House panel OKs budget that restores education spending, makes full pension payments

The House budget committee approved a state budget late Tuesday that restores money Gov. Matt Bevin recommended cutting from K-12 schools, higher education, Kentucky Educational Television and a handful of state agencies, while pouring an additional $1.1 billion into struggling state pension systems.

The House would get its extra money by denying Bevin several things he wants in the two-year, $21 billion budget: a $500 million “permanent fund,” taken from a massive surplus in Kentucky’s public employee health insurance trust fund, which Bevin said he eventually intended to use shoring up pensions; nearly half of the $524 million “rainy day” fund Bevin recommended in case the economy sours; and $100 million in bonds for unspecified workforce development construction projects.

The House budget would have $548 million in debt, less than the $624 million Bevin proposed, making it more fiscally conservative, said House budget Chairman Rick Rand, D-Bedford. Other than the areas newly exempted by the House, most of state government would still face the budget cuts Bevin proposed: 4.5 percent this fiscal year, which ends June 30, and then 9 percent over the next two years.

“This is the best approach,” Rand said. “We wanted to go heavy on education.”

The full Democratic-led House is expected to approve the budget on Wednesday and send it to the Republican-led Senate, with 12 days remaining in the 60-day legislative session. A final version of the budget likely will emerge in two weeks from a conference committee that includes members of the two chambers. Then it goes to Bevin, a Republican elected in November, for his signature or veto.

Bevin spokeswoman Jessica Ditto said in a statement that the governor was “pleased to see that they clearly got the message from the people of Kentucky who are fed up with mortgaging their children’s future through bonding billions of new debt.”

She criticized the House for continuing the “bad habit of spending one-time funds for recurring expenses” and for eliminating Bevin’s proposed “permanent fund.”

“The governor looks forward to working with the House and Senate as the process moves forward, to ensure the ultimate enactment of a fiscally responsible budget,” Ditto said.

The spending plan, which is House Bill 303, won plaudits from members of both parties on the budget committee, although nearly all of the Republican members withheld their votes Tuesday, as is customary. Republicans said they liked the lower debt levels and the full contributions to the pension systems; Democrats said they appreciated that education and other select services were spared the ax.

“You didn’t exactly make a silk purse out of a sow’s ear. But you probably did make a pork leather purse,” Rep. Jim Wayne, D-Louisville, told Rand. “This is definitely an improvement over what the governor proposed.”

In January, Bevin recommended a two-year state budget that included $650 million in “cuts across the board,” with nearly every spare dollar either deposited into a reserve fund or plowed into the two pension systems for state workers and school teachers, which together face a projected $36 billion shortfall in the decades ahead. Among the few protected areas were basic per-pupil state funding for K-12 schools, social workers, Kentucky State Police and extended drug addiction treatment, all of which the House kept.

For education, the House’s alternative plan would restore $215 million for colleges and universities; restore nearly $90 million for state support to K-12 schools that includes family resource and youth service centers, preschool and after-school programs, gifted classes, dropout prevention, textbook purchases and professional development; and provide $33 million for “Work Ready” scholarships to help graduating high school seniors attend a community or technical college without owing tuition.

On pensions, the House would fully fund the annual recommended contributions for state workers in the Kentucky Retirement Systems, plus about $90 million extra, and for school teachers in the Kentucky Teachers’ Retirement Systems, although those sums would barely make a dent in the unfunded liabilities both systems accrued over many years of inadequate payments by the legislature.

“This is long overdue,” Rep. David Watkins, D-Henderson, said of the more than $1 billion in new money budgeted for KTRS, which has only 42 percent of the assets it’s expected to need to pay its future benefits. “Our teachers deserve a lot better than what we’ve been giving them.”

Jim Carroll, spokesman for a state government retirees group, said he was “gratified” the House kept Bevin’s approach of funding the full annual required contribution, and then some, for KRS. But he would be disappointed to lose Bevin’s $500 million “permanent fund,” which “would help stabilize the cash-starved (KRS) if market losses continue to dramatically reduce its asset balance,” Carroll said.

For economically depressed coal counties in Eastern and Western Kentucky, the House budget would gradually, over four years, transfer nearly all coal severance tax revenue to the counties. Currently, the coal counties split the coal severance taxes with the state’s General Fund, a sore spot for county officials who say they need more aid at home given the collapse of the mining industry.

The House would add a number of offices and agencies to the short list of those exempted from budget cuts, including KET; the state’s constitutional officers, such as the attorney general, agriculture commissioner and state auditor; the Executive Branch Ethics Commission, which is a watchdog of the governor and his administration; the departments of Veterans Affairs and Military Affairs; the schools for the blind and the deaf; the commissions on women and human rights; the Board of Elections; the Registry of Election Finance; and county Property Valuation Administrator offices.

The House would scrap language Bevin inserted in his budget plan to repeal the state’s prevailing wage on public construction projects and to base higher education funding in part on a “performance-based” formula.

It also would add language requiring state mine inspectors to perform safety inspections of underground coal mines at least four times a year. That’s down from the current standard of at least six times a year, but a Senate bill approved by committee proposes abolishing state mine inspections altogether and leaving the task with the federal Mine Safety and Health Administration.

Along with the budget bill, the House committee also passed a revenue bill that included a handful of new tax breaks. One of them would eliminate the sales tax on over-the-counter medicine for cattle and other livestock — but not for horses. Rand, the chairman, explained that Kentucky’s horse industry already gets support from the state, including a breeding incentive program.

Several lawmakers said it would be unfair to exclude horses from a tax break given for cows and other four-legged farm animals.

“I think it’s pathetic that we don’t include equine. Our signature industry has been shut out for way too long,” said Rep. Steven Rudy, R-Paducah.

This story was originally published March 15, 2016 at 7:46 PM with the headline "House panel OKs budget that restores education spending, makes full pension payments."