Less than two weeks before legislators are called back to Frankfort for the 2018 session, legislative leaders painted a bleak picture Tuesday at the Kentucky Chamber’s 2018 Legislative Preview Conference. Pension reforms are casting a shadow over the upcoming budget session, forcing cuts across all areas of state government to keep the retirement systems afloat, leaders said.
The panel, featuring Senate President Robert Stivers, Senate Majority Leader Damon Thayer, Acting House Speaker David Osborne and House Majority Leader Jonathan Shell (moderated by Kentucky Chamber President and CEO Dave Adkisson), laid out the options legislators will face in the 2018 session and what could get done and won’t be possible in the 60-day session as pension reforms have still not been tackled in a special session as most expected.
Stivers said the legislature is at a point where, when the session begins, lawmakers can react quickly to pension reforms. Osborne added the process is substantially complete and feels they will be ready in early 2018.
In terms of how significant pension reforms will have to be, Stivers said a one or two on a 10-point scale is not acceptable as the state faces major issues across the board and if it is not addressed more cuts or tax increases will be required. Thayer said the plan they hope to introduce soon will be a good bill with the focus of fixing the systems for the future by putting new employees in a new system along with a few changes which are outside of the inviolable contract so that the cuts won’t have to be as severe as many expect.
Osborne said level-dollar funding for the pension systems moving forward is essential to ensure the systems are sustainable moving forward. Leader Shell added because of that decision, any plan passed is going to cost the state more money in the immediate future but will help move the systems forward.
On the budget, Senate Leader Thayer said “you have to go where the money is” when it comes to cuts in the next two-year budget and added it is likely all areas of government will see cuts, including K-12 education and post-secondary as education takes up almost 60% of the state budget.
The new House Speaker said he feels many are underestimating the “financial crisis” the state is in. Osborne continued by saying pensions will have to be dealt with first and then legislators will evaluate how deep the hole in terms of funding shortages. House Leader Shell said the decisions the legislature will have to make are very real and impact each person in the state.
In terms of when they can complete the budget, the leaders said they expect the budget process to go differently in the coming year as the Republicans now control the House, Senate, and governor’s office for the first time and said they hope the budget will not wait until the last hours of the last days of the session.
As the state faces revenue shortfalls and increased funding needs, Stivers said the state’s tax code needs modernization but that doesn’t necessarily mean it has to mean a tax increase. Thayer said he doesn’t believe the General Assembly will get to tax reform in the 2018 session as it has to be comprehensive and said the state can’t “tax, smoke, or gamble our way out of the pension crisis.”
Similar to what he told The Bottom Line in an exclusive interview, Osborne said the state has to look at what it wants tax reform to be before tackling the very difficult issue.
Shell added that while there are many freshman members of the legislature that have not been through these processes yet, they are willing to vote on difficult issues like the big three: budget, pensions, and taxes.
As for other priorities, the leaders again pointed to legislation dealing with essential skills, workers’ compensation system reforms, peer review, and justice reforms as areas of key focus for both legislative chambers in 2018.
More from the Legislative Preview Conference
The 2018 Kentucky Legislative Preview, a one-day gathering of the most prominent and influential policy-makers in Kentucky, featured expert analysis and prediction on what to expect in the upcoming 2018 session. Here is a wrap-up of the many panels throughout the day.
Budget and Tax Reform
Much of the discussion of the 2018 Legislative Preview Conference focused on the upcoming struggles that will be faced by legislators to craft a new two-year state budget and whether or not new revenue should be created through tax reform.
A panel of Sen. Chris McDaniel, Rep. Ken Fleming, and Morgan Scarboro of the Tax Foundation moderated by Frost Brown Todd Partner Jennifer Barber discussed potential tax reform and how it could impact the budget.
McDaniel said even if the state does tax reform, much of the reforms will not impact the state’s next two-year state budget unless it is regressive and added that while tax reform could and should be a priority, the state must first tackle pension reforms.
Rep. Fleming said he expects significant cuts in the budget and believed that the state should look at what it wants government to be in determining priorities in the budgeting process. Fleming also stated he feels the state needs to look at long term strategies when it comes to tax reform and address tax expenditures and government efficiencies when tackling that issue.
