A surprise state budget bill borrows $75M and spends $25M. Here’s who would get it.
The House budget committee approved a surprise request Tuesday by Gov. Matt Bevin’s administration to borrow about $75 million and spend another $25 million in the current two-year state budget to pay for improvements to parks, university projects and economic development programs.
The committee also approved a bill to address “unintended consequences” from a tax overhaul lawmakers approved last year. The measure, House Bill 354, would cost the state $7.75 million in its first year, according to budget chairman Steven Rudy, R-Paducah.
The move comes less than two months after Bevin warned that lawmakers’ failure to pass a pension overhaul bill would make it more expensive for the state to borrow money. State Auditor Mike Harmon reported earlier this month that Kentucky has $54.6 billion in total debt, including an estimated $43.3 billion in unfunded pension benefit liabilities. That’s more than $12,000 for every adult and child in the state, he said.
Rudy said House Bill 268 calls for spending $150 million over the next three years to fix issues at Kentucky State Parks. The state would spend $2.2 million in the fiscal year that begins July 1 to make debt payments on a $50 million bond to fund park improvements, including repairs to lodge roofs, upgrades to waste water treatment systems and communications cabling, and refurbishing of hospitality areas.
The bill also calls on lawmakers to borrow another $100 million for a second phase of upgrades in the next two-year state budget, but that amount could be changed when lawmakers craft a new budget next year.
Bevin, who is seeking re-election this year, has touted his effort to clean up many of the state’s parks and buildings as one of his accomplishments as governor.
“We need to invest in our parks that have been aging quite a bit,” Rudy said, adding that the tourism cabinet asked for the money. “This is a lot of deferred maintenance.”
The bill also approves spending about $1 million in the upcoming fiscal year to pay for a $25 million bond to fund the Economic Development Capital Projects bond program. Lawmakers cut this money from the budget when it was approved last year, but the Cabinet for Economic Development now says the money is needed to help attract employers to the state.
Rudy said lawmakers might use the state’s rainy day fund to make payments on the new debt. That fund is projected to have $236 million at the end of the biennium in June 2020.
The bill also appropriates more than $20 million for public universities. Those proposed projects include: $5 million for advanced manufacturing initiatives at the University of Kentucky; $8 million for aging and dementia research at UK; $5 million for robotics and advanced manufacturing at the University of Louisville; $4 million for Somerset Community College’s workforce and economic development program; and $290,000 for Kentucky State University for land grant match funds.
In another benefit to universities, the bill would freeze pension contribution rates for regional universities and some other groups in the Kentucky Employees Retirement System, such as mental health agencies, health departments and domestic violence shelters. Skyrocketing employer pension contributions have threatened to bankrupt some of those groups.
The budget bill passed the committee unanimously.
It is unusual for lawmakers to open up the budget in a non-budget year, particularly in a way that reduces revenue. As rising pension costs suck up more of the state’s resources, many government agencies have seen repeated budget cuts in recent years, and more could be on the way.
In December, the Office of the State Budget Director warned that revenue was slightly below projected levels, creating an estimated $22.1 million shortfall in the current fiscal year, which ends June 30. Since then, tax collections have continued to fall short of projections.
Rudy said he expects the full House will vote on the bills Thursday. A three-fifths majority of members is required to approve bills that appropriate money or change taxes in a non-budget year. Any changes the House makes to the budget would also have to go through the Senate.
Senate budget chairman Chris McDaniel, R-Taylor Mill, said he has not seen the exact language in the House bill, but he expects there will be changes.
“I don’t know exactly what they’ve got in their bill just yet,” McDaniel said. “I can’t imagine a scenario where we don’t make some tweaks, I don’t know what those are just yet because I don’t know exactly what they’ve done.”
Republican House leaders have long talked about a need to clean-up last year’s tax reform bill, which expanded the state’s 6 percent sales tax to many services and lowered income taxes.
Among the high-profile changes in HB 354 is a provision that exempts nonprofit education, charitable and religious organizations from charging the sales tax on admission fees to fundraisers and other events. For example, it would remove the sales tax from tickets for University of Kentucky sporting events. It also allows nonprofit education, charitable and religious organizations to avoid paying sales tax on up to $10,000 in tangible personal and digital property each year.
The bill would also create a new tax break for companies who lend out heavy equipment and eliminate a sales tax on boat ramp fees and fees to to fishing tournaments.
“There’s a concern in adding in more tax breaks that will cause a decrease in revenue,” said Jason Bailey, executive director of the liberal-leaning Kentucky Center for Economic Policy.
The bill would generate some revenue by requiring online companies such as Amazon Marketplace or Etsy to collect and remit sales taxes when a seller using their platform has more than 200 transactions or $100,000 in gross receipts in Kentucky.
All lawmakers voted to approve the tax bill in committee with the exception of Rep. Susan Westrom, D-Lexington, who abstained.
This story was originally published February 19, 2019 at 8:04 PM with the headline "A surprise state budget bill borrows $$75M and spends $$25M. Here’s who would get it.."
