House Republicans plan tax increases to reverse many of Bevin’s budget cuts

House Republicans explain their proposed tax increases

House budget chairman Steven Rudy, left, and House Speaker Pro Tem David Osborne talk with reporters on Wednesday, Feb. 28, 2018, about a 50-cent increase in the cigarette tax and a new tax on opioids in the House version of Kentucky's two-year bu
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House budget chairman Steven Rudy, left, and House Speaker Pro Tem David Osborne talk with reporters on Wednesday, Feb. 28, 2018, about a 50-cent increase in the cigarette tax and a new tax on opioids in the House version of Kentucky's two-year bu

In the first Kentucky budget crafted by House Republicans in nearly a century, the party of limited government wants to raise taxes to better fund education.

In a budget plan unveiled Wednesday, House Republicans proposed three tax increases they said would raise about $500 million over the next two years, which they would largely use to reverse spending cuts to education programs proposed by Gov. Matt Bevin.

The Republican’s plan raises the tax on a pack of cigarettes by 50 cents, eliminates a $10 individual income tax credit and levies a 25 cent tax on prescription opioids each time a dosage is sold by a distributor to a pharmacy, the first such tax in the country, according to the bill’s sponsor, Rep. Steven Rudy, R-Paducah.

“We have two areas of critical need in Kentucky, one of them being our Medicaid crisis and the other being our opioid epidemic,” Rudy said when explaining the reason for the tax.

The House budget committee swiftly approved the revenue bill and budget bills for each of the three branches of state government late Wednesday evening. House Speaker Pro Tempore David Osborne, R-Prospect, said he expects the bills to win approval in the full House Thursday. They then go to the Senate, where Osborne said its unclear how the Republican leaders in that chamber will view the proposals.

The tax increases allow the House to make several changes to the two-year budget proposed by Bevin.

The Republican governor proposed eliminating 70 government programs and cutting spending at many state agencies by 6.25 percent. He also would severly cut state funding for transportation at K-12 schools and direct school districts to cut their administrative expenses. In addition, Bevin suggested cutting a $145 million state subsidy of health insurance costs for 8,554 retired teachers who aren’t yet old enough to qualify for Medicare.

The House Republican’s proposed budget would provide $59.5 million for teacher health insurance in the first year of the two-year budget, which takes effect July 1, but it requires the Kentucky Teacher’s Retirement Systems to pay the tab the next year. Lawmakers said the plan means retired teachers will not have to pay extra for their health insurance for at least two years.

For K-12 schools, the House budget provides $127.8 million each year for school transportation costs, which Bevin had proposed cutting, and increases the main funding formula for schools, known as SEEK by about $60 million.

It plan also helps higher education: Kentucky’s colleges and universities will not face the 6.25 percent cut Bevin proposed in his budget.

The bill saves some of the 70 programs Bevin targeted for elimination, including funding for Family Resource and Youth Services Centers, the Kentucky Mesonet weather monitoring system at Western Kentucky University and the Kentucky Folk Arts Center at Morehead State University.

It also provides $12.5 million for the recruitment and retention of social workers and $5.1 million for Kinship Care, which pays people who act as foster parents for their relatives.

Several programs at the University of Kentucky will receive funding that Bevin had proposed cutting: the Center for Applied Energy Research, the Livestock Disease Diagnosis Laboratory, the Agriculture Public Service Program, the Division of Regulatory Services, the Robinson Scholars Program, the Mining Engineering Scholarship Program, the Small Business Development Center and the Center for Entrepreneurship.

Not every program was spared, however. The University Press of Kentucky will still lose its funding, as will the Kentucky Commission on Women, among several others.

The House plan also would eliminate $100 million in bonds for workforce development programs, a policy priority of Bevin’s.

Despite a request from Chief Justice John Minton, the House budget does not include funding for judicial salary increases. Instead, the House allowed the chief justice to raise court fees and use that revenue to provide salary increases for non-elected judicial workers.

The bill earned bipartisan support in the House Committee, with only Rep. Jim Wayne, D-Louisville, speaking in opposition. He said earlier Wednesday that Republicans were “eating around the edges” to cover some of the biggest holes in Bevin’s budget.

“Why waste your vote on a tax increase that’s such a pitiful thing when you could vote on a more comprehensive, more well-thought out, thorough tax reform?” Wayne said.

Other Democrats were more welcoming to the tax proposals.

“It’s a short-term tax maneuver, but I think that what it’s showing is this ‘don’t tax’ party is having to face the reality,” said Rep. Kelly Flood, D-Lexington.

Rudy said he sees the tax increases as a placeholder for comprehensive tax reform, something Rudy pledged would come in the ongoing legislative session. Wednesday was the 39th day in the 60-workday legislative session that must end by April 15.

“I am absolutely committed to comprehensive tax reform in the 2018 General Assembly regular session,” Rudy said.

Daniel Desrochers: 502-875-3793, @drdesrochers, @BGPolitics