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Kentucky Legislature Passes Budget, Tax 'Fixes' On Last Day

Kentucky state Capitol
Kentucky state Capitol

On the final day of this year’s Kentucky General Assembly, state lawmakers passed “clean-up” bills that would make changes to the two-year budget and revenue bills that passed into law on Friday.

The changes would reauthorize a tax incentive used by major manufacturers like Toyota, General Electric and Ford in Kentucky, redirect some funds towards schools in counties that have lost coal severance revenue and fund the delayed statewide broadband project KentuckyWired.

Sen. Chris McDaniel, chair of the Senate Appropriations and Revenue Committee, said that the combination of tax and spending measures would be revenue neutral compared to what the legislature has already passed.

“Ultimately what you’ll find is this balances out,” McDaniel said.

The budget and tax cleanup bills passed out of both legislative chambers on Saturday, the final day of the 2018 legislative session.

They now head to Gov. Matt Bevin, who could veto part or all of the measures or approve them entirely.

Under the revenue changes ,Kentucky would bring in $395.8 million in tax receipts over the next two years, far less than the $487 million originally predicted under the revenue bill.

House budget chair Steve Rudy said the difference would partly offset by setting aside less money in the state’s rainy day fund than previously planned.

“All of it said, everything will be covered and we will have $230 million in the rainy day fund as opposed to $300 million, but we are still in balance and that’s still more than was in the rainy day fund in the last biennium,” Rudy said.

Another bill that passed out of the legislature on Saturday would fund the KentuckyWired broadband project and authorize the state’s side of the public-private project o borrow $110 million to pay private partners for delays associated with it.

Lawmakers have criticized the project’s financial arrangement and delays in securing agreements with owners of telephone poles and properties where the network’s fiber optic wires need to be installed.

Louisville Republican Rep. Jason Nemes voted in favor of the measure, but called it a “sham.”

“It is an important project and we’ve got to go through with it because of the position that we’re in, but this is an outrageous example of bad government,” said Nemes.

The budget “clean up” bill would for the next year freeze pension contribution rates for local health departments and other quasi-agencies — they weren’t included in a phase-in of those higher contributions for local governments that passed into law on Friday.

It would allow the teacher pension system to continue to provide a subsidy for health insurance of retired teachers who don't qualify for Medicare yet.

It would also shuffle $7 million out of the coal endowment fund and split the funds among school systems affected by loss in unmined minerals tax receipts.

The tax “clean up” bill would remove a 20 percent tax deduction for pass-through companies, generating about $45 million — a similar deduction is included in the federal tax changes that passed late last year.

The bill would also reauthorize the Angel Investor Tax Credit, which applies to mostly wealthy people who invest in certain start-up companies, though the program would be frozen for the next two years.

Under the revenue bill that passed into law on Friday, lawmakers lowered the tax exemption for pension income from $41,000 to $31,000. Lawmakers did not make any further changes to that part of the law.

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