Rejecting about $500 million in tax increases proposed by House Republicans three weeks ago, Senate Republicans on Tuesday unveiled a stark 178-page state budget that would retain many of the cuts originally sought by Gov. Matt Bevin in January.
A few hours later, the Senate approved its version of the two-year, $22 billion spending plan for Kentucky’s executive branch on a 26-11 vote. It now must be negotiated with the House through a conference committee in the final days of the 2018 legislative session, which is set to end April 13.
Overall, according to Senate budget chairman Chris McDaniel, much of state government would see the 6.25 percent spending cuts that Bevin recommended, which would follow many rounds of previous cuts since the 2008 recession. This includes the state’s universities, McDaniel said.
However, McDaniel said the Senate was able to find enough money from different sources for transportation expenses at local school districts, which Bevin’s budget largely left uncovered, and the health coverage of nearly 9,000 retired teachers under age 65 not yet eligible for Medicare, which Bevin also left uncovered. The retiree insurance money would come from a trust fund at Teachers’ Retirement System of Kentucky, he said.
Beau Barnes, general counsel for TRS, said the trust fund actually is the health insurance fund for the entire retirement system, and it held $983 million as of Dec. 31. The projected coverage costs for retired teachers under age 65 will be $130 million over the next two years, Barnes added.
“Obviously, that will have an impact on the growth of the medical insurance fund,” Barnes said. “It’s been growing strongly since 2010, which is what you want to see, given how poorly funded it traditionally had been. But using those trust fund dollars in a way that was not planned for will make an impact on it, especially if it continues beyond the next two years.”
Senators also would modestly increase the per-pupil funding formula for K-12 schools, known as SEEK, up to $3,984 in Fiscal Year 2019 and $3,985 in Fiscal Year 2020, though the House would have provided more.
For Kentucky’s two ailing public retirement systems, the Senate would provide nearly $3.3 billion for pension contributions for state employees and school teachers, the same as Bevin proposed, said McDaniel, R-Taylor Mill.
“We put the same $3.3 billion into pensions,” McDaniel said. “We put extra money into the two worst-funded plans: $200 million into the state police and $800 million into the Kentucky Employee Retirement (Non-Hazardous) system, which is the worst funded plan in the entire nation.”
That “extra money,” though, came at the expense of the Teachers’ Retirement System. The Senate’s budget plan provides the pension system for teachers $598 million less in 2019 than the House proposed and $506 million less in 2020. Senate leaders said they funded TRS “at the statutory requirement,” which is based on a percentage of payroll costs, but it is still far less than what actuaries have said the system requires to be considered fully funded.
Senate President Robert Stivers, R-Manchester, indicated the decrease in funding was a pointed way to illustrate flaws in the pension system for teachers.
“They have said, and go back and look at the testimony of their respective individuals, ‘we’re fine just fund us at the required level,’” Stivers said.
McDaniel said Senate Republicans rejected $500 million in new taxes on tobacco products and prescription opiates the House approved, largely to protect school spending.
“There simply is not the support to do one-off tax increases in the chamber, and so we went ahead and went with the governor’s revenue numbers,” McDaniel said.
Instead, the Senate found about $250 million more than the governor from various sources. Where Bevin would sweep $201.5 million from the Kentucky Employees’ Health Plan, for example, the Senate would grab about $300 million, McDaniel said.
And the Senate would remove language allowing two private prisons owned by CoreCivic Inc. of Nashville to be reopened with state inmates in Marion and Floyd counties, saving the state Corrections Department $37 million over the next two years. The state already signed a contract Nov. 19 to reopen a CoreCivic prison in Lee County.
After McDaniel spent a half-hour quickly summarizing the contents of the spending plan to the Senate budget committee Tuesday morning, the panel voted to send it to the Senate floor.
“There’s a lot of stuff in here that I like,” said Sen. Brandon Smith, R-Hazard, specifically mentioning financial assistance included for coalfield school districts.
The one “pass” vote was cast by Sen. Robin Webb, D-Grayson, who quickly flipped through the thick bill and noticed a number of items, such as legal aid programs for the poor, that Senate GOP leaders apparently agreed to defund without commenting on it during the hearing.
Webb said the Senate’s Democratic minority were given a briefing on the budget plan Monday evening, but their first look at the bill itself was Tuesday’s hearing.
“I’m not one to vote on bills I didn’t get to read,” Webb said.
At least a few of the 70 publicly funded programs that Bevin proposed eliminating were restored in the Senate plan, including $200,000 for the Lexington Hearing and Speech Center, $200,000 for the Heuser Hearing and Language Academy in Louisville, $1.5 million for the Kentucky Mesonet at Western Kentucky University, $1 million for colon cancer screening and $1.5 million for the the Kentucky Poison Control Center.
And to address school violence, the Senate budget included language that would let retired police officers take jobs as school resource officers without their new employers having to pay for their retirement and health benefits. It also would let state police take second jobs as school resource officers.
The Senate also approved separate and much smaller budget bills for the state’s judicial and legislative branches. Those bills would withhold the state’s contributions to the pension funds for judges and legislators over the next two years.
The Kentucky Judicial Form Retirement System, which oversees pensions for judges and legislators, is much better funded than the systems for teachers and state and local government employees, McDaniel said.
“That’s not fair to the employees that show up every day,” McDaniel said, “and so we’re going to make theirs right before we handle ours.”
According to its most recent audit, the Judicial Form Retirement System received $13.2 million in employer contributions in 2017 and $16.5 million in 2016, while the participating employees — judges and legislators — contributed only $1.7 million and $1.8 million in 2017 and 2016.