State

Tom Martin Q&A: Pension problems, state budget top legislature’s agenda for 2016 session

Dave Adkisson, president and CEO of the Kentucky Chamber of Commerce
Dave Adkisson, president and CEO of the Kentucky Chamber of Commerce Kentucky Chamber of Commerce

The 2016 session of the Kentucky General Assembly begins Jan. 5. Kentucky Chamber President and CEO Dave Adkisson has been making his annual tour of local chambers across the commonwealth offering a preview of the state chamber’s 2016 legislative priorities. He joined Tom Martin for a look at highlights.

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Q: Judging by what legislative leaders have been saying, after the mandated contributions are made to the state employee and teacher pension plans and Kentucky’s portion of expanded Medicaid coverage, little, if any, additional funding will remain for other budget items. Sounds dire. Can anything of significance be accomplished?

A: I would say that the financial situation of the state and the challenge of writing a two-year budget in 2016 is at least as challenging as the recession we’ve just been through. During the previous recession, the state of Kentucky received stimulus money from Washington to help prop up our schools and our public protection during very, very lean years for the state budget. Now, we have a pension issue that is ours. Washington’s not going to bail us out. The pension issue is something we’ve gotten into over a couple of decades. It’s a pretty deep ditch that we find ourselves in. And it’s gonna take probably 20 to 30 years to climb out of it.

Q: Senate Majority Floor Leader Damon Thayer says that neither a tax increase nor a bond issue to cover the pension debts is likely. But the money has to come from somewhere. What cuts could the chamber live with?

A: The current forecast ... is that there will be about $250 million-$300 million new dollars. In other words, the economy has produced that much growth, but that’s based on a $10 billion budget. So, that’s 2 to 3 percent new money for next year. Well, the needs of our 2 pension systems — the teacher system and then the state and local government workers system — together are about twice that, nearly $600 million, and that’s before you get to the Medicaid expansion cost and before you get to the higher education request, the K-12 education request, and the need for the correction system. So yes, it’s a very, very challenging situation. The needs are at least twice what the new money is expected to be. Maybe 3 times as much.

Q: Many local initiatives are competing for dollars. Are such requests in jeopardy?

A: Given the needs to get our pension system back on track, discretionary money in this budget is going to be extremely tight. I would suggest tighter than even during the recession.

Q: What is the Chamber’s “must pass” legislation for the upcoming General Assembly?

A: I would put two things in the category of “must pass.” One, a responsible budget that is not built as a house of cards based on one-time money and some tinkering here and there with funds that come out of other state buckets. Number two, to make the actuarially required contribution (ARC) to our pension systems. No matter what is agreed to by Republicans and Democrats, House and Senate, governor and legislature in Frankfort, ultimately we have to satisfy the bond rating agencies. Our bond ratings in Kentucky have been downgraded already about three times, and we have been told by the bond experts that if we don’t tackle this pension problem in the 2016 legislative session, the bond rating agencies will be unforgiving and they will lower our bond rating yet again. We can’t afford that.

Q: And for Mr. and Mrs. Taxpayer, why is that bond rating important?

A: It costs more to build any public facility, whether it’s the University of Kentucky or your local courthouse, or city hall, or library, or water system. It costs more to borrow money, and that’s a hidden tax on our public.

Q: These issues are playing out in a changed political landscape in Frankfort.

A: Yes. While the two big policy issues are the budget and pensions, the two big political factors affecting this session coming up are, A, a new governor making a buzz in Frankfort. There’s some excitement about that. There’s some nervousness about that: a new governor, new style, new policies. And secondly, the legislative elections coming up in November. The House is currently held by Democrats, the Senate by Republicans. There’s a big contest going on to “flip” the House from Democratic hands to Republican hands. If that’s the case, then Republicans would hold the House, the Senate, and the Governor’s Mansion. That has not happened in decades in Kentucky, at least not by Republicans.

Q: Does the Chamber offer any creative ideas for maintaining the infrastructure that we have to have to function?

