The Kentucky House voted along partisan lines Wednesday night to approve a two-year, $21 billion state budget that rejects Gov. Matt Bevin’s proposed spending cuts for education while pouring an additional $1.1 billion into the struggling state pension systems.
All 53 House Democrats voted for House Bill 303; all 47 Republicans declined to vote. The executive branch budget, which is House Bill 303, proceeds to the Republican-led Senate, which is expected to make its own changes in coming days. A conference committee between the two chambers will hammer out a final compromise this month.
“I believe this is a good budget,” House budget Chairman Rick Rand, D-Bedford, told his colleagues before their vote. “I believe in this budget. I believe it hits all the right notes.”
In January, Bevin called for $650 million in “cuts across the board,” with most of state government required to spend 4.5 percent less this fiscal year, which ends June 30, and then 9 percent less over the next two years. The Republican governor planned to spend the savings on partly meeting the state’s recommended pension contributions and on building up two enormous reserve funds for future contingencies.
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In their plan, House Democratic leaders exempted K-12 schools and state universities from Bevin’s cuts, as well as a handful of other state agencies and offices. They committed to making the state’s full recommended pension contributions to the Kentucky Retirement Systems for state workers and the Kentucky Teachers’ Retirement System for school teachers, which together face a $36 billion shortfall.
Much of the difference between the two plans comes down to $741 million that Bevin wanted to squirrel away in a new “permanent fund” or in the state’s “rainy day” fund, which the House would divert over the next two years to pensions and to protect education. Also, Bevin based his budget on a conservative revenue forecast that estimated $268 million less in state coffers than the House estimated. Both plans count on raiding a $500 million surplus from the Public Employee Health Insurance Trust Fund, a self-insurance fund for 260,000 state workers, retirees and their families.
Several Republican lawmakers criticized the House plan, saying that Bevin intended gradually to build up his newly created “permanent fund” as a long-term solution for the state’s pension liability. By comparison, the House plan spends nearly every penny available, with no strategy for how it can afford the even larger pension contributions expected in the next budget in 2018, the Republicans said.
“We’re doing nothing — nothing — about the long-term viability and sustainability of the system,” said House Minority Leader Jeff Hoover, R-Jamestown. “We’re really missing a great opportunity to take decisive action.”
Added Rep. Jim DeCesare, R-Bowling Green, “We’ve used up all the Band-Aids. Now we’re starting to get an infection because we’re not solving the problems.”
Democrats said their budget is an investment in Kentucky’s future because it stops further erosion of schools and universities, which have suffered through rounds of flat funding and spending reductions since 2008. The state’s basic K-12 per-pupil spending formula of $3,981 has been stagnant for years, despite inflation. Apart from exempting education from budget cuts, the House would expand services such as public preschool, needs-based financial aid and tuition assistance at community and technical colleges.
Other than education, the House budget also would waive Bevin’s impending budget cuts for Kentucky Educational Television; the state’s constitutional officers, such as the attorney general, agriculture commissioner and state auditor; the Executive Branch Ethics Commission; 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.
Also Wednesday, the House passed bills to raise revenue for the state (HB 423) and budget bills for the judicial branch (HB 306) and the legislative branch (HB 499).
Chief Justice John Minton, who oversees the judicial branch, warned earlier Wednesday that the proposed budget cuts would have a “catastrophic” impact on the statewide court system.
In recent weeks, Minton lobbied the House to exempt the courts from Bevin’s spending reductions, with mixed results. The House budget spares the judicial branch the 4.5 percent spending reductions that much of state government must make by June 30, but it left in place the 9 percent cut over the next two years. The House also denied Minton money for judicial pay raises that he requested, replying Wednesday that few state employees or school teachers will be seeing a pay raise anytime soon.
“The consequences of the House version of the judicial branch budget, if enacted, can only be described as catastrophic,” Minton said. “Because personnel costs make up 87 percent of our budget, the shortfall will have a significant impact on our non-elected employees. ... (The legal system) would no longer be able to operate as we know it today.”
Rep. Jim Wayne, a Louisville Democrat, voted for the state budget while warning his colleagues that it’s inadequate to Kentucky’s needs and structurally unsound. This is the fifth consecutive state budget to cut vital services, including public health, environmental protection and workplace safety, to say nothing of state parks, tourism and the arts, Wayne said.
And rather than enact comprehensive tax reform, the legislature keeps cobbling together budgets that sweep “one-time funds” from accounts meant for other purposes, such as the Public Employee Health Insurance Trust Fund, he said. Public employees who use that fund have faced a 55-percent increase in their insurance premiums since 2008, on top of higher co-pays and deductibles.
“We simply don’t have enough money in this budget to run the government,” Wayne said.