The Kentucky General Assembly rushed through a two-year budget and revenue bill altering the state’s tax code on Monday, the last legislative day before the 10-day period in which Gov. Matt Bevin can veto legislation.
This veto period may well become a major factor, as Bevin tweeted a statement Monday afternoon following the passage of these two bills in the Senate, citing his concerns that they may not meet “basic standards of fiscal responsibility” and adding that there is still time in the session to do so. Conservative groups balked at the revenue bill’s increase in the cigarette tax and ending the sales tax exemptions of some services, which could potentially be eliminated by the governor’s line-item veto.
The last two legislative days of the session follow the veto period on April 13 and 14, during which the General Assembly can override any vetoes with a majority vote in each chamber. Legislators can also pass legislation in these two days, but would not be able to override a subsequent veto by Bevin.
While Kentuckians will have to wait to see what legislation survives the rest of the session, here’s how the legislation passed on Monday — including a provision aiding local agencies’ ability to pay for the rising pension costs of their employees — would impact the major institutions in Louisville.
Louisville Metro Government
Mayor Greg Fischer had warned that the city would be facing up to a $50 million hole in its coming budget if the legislature did not pass the provisions of Senate Bill 66, which capped the annual increase in employer pension costs for local governments and schools districts at 12 percent over the next 10 years.
While SB 66 died, this specific language was added to an unrelated House bill and breezed through both chambers Monday evening. Fischer and city budget director Daniel Frockt told Insider Louisville Tuesday that this would avert the near-term budget crisis of Louisville, which — like many other local governmental agencies — was bracing for a 50 percent increase in pension costs due to much more conservative assumptions on asset growth by the Kentucky Retirement Systems board last summer.
Frockt said that 50 percent increase in costs for employees under the County Employees Retirement System plan would have created a $38 million impact on the city’s budget for the next fiscal year — growing to $50 million because of the ripple effect of the state’s higher pension costs — but a 12 percent increase would only amount to a $9 million impact.
Fischer added that Bevin could still veto this provision tucked into House Bill 362 — as the governor had called SB 66 “a bad bill” that shouldn’t pass just last week — but such a veto would appear likely to be overridden, as the bill passed nearly unanimously on Monday.
Frockt added that the city budget will also be impacted by the budget bill’s 6.25 percent cuts to state cabinets, though the city’s exposure would be considerably less than what they were bracing for on pension costs.
Another unique aspect of the budget passed Monday was that it mandated how Louisville must spend the coal severance tax receipts it receives. While the appropriations each county receives is derived from a formula, the budget singled out Louisville to say that its tax receipts “shall be used to support the Waterfront Botanical Gardens.”
Fischer said he did not know why the budget singled out Louisville to mandate how it could spend these funds, adding “that’s an unusual type of specific directive.” He said that he is glad that funds were included for the planned $63 million project, “but we’d prefer for that to be a local control kind of decision.”
Asked if the tax overhaul passed Monday was the kind of tax reform he was hoping for last week, Fischer said it was not, as “it wasn’t as comprehensive as what I’d like to see.”
The revenue bill passed by the legislature lowered the corporate and individual income tax rate to a flat 5 percent, but also increased the cigarette tax and took away the sales tax exemption from a number of services, such as pet care, landscaping and limousines. These changes are estimated to increase revenue for the state by $479 over the next two years.
Fischer said a more comprehensive approach — which they didn’t have time to accomplish behind closed doors in less than a week — would involve “stepping up and looking at the big picture,” creating revenue for big ideas like universal pre-K or free community college.
Asked if lowering the individual and corporate tax rate would be good for Louisville — as its proponents believe it will attract businesses to locate in the state — Fischer said he doesn’t know all the details of the bill yet, but “if our people with lower income and middle income receive a higher tax burden than those that are wealthier, I have a problem with that.”
“That’s not where the issues are in our country right now,” added Fischer. “We’re seeing a smaller middle class, working poor … those folks need more resources to move ahead.”
Fischer added that Bevin and the legislature could still tangle over tax provisions with vetoes and overrides in the next two weeks, which “could get very complicated and interesting.”
University of Louisville
In the tug of war over higher education appropriations in the House and Senate versions of the state budget — the House eliminating the 6.25 percent cut proposed by Bevin, and the Senate putting the cut back in — the Senate won out on Monday, which means an $8.3 million cut for the University of Louisville.
Dale Billingsley, UofL’s acting provost, told Insider in a statement that this cut in state funding — continuing the cuts of the past decade — “will be very difficult for the University of Louisville.”
“While disappointed, we began planning for this possibility many months ago and, as such, are ready to begin finalizing our budget, which will be presented to our board of trustees at the May meeting,” stated Billingsley. “We recognize that Kentucky lawmakers faced some tough economic decisions and appreciate their hard work.”
Such a loss in funding could hinder UofL’s ability to keep tuition flat for the second consecutive year, as board of trustees chairman J. David Grissom has indicated a strong preference for. The cut could also hurt the chances of salary increases for staff and faculty, if not create more cuts for academic departments and another hiring freeze for faculty.
While the 6.25 percent cut was finalized Monday, the budget did include an additional $31 million in appropriations for the performance-based funding pool that public universities compete for, which amounts to a little over half of the total higher education cuts.
The revenue bill also included controversial language that allows the board of a university to fire tenured faculty when certain departments are cut or eliminated. Some professors have threatened to strike if this provision becomes law.
While several of the programs affiliated with UofL had their funding eliminated in Bevin’s original budget proposal — such as Bucks for Brains — the compromise budget passed Monday restored funding for the Kentucky Autism Training Center and over $18 million in funding to be split between UofL and the University of Kentucky for cancer research over the next two years.
Jefferson County Public Schools
The per-pupil SEEK formula for school districts was increased to $4,000 by the legislature on Monday, which is $16 more than what was proposed by Bevin and passed by the Senate, but $55 less than what was appropriated by the original House budget.
Due to the passage of legislation capping the local pension costs for school districts, JCPS will avoid paying nearly $11 million more in the next fiscal year. However, JCPS spokeswoman Allison Martin said previously that this legislation “could actually increase our cumulative expenses” over that 10-year period, as it “postpones the impact, but certainly does not eliminate the cost to Districts of rescuing the retirement system.”
The compromise budget bill restored funding to help local districts with transportation costs and family resource centers, but did not eliminate the cuts for textbooks.