Scarboro noted Kentucky is ranked 33rd by the Tax Foundation for its tax climate and said the state should be looking to other states that have implemented tax systems with broad tax bases and low rates. As for specific areas the state could look at, Scarboro said Kentucky could examine repealing LLET, the local inventory tax, and other areas. She also stated the state should focus on the sales tax base and those exemptions and said many of the studies commissioned in Kentucky have shown it is not a partisan issue and is good tax policy.
McDaniel said it is hard to point to one area in particular when discussing what should change and noted all tax policy changes impact someone at any level and many loopholes occur at the individual level. Because of that, the Senate Appropriations and Revenue Chair said any tax reforms will have to be comprehensive.
With a difficult budget crafting process looming, the leaders of the House and Senate Education Committees are focused on ensuring the funding needed to keep education as a top priority and ensuring students are prepared for the workforce.
In discussing what will be the focus of the legislature in the upcoming session, Rep. Bam Carney and Sen. Max Wise both expressed their desire to hold K-12 education funding harmless in the budget process while also finding ways to fund other government services and put the money needed toward the pension systems.
Post-secondary education will likely see cuts, the chairmen said, as much of the state’s budget goes to education and some cuts will have to be made. Rep. Carney said they will make every effort possible to find other areas outside of education to cut because “how can we build a strong workforce without it?”
Because the state needs more money, Rep. Carney said there is “no doubt we have to find a way to increase revenues” and said he’s open to most things. Sen. Wise also said the state needs to find ways to generate revenue but must be careful on how it’s done.
Carney and Wise also listed essential skills legislation and policies that emphasize early childhood education as a workforce issue as their priorities for 2018.
The number one issue discussed by employers continues to be the lack of a prepared workforce in the state. A panel featuring Kentucky Education and Workforce Development Cabinet Deputy Secretary Brad Montell, Rep. Adam Koenig, Sen. Dennis Parrett, and Rep. John Sims moderated by UPS Vice President of Public Affairs Nick D’Andrea discussed what is in the works in 2018 to help with workforce issues for business.
One of those areas is a bill sponsored by Rep. Koenig to bring reforms to the state’s workers’ compensation system. Koenig said the focus of the bill is to provide better outcomes for employers and employees, cut down on costs, help people get back to work quickly, and address the state’s opioid crisis through adoption of a pharmaceutical formulary and treatment guidelines.
Sen. Parrett and Rep. Sims, both business owners themselves, said there is a need to ensure that changes are made to the system in order to strengthen workers’ compensation in the state. Rep. Koenig said groups from both side of the issue are currently working on the bill, and he expects to come with an even stronger bill in 2018.
Deputy Secretary Montell discussed the Education and Workforce Cabinet’s work on improving the way unemployment insurance is administered in the state. Montell stated that Kentucky is struggling with the system as other states have more competitive models. Kentucky is paying out benefits for an average of 19 weeks which is higher than most states Kentucky typically competes with and suggested Kentucky look at models from other states. Watch an interview with Rep. Montell on unemployment insurance on The Bottom Line here.
With funding issues remaining the largest issue faced by Kentucky and corrections spending continuing to take up a large amount of the pie, Kentucky Justice and Public Safety Cabinet Secretary John Tilley, Sen. Whitney Westerfield, Sen. Morgan McGarvey, and Rep. Jason Nemes served on a panel moderated by Kentucky Smart on Crime Spokesman Daniel Cameron to shed light on what legislative changes could be made to improve the state’s corrections system.
Secretary Tilley said corrections issues have reached an “apocalyptic” level as the state can’t afford cruisers for state police or fund education needs but continues to incarcerate large numbers of individuals, especially for low-level drug offenses. Tilley discussed some of the recommendations put forth by a justice reform work group this week but challenged legislators to go even further in order to help solve this crisis.
Sen. Westerfield said the justice problems have become a budget issue the state can’t escape and said changes have to be made or the incarcerated population will continue to explode when “we don’t have to be locking these people up.” Rep. Nemes said it is also a family issue as low-level offenders are put behind bars and bring pain and struggle to a community as parents are locked up when they don’t have to be. Along the same lines, Sen. McGarvey said it is an issue in all areas of the state which is why it is being approached in a bipartisan way and commended the governor and other leaders for keeping the issue in the forefront.
