Politics & Government

More than pensions. The Top 10 things lawmakers must decide on Kentucky’s budget.

These are some of the biggest sticking points that Kentucky House and Senate leaders are attempting to negotiate as they try to finalize a two-year state budget next week.

Tax increases

In their first attempt to write a budget since 1921, House Republicans did the unexpected: voted to raise taxes. Their budget contained three new sources of revenue: a tax on prescription opiates, an increase to the cigarette tax and the elimination of a $10 individual income tax credit.

The Senate was quick to scrap those tax increases. State Sen. Chris McDaniel, R-Taylor Mill, who wrote the Senate’s budget, said there “simply is not the support to do one-off tax increases in the chamber.”

But that $500 million in revenue was important in helping the House funding several education programs, especially among the backdrop of angry teachers protesting in Frankfort.

Health insurance funds

Since 2009, lawmakers have helped balance the budget by grabbing money from a health insurance fund that covers 263,913 public workers and their relatives, or 6 percent of Kentucky’s population.

The question this year is how much will they take from the Kentucky Group Health Insurance fund? The House proposed taking $481 million from the account while the Senate proposed taking $310 million.

A Herald-Leader analysis of the insurance fund’s premiums show that the fund has averaged about $300 million in surplus over the past three years. That means lawmakers can comfortably sweep some of those funds, but they have to be careful about not taking too much or premiums will start to increase.

Pension funding

The House and Senate both provide $3.3 billion to help pay off the state’s more than $40 billion in pension liabilities, but the Senate decided to divert about $1.1 billion of that away from the Teachers’ Retirement System of Kentucky and into the State Police Retirement System and Kentucky Employees Retirement System.

The teachers’ pension system is in much better financial shape than the other pension systems, but it’s still only 56.4 percent funded. The general counsel for the teachers’ system has said that if lawmakers don’t provide the full amount of money its actuaries say is needed, the plan could go bankrupt by 2043.

Education funding

The House budget increased the main funding formula for schools, known as SEEK, to $4,055 per pupil in fiscal year 2019 and $4,056 in fiscal year 2020. The Senate cut that amount to $3,984 in fiscal year 2019 and $3,985 in fiscal year 2020.

The Senate’s proposal is a modest increase over the current SEEK funding level, an amount school officials say is not adequate to cover increasing expenses.

Governor Matt Bevin had also proposed cutting transportation funds for schools, but both the House and Senate proposed to reverse that cut.

Private prisons

As Kentucky’s inmate population has boomed, the state has been forced to once again enter into a contract with a private prison. The House budget allocated money for the state to enter contracts with two more private prisons, but the Senate stripped the funding.

Instead of paying for private prisons, McDaniel said the state should make better use of unoccupied beds and that county jails would have to start prioritizing state prisoners over federal prisoners.

State worker layoffs

The Senate budget included language that would make it easier to fire state employees because of financial restraints and would strip them of their ability to appeal that decision to the Kentucky Personnel Board.

The language was originally proposed by Bevin, but the House removed it in its version of the budget bill.

State employees are concerned the language would essentially eliminate the state’s Merit system, which insists that all state non-managerial positions are filled by the most qualified individuals regardless of political affiliation. There are currently 30,000 merit-based employees in the system.

Faculty tenure

University faculty are concerned about language in the Senate’s budget that would allow administrators to ignore tenure protections if they must cut jobs because of budget constraints.

Bevin included similar language in his budget proposal, but the Senate was more explicit in allowing the schools to ignore their own rules.

Eliminating government programs

Bevin proposed eliminating state funding for 70 programs, including the University Press of Kentucky and the state’s only poison control center.

Some of those programs found their way back into the House budget, and others made their way into the Senate budget. And many didn’t make the cut in either budget plan.

There could be several sticking points here, but two in particular might be the state’s civil legal aid programs, which help thousands of low-income Kentuckians without access to legal assistance, and the Robinson Scholars Program at the University of Kentucky, which has provided hundreds of full scholarships to first-generation college students from Appalachia. The House funded them and the Senate did not.

Retired teacher health insurance

When he unveiled his budget plan, Bevin proposed cutting state funding for health insurance for 8,554 retired teachers who aren’t yet 65 and therefore don’t qualify for Medicare.

In the House budget, lawmakers found a workaround that would pay the health insurance costs for one year, then make the teachers’ retirement system pick up the expense in fiscal year 2020. The Senate pushed all the cost onto the pension system.

Teachers’ Retirement System General Counsel Beau Barnes has said the fund lawmakers want it to use wasn’t designed to pay health benefit costs, but it’s unclear if his protest will have much effect on the conference committee.

Budget cuts

Bevin’s budget contained a 6.25 percent budget cut to most state programs. The House spared universities and a few other key programs from the proposed cut, but the Senate only exempted Kentucky State Police and Veterans’ Affairs.

With limited money to move around, the House and Senate must agree on which government agencies get slashed.

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

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