What’s In, What’s Out: A Look at Kentucky’s 2016 Budget

By Sean M. Cutter and Ellen C. Williams

The work of the 2016 Kentucky General Assembly concluded with Gov. Matt Bevin signing the commonwealth’s two-year budget plan on April 27. His reaction to the passage of the budget was one of high praise, noting that the more than $1 billion committed to the state’s pension systems will help put the state on more solid financial footing.

The budget is not the total picture of the session, however, as many signifi­cant pieces of legislation passed during a productive legislative session.

SB 11 modernizes alcoholic bever­age laws, allowing for by-the-drink sales at distilleries under certain cir­cumstances and doubling production caps for microbrewers and small farm wineries. The provisions of the bill should provide a boon to both Ken­tucky bourbon tourism and craft pro­ducers of all varieties.

SB 134 creates Kentucky’s first pathway toward the substitution of upcoming, FDA-approved “biosimilar” drugs. Similar, but not identical, to their innovator equivalents, these large molecule pharmaceuticals are expected to cost 20-40 percent less than their brand name counterparts.

HB 10 was passed to fix some over­looked aspects of the budget. High­lights include $12 million in emergency funding for state parks, $1 million to relocate a boat dock at Rough River Lake, and $10 million in each fiscal year for general aviation airports. Some of its provisions were line-item vetoed.

HB 40 creates a process for some class D felonies to be vacated and expunged, creating opportunities for people who have paid their dues to re-enter the workforce.

Each budget session features what is referred to in Frankfort as the “revenue bill,” which contains tax expenditures (commonly called “tax breaks”), changes to tax policy and revenue increases. It is the budget’s companion piece. HB 80 became the new revenue bill after the governor expectedly vetoed HB 423. HB 80 updating the Internal Revenue Code contains provi­sions regarding capital projects at state universities and other items affecting primary and secondary schools. Nota­bly, the bill also includes a quadrupling of the executive agency lobbying fee to $500 from $125.

The Road Fund package passed on the final day of session. The six-year program comes in the form of two bills, HB 129 and HJR 160, the former mak­ing up the first two, funded years of the plan, and the latter comprising the four “out years.” Legislators heard testi­mony throughout the session that the state-funded portion of the plan is “over programmed” – due in large part to the dramatic decline in gas prices – so many projects with committed dol­lars may not be realized by the end of the biennium. The governor notably vetoed the $250 million state resurfac­ing plan from the Transportation Cabi­net’s budget.

HB 309 will allow government and private entities to enter into a variety of public-private partnerships to fund Kentucky’s major infrastructure needs.

Lexington-Fayette Urban County Government was given the authority to add 2.5 cents to its transient room tax as part of the funding package for a $250 million expansion of the Lexington Con­vention Center. That bill dovetails with a $60 million line-item in the budget.

As for the budget, HB 303, multiple specific funding directives for programs in the budget were line-item vetoed through cabinets across state govern­ment. However, the money for these pro­grams is kept in the cabinets’ base funding; the vetoes strike language man­dating how to spend money for these pro­grams, leaving the cabinet total discretion on how to spend the money.

Primary and secondary education was mostly unharmed by the substan­tial cuts, although universities did receive 4.5 percent cuts. Current-year university cuts were not addressed by the General Assembly. Universities did (projects that are bonded against the state’s debt limit but financed by the universities).

The budget sets new parameters on the distribution of coal severance tax funds. The legislature has criticized the use of dollars for programs that do not contribute to the economic viability of the extraction region. This biennial budget intends to provide more operational cash for coal counties, and requires agreement among the legislature and local elected officials on county economic develop­ment projects. The state’s general fund will shoulder a larger burden of the recur­ring line-itemed projects than in past budget cycles.

Gov. Bevin vetoed HB 626, which would have set up the guidance and framework for new “Work Ready” schol­arships, performance-based higher edu­cation funding and the $100 million Workforce Development Fund bonds. Although HB 626 received a veto, Bevin didn’t kill the programs outright. The veto delays the scholarship funding for one year, leaving intact $15.9 million for the program in the second year of the budget, and his administration will set up the parameters of the program. The same is true for the workforce develop­ment bond fund. It is funded in the bud­get, and the governor now has programmatic discretion.

In total, the Senate filed 345 bills and binding resolutions. The House logged 705 bills and binding resolu­tions. Among those 1,050 pieces of leg­islation, only 160 made it to the governor’s desk, of which:

• 132 were signed by the governor
• 14 became law without his signature
• Nine were vetoed
• Five were line-item vetoed

Lawmakers forfeited their right to override the vetoes by waiting until April 15, the final day they legally could con­vene for the 2016 session, to approve the budget and other legislation. All legisla­tion passed without an emergency clause or delayed effective date becomes law 90 days after the conclusion of the session, which will be mid-July. The state’s fiscal year begins July 1.

Local Investments for Transforma­tion (LIFT), the local-option sales tax effort, failed to get a Senate vote after passing the House. Its demise was fueled, in part, by a preference to address it as part of a comprehensive tax-reform package. No such reform effort was put forth in 2016, and it might not ever occur until one party controls both legislative chambers and the governor’s mansion. Republicans had an outside chance of achieving that goal mid-session, as four special elections occurred to replace members who had either won statewide office or were appointed by the governor. A sweep would have split the House 50-50. However, the Democrats won three of those four races, and solidified a six-vote majority (53-47) for the most productive part of session.

Focus has quickly shifted toward May and November’s elections. If the budget debates are any indication of an overall strategy, the Democrats will emphasize both funding and access to educational opportunities, while Republicans may tout fiscal responsibility in the face of a monumental pension crisis.

What remains to be seen is if, and how, the names at the top of the ticket will impact state legislative races. Repeated charges of ethical violations between the sitting and most recent governor may also play a factor. The primary election is Tuesday, May 17, and the general election is Tuesday, Nov. 8.

Sean M. Cutter is executive director of McBrayer, McGinnis, Leslie & Kirkland Government Solutions in Frankfort. Ellen C. Williams is a principal with the firm.