison Lundergan Grimes).
• Transparency and accountability for special taxing districts, such as sewer districts and library board (championed by Auditor Adam Edelen).
• Fixes and other tweaks to the 2012 landmark “pain pill mill” and synthetic drug legislation.
• Gradually raising the school dropout age to 18 in Kentucky (championed by the governor).
• Allowing high school juniors to graduate from high school early and attend a public university, allowing them to enter the workforce more quickly.
• Establishing a statewide teacher evaluation system that will take into account student progress, administrator and peer observations and parent surveys.
• Modernizing the state’s antiquated alcohol laws, including being able to buy alcohol on election day.
• Creating human trafficking safe haven legislation.
• Creating a single standardized business identification number for businesses that file various documents with state agencies.
Despite the successes of 2013, the session did have its failures. Several high-profile pieces of legislation were not adopted in this short session because they ran out of time, were too politically controversial or were held over to address in the 2014 budget session.
Failed pieces of legislation include:
• Telecommunications modernization, which would have repealed outdated regulations that serve to limit investment in new wireless telephone and broadband technologies in Kentucky.
• A bourbon barrel tax credit, which would have provided Kentucky’s signature bourbon industry a corporate tax credit against the ad valorem taxes paid each year on aging barrels of bourbon resting in warehouse across the state.
• Angel Investor Tax Credit, which would have allowed a tax credit for those that invest in small business start-up companies.
• A coal county scholarship program, which would have provided financial assistance for students from coal producing counties to attend college.
• Medical review panels, which would have established a medical review panel process for lawsuits against long-term care facilities.
• A statewide legislative redistricting plan.
By far, public pension reform was the single largest task accomplished this year. Lawmakers have been grappling with the pension system since 2005 in an effort to shore up the state’s struggling retirement system and help stave off a looming financial crisis. Gov. Beshear led negotiations between House and Senate leaders during the 10-day veto recess period, during which he forged a compromise to both the funding of the pension program and making the necessary structural changes.
The plan includes a cash-hybrid balance plan (a defined contribution plan that guarantees a 4 percent annual rate or return) and funds the actuarial-required contribution (ARC) with $200 million in new revenue over the next two years. The plan was funded through a creative “revenue neutral” tax plan that reduces some personal income tax exemptions, provides a used car trade-in credit when buying a new vehicle and incorporates many obscure tax-compliance issues that will be utilized by the state Revenue Cabinet.
Of particular interest to retailers and corporations are items in the funding provisions that lower the vendor/retailer compensation for the collection of sales taxes (which generates $11 million for the state annually) and provisions that change the disclosure requirements for corporate “management fees” with related-party transactions for corporate income tax purposes (which generates an additional $15 million to the state). There are also more obscure tax compliance and other tweaks pertaining to public-service companies and severance taxes.
Barring the need for a special legislative session, which the governor would have to call, the Kentucky General Assembly will not convene again until January 2014. Monthly interim legislative committee meetings could start as soon as May, as legislators begin hearings on the next round of issues of importance to the commonwealth.
As the ink dries and the lights dim, politicos will look back on the 2013 legislative session as one that struck a new chord of harmony and trust between Democrats and Republicans, and lawmakers and the governor. Under the new leadership of Senate President Robert Stivers, there was an unprecedented cooperation between the Republican-controlled Senate and the Democratic administration. Coupled with the Democratic-led House, this emphasis on making policy a priority over “gotcha” politics in the final hours resulted in all Kentuckians benefitting for new public policy.
Ellen C. Williams is a member and Sean Cutter is director of MMLK Government Solutions.