The Republican-led Senate on Wednesday passed a two-year, $21 billion state budget that would provide big money for public pensions and a “rainy day” reserve fund by cutting funding for education, public television, cancer screening and other services.
Negotiations with the Democrat-led House, which has a different budget plan, could begin Thursday. Lawmakers hope to send a final budget agreement to Gov. Matt Bevin by next Wednesday, in time for a short “veto break,” when he will consider the bills they have passed since Jan. 5. The session is scheduled to end April 12, when lawmakers may attempt to override any vetoes by Bevin.
Lexington gets a particularly sharp kick in the Senate plan. At the last minute, the Senate budget committee held an unscheduled vote to strike $60 million in bonds that Bevin and the House wanted for an expansion of Lexington Convention Center. Statewide education cuts also would affect schools across the city, including a $60 million reduction for the University of Kentucky between now and 2018 and $200,000 for Lexington Hearing & Speech Center.
“I don’t know who the winners are in this budget today, but I can tell you the loser is the city of Lexington,” Sen. Reginald Thomas, D-Lexington, said as he voted against the budget. “What this budget does, Mr. President, is it shoots a hole through the heart of the city of Lexington.”
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Overall, the Senate agreed with Bevin’s plan to cut most state agencies by 4.5 percent this fiscal year, ending June 30, and then by 9 percent more over the next two years. Exceptions carved out by the House, from higher education to KET to the Executive Branch Ethics Commission, were put back on the chopping block by senators.
The state’s basic funding formula for K-12 schools essentially would be flatlined for another two years at about $3,981 per pupil in the budgets put forward by the governor, House and Senate. But the House would spare from cuts millions of dollars in assistance the state Department of Education provides schools for costs such as textbook purchases, teacher training and dropout prevention. Bevin and the Senate would impose cuts on those services.
The Senate scrapped House proposals to expand public preschool eligibility to about 1,000 working-class children and to provide $33 million in “Work Ready” scholarships for graduating high school seniors to attend community and technical colleges without owing tuition. Likewise, senators dismissed Bevin’s request for $6.3 million to hire 44 additional public defenders.
The Senate voted 27-2 to approve the budget, with nine senators abstaining. The only “no” vote other than Thomas came from Sen. Brandon Smith, R-Hazard, who was displeased by the plan’s removal of some projects in Eastern Kentucky that were funded by coal severance tax revenue. The House proposed giving all coal severance money to the coal-producing counties, ending the traditional 50-50 split with the state’s General Fund, to help the struggling mountain region. The Senate dropped that idea from its own plan.
Senate budget chairman Chris McDaniel, R-Taylor Mill, told his colleagues the Senate plan put its highest priority on tackling the $36 billion shortfall in the public pension systems for state workers and schoolteachers. The rest of state government will need to sacrifice until the pension liabilities have been reduced, he said.
“It’s not something that we want to do. Unfortunately, we’re at a place where it’s something that we need to do,” McDaniel said. “There are hard choices that have to be made because of the situation in which we find ourselves. This budget makes those choices in a wise manner that continues the services this commonwealth delivers.”
The Senate budget would provide $1.19 billion over the next two years in additional pension contributions to the Kentucky Retirement Systems and the Kentucky Teachers’ Retirement Systems, compared to $1.12 billion in the House budget and $845 million Bevin called for in his own budget plan in January.
The Senate would give Bevin something he requested but the House rejected: a large “permanent fund” of money squirreled away from various sources, eventually to be used to pay down the pension systems’ unfunded liability. Bevin wanted $500 million in the permanent fund. The Senate would give him $250 million, taken from Kentucky’s public employee health insurance trust fund.
Kentucky Government Retirees, a group that monitors state pension issues, quickly praised the Senate’s approach, calling it “a credible funding plan.”
Separately, the Senate plan would deposit $162 million into the state’s “rainy day” reserve fund for emergencies, taking it to $371 million by the end of fiscal year 2018 — more than it’s ever had, McDaniel said. The House proposed taking it to $209 million. The state’s huge pension liabilities and meager reserve funds have prompted ratings agencies in recent years to downgrade its bonds, making it more expensive for the state to borrow money.
The Senate included some conservative talking points in its budget language, as did Bevin, such as ending the prevailing wage law on public projects and prohibiting public funds from going to Planned Parenthood or any other group that provides or refers women to abortion services. The state’s Medicaid program is fully funded, with language to allow Bevin to begin charging co-payments to Medicaid recipients, as he has proposed.
For the state’s colleges and universities, the Senate approved Bevin’s plan to base part of their public funding on “performance-based outcomes.” The schools will compete among themselves in fiscal year 2018 for shares of a $203 million Postsecondary Education Performance Fund, to be awarded depending on how the schools are scored based on a complicated formula.
The executive branch budget bill is House Bill 303. The Senate is expected in the next day or two to pass separate budget bills for the road fund and for the judicial and legislative branches.