Healthcare and the Opioid Crisis
As Kentucky continues to struggle with an opioid crisis and falls behind the majority of other states on health outcomes, Sen. Julie Raque Adams, Sen. Stephen Meredith, and Rep. Kim Moser served on a panel moderated by Sherri Craig, Vice President of KentuckyOne Health, to discuss what could be done in 2018 to improve health outcomes.
Members of the panel discussed the fact that the state is facing many funding issues, one of which is the growth of Medicaid spending in the state. Sen. Raque Adams said because of these needs, some revenue measures must be passed in 2018 even if comprehensive tax reform is not tackled. Sen. Meredith and Rep. Moser agreed with Moser stating that increasing the tax on cigarettes could be revenue as well as a health fix.
Sen. Meredith will be sponsoring a bill in the 2018 session that would increase the cigarette tax by $1 a pack in many areas of the state and $1.50 in communities that do not have a smoke-free ordinance which he said will be a healthcare reimbursement as healthcare costs remain high due to smoking-related illnesses.
The panel also discussed the state’s struggle with opioids. Sen. Adams stated there is a new focus on criminal justice in the legislature in the upcoming year that will need to examine how we are spending corrections dollars and possibly putting a bigger emphasis on treatment rather than spending that money locking people up. Rep. Moser also stated she is focused on new language that would incorporate best practices on how to fund treatment in 2018.
The state’s crucial infrastructure need was the focus of a panel featuring Sen. Ernie Harris, Rep. Sal Santoro, Rep. Steve Riggs, and Rep. John Sims moderated by Juva Barber, Executive Director of the Kentuckians for Better Transportation, to discuss what could be done in 2018 as transportation revenues continue to fall short.
Members of the panel pointed to the growth of business across the state coming with the need to expand the state’s infrastructure in order to meet the needs of businesses in the state.
Senate Transportation Committee Chair Harris and House Transportation Committee Chair Santoro both discussed the need to do something about the way the state generates revenue for the road fund. Santoro noted the state is not keeping up with maintaining existing infrastructure or building new areas. Harris said he would like to see the state not only focus on increasing the gas tax but instead moving to an index dealing with road construction or something similar in order to go beyond just a tax increase to truly meet the needs of the state.
Legal Liability Reform
Sen. Ralph Alvarado, Rep. Joe Fischer, and Rep. Robert Benvenuti had a discussion moderated by RunSwitch PR Partner Steve Bryant about bills that will come in front of the legislature in 2018 to improve the state’s legal liability climate as Kentucky remains a target for lawsuits in the medical profession and other areas.
All members of the panel expressed a need to pass peer review legislation which would allow medical professionals to improve their processes by having conversations with their peers without the fear of those discussions being used against them. Rep. Benvenuti said Kentucky tends to make things harder on itself without protections like this and then wonder why the state lags behind others.
Alvarado said he plans to sponsor a bill in 2018 that would place a cap on damages that are rewarded, which would have to be a constitutional amendment. Fischer said he will likely sponsor that as well as the state looks to do more comprehensive tort reform. Benvenuti also said he would like to see the people of Kentucky be able to determine what type of climate they want to live in by casting a vote on the issue.
Energy and Environment
During the energy and environment panel, Rep. Jim Gooch, Sen. Jared Carpenter and Brydon Ross with the Consumer Energy Alliance discussed state and federal policies important for protecting Kentucky’s low-cost energy advantage and status as an energy-producing state. The panel was moderated by Carolyn Brown, partner with Dinsmore and Shohl.
The panel discussed the benefits of state legislation to ensure all customers pay their fair share of using the electric grid. Sen. Carpenter spoke about net metering legislation that he filed in 2017 and the committee meetings held to discuss the topic over this past interim. Legislation is expected in 2018.
The panel also discussed the benefits of recent federal rule changes such as repeal of the Clean Power Plan. Rep. Jim Gooch said that federal regulatory changes have impacted the coal fields in Kentucky explaining that production declines have leveled off.
Brydon Ross echoed some of the legislators’ comments regarding the benefits of changes made at the federal level and the need to revise the state’s net metering statutes.