A: Yes. A lot of companies in Kentucky operate on the river and they ship grain, steel and aluminum on the barging system. They’re concerned about infrastructure on the rivers. And less than half of Kentuckians have access to high-speed broadband. And to do business in today’s economy, you’ve got to have high-speed broadband. Our most creative solution, I think, has to do with “P3” — public-private partnerships. It passed in the House and Senate two years ago and was vetoed by the governor for reasons relating to the Northern Kentucky bridge controversy and whether or not there would be tolls. Governor Bevin has said that P3 used correctly has a place. There are other places, whether it’s the state park system or college dormitories, where public-private partnerships can take private money and use it for a public purpose.

Q: More than 30 states are already tying portions of public college and university funding to performance on such metrics as degrees rewarded and number of years students take to graduate. Some state legislators in Kentucky favor that approach. And recently, the state’s Council on Postsecondary Education endorsed a performance-based formula. What’s the Chamber’s position?

A: Our position is that all new money that goes into higher education should be allocated based on performance. Governor Bevin has said he wants the whole higher education budget based on performance-based funding. So, there’s a pretty broad agreement on performance-based funding between the business community, the higher education community, Governor Bevin, and certainly many in the legislature. The question is, to what degree? How many of the dollars that our universities are accustomed to receiving would be allocated based on performance? Generally, it means degrees and credentials granted like certifications. But performance-based funding basically calls for rewarding schools for the results of who comes out of their pipeline as opposed to how many people enroll on the front end saying they hope to someday get a degree.

Q: The federal government is fully funding the first years of Medicaid expansion. But starting in the next budget biennium, Kentucky will have to pay a percentage of those costs. Will it be worth the money or is there a better way?

A: The question is how much can we sustain? I think almost everyone is in favor of folks having access to quality healthcare. Certainly the hospitals are, the doctors association, other groups like that. And most elected officials would say they support access to quality care. The question is how much should be covered under Medicaid? You know, under the expansion, 400,000 people in Kentucky were added to the Medicaid rolls. And now, about 1 out of every 4 Kentuckians is covered by Medicaid. So, it’s a very, very expensive program, mostly paid for by the federal government, but a lot of it also comes out of state revenues.

The expansion of Medicaid will be debated in this session. I think the question is what to do with the 400,000 new people that have come on to the Medicaid rolls. While there was campaign talk about shutting off the Medicaid expansion, I think we’re probably going to see some tweaking of that system. In Frankfort right now, I think the terminology is sort of settling on the idea that everyone ought to have some skin in the game. In other words, even a Medicaid recipient going to an emergency room might have to pay $5. I don’t see that as a financial fix for the challenges facing Medicaid. But as a philosophical matter, I think you’ll see the debate in Frankfort center on some other states that have already pioneered this and requiring individuals to have some investment. It could be a financial investment. It could be a wellness investment. In other words, someone might have to pay more toward their Medicaid if they are a smoker. You’ll see those kinds of debates play out in Frankfort.

Q: New to the Chamber agenda is “felony expungement.” What’s that about?

A: Traditionally, businesspeople had a fairly negative reaction toward the idea of wiping somebody’s slate clean if they’ve had a felony. There was a sort of gut-level reaction of “why would you want to hire a felon?” But workforce pressures are such today, there are so many companies that need workers, that the business community has revisited the issue. So, if a person had a single felony when they were 21 years old and it was a nonviolent, class D offense, and they have remained free of any additional offense for at least five years, they would be considered for a felony expungement. It’s our understanding that there are 94,000 Kentuckians who fall into that category.

I think the felony expungement issue is interesting because what the social justice advocates have been saying for years — that it’s not fair to hold this penalty over somebody’s head for a lifetime — have now met on common ground with business advocates who are concerned about workforce and need people to work. I think those two groups are finding each other and I think you’ll see felony expungement move in the 2016 legislative session.

Tom Martin’s Q&A appears every two weeks in the Herald-Leader’s Business Monday section. This is an edited version of the interview. To listen to the interview, find the podcast on Kentucky.com. The interview also will air on WEKU-88.9 FM on Mondays at 7:35 a.m. during Morning Edition and at 5:45 p.m. during All Things Considered.

The chamber’s entire legislative agenda can be found online at kychamber.com.

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