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Kentucky state budget and revenue bills clear legislature, head to Beshear

Senate President Pro Tempore David P. Givens, R-Greensburg, presents Senate Bill 128, an act related to youth employment programs, on the Senate floor Monday.
LRC Public Information
GOP Senate President Pro Tempore David P. Givens of Greensburg says this is the best education funded budget in the history of the state.

The budget bills outline $33 billion of state government spending over the next two years, with Republicans lauding it as a historic investment in Kentucky education and Democrats criticizing it as falling too short.

The Kentucky General Assembly gave final passage Thursday to two budget bills spending more than $33 billion over the next two fiscal years from the state’s General Fund and budget reserve trust fund.

Members of the Republican supermajority touted the budget as a historic investment in education, infrastructure and paying down Kentucky’s public pension liabilities — all while keeping an eye on hitting tax cut triggers in future years.

Democratic lawmakers criticized the budget bills for coming up short in a time of record surpluses and budget reserves, arguing they should have taken up the call of Gov. Andy Beshear to mandate 11% raises for all K-12 public school employees and fund universal pre-K.

Both chambers also passed a state revenue bill Thursday that included language to ease the path of the state to hit triggers for individual income tax cuts in future years

The passage of the bills came on the final legislative day before the governor’s veto period begins Friday, with lawmakers having the ability to overturn any potential vetoes on the final two days of the session in April.

The legislature first cleared House Bill 6, the executive branch budget bill outlining $30 billion of spending over the next two fiscal years from the state’s General Fund.

A conference committee made up of House and Senate legislative leaders crafted a compromise bill Wednesday to reconcile differences in the versions of HB 6 previously passed in each chamber. The Senate passed it Wednesday evening and the House followed suit Thursday, sending HB 6 to the governor for his signature or veto.

The final version of HB 6 increased public education spending from previous versions of the bill, now raising the per-student SEEK funding formula of K-12 public schools by 3% and 6% in the next two fiscal years. It also increased spending on public school districts’ transportation costs, covering 90% of those in the first year and 100% in the second, based on the current year’s levels.

Clearing the chamber late Wednesday, Republican Sen. David Givens of Greensburg called HB 6 “the best education funded budget in the history of the Commonwealth” and said he was excited about the message it was sending to current and prospective teachers.

“Current teachers that may be thinking about retiring — don't,” Givens said. “Don't retire. Number one, we need you in the classroom. And number two, we're gonna reward you. These pay raises will have such a positive impact on your pension when you retire.”

Democratic Sen. Reginald Thomas of Lexington said the budget didn’t go far enough for education, as they should have tapped into the state’s record surplus and budget reserve trust fund to direct funding outside of the SEEK formula to mandate districts give 11% raises to all school staff.

“It confounds me and confuses me that we can't find the will and the way to fund those professionals who educate our children and grandchildren, who want to prepare those children to be the next generation of leaders in our state,” Thomas said.

GOP Senate President Robert Stivers from Manchester said it was not wise to “tinker with” the state’s SEEK formula, as what was advocated by Thomas and Beshear could create disparate levels of funding for different districts and run afoul of state law.

“This is a solid budget,” Stivers said. “It is the best budget that has been proposed or passed by the General Assembly.”

The bill dropped language previously added by the House that threatened local school districts with state takeover if they failed to make progress on employee recruitment and retention — worrying districts who could still not provide significant raises, even with the SEEK increase.

Elsewhere in HB 6, language that was inserted in the House to defund a state program directing people to drug treatment instead of jail was removed from the final bill. A last-minute amendment in January prohibited funding for the Alternative Sentencing Worker Program within the Kentucky Department of Public Advocacy, which employs social workers who coordinate with court officials on treatment plans for defendants. The program and its funding will continue with the removal of that language from HB 6.

A late amendment in the Senate that could have entirely defunded Kentucky’s new Office of Medical Cannabis was also changed in the final version of the bill, most likely freeing up that funding.

The previous version said the office could only receive funds if there is “a propensity of federal and international peer reviewed, published research with conclusive evidence as to the efficacy of medical cannabis.” The final bill changes that language to say funding is allowed when its oversight board of physicians and advisors finds “a propensity of peer-reviewed, published research with sufficient evidence as to the efficacy of medical cannabis” — a much lower bar.

The budget bill also left out significant funding sought by GOP Sen. Danny Carroll of Benton to expand child care and build new youth detention facilities. Carroll was pushing for $300 million of additional funding for child care providers to prevent many from going out of business in the wake of federal grants expiring, as well as more than $100 million to construct two new detention facilities for girls and another facility for high-risk youth. Neither request was funded.

The bill also creates an additional 1,925 Medicaid waivers slots to allow people to remain in their home instead of being institutionalized.

Billions spent from budget reserve, with exemption from tax triggers

Lawmakers on Thursday also finalized and passed another state spending bill and a revenue bill after a conference committee hammered out a compromise between the chambers — both of which may have huge impacts on whether Kentucky hits tax cut triggers in future years.

House Bill 1 appropriates $2.7 billion from the state’s budget reserve trust fund for one-time infrastructure spending projects and public pension payments. The bill passed both chambers with a large bipartisan majority.

The two chambers met in the middle on the compromise bill, as the original House version had $1.8 billion of spending and the Senate version had $3.5 billion of spending.

The final version of HB 1 includes $230 million of pension payments, but dropped $440 million of spending on road projects that were in the Senate bill. The bill also cut a proposal — first proposed by Beshear — to spend $75 million on a “13th” monthly check for retired state workers to account for inflation and the lack of a cost-of-living adjustment for retirees for more than a decade.

Republican Sen. Chris McDaniel, the Senate budget committee chairman from Ryland Heights, said the massive investments in the legislation were made possible by years of sound fiscal policy and restraint set by the legislature, which created Kentucky’s record $3.7 billion “rainy day fund.”

“This bill reflects a long period of intense discipline by the members of this body and the members of the House,” McDaniel said. “We found ourselves in a place where we are called upon to act in ways that we've really never seen before… to invest in the future of the Commonwealth, to invest in the future of our communities and for all of our people.”

House Bill 8, the revenue bill, makes a variety of changes to the state’s tax code, but its key provision is language to amend Kentucky’s 2022 law that set up a trigger mechanism to potentially lower the income tax rate by half a percent each year if certain budget thresholds are met. Kentucky’s tax rate has already dropped to 4%, though the state did not hit that threshold last summer because General Fund spending was $435 million too high in that fiscal year.

Though the trigger law already exempts spending to pay down the state’s public pension debt, HB 8 would now exclude any appropriation from the budget reserve trust fund, so long as it is specifically identified in a spending bill as not being subject to the trigger law.

This mechanism is in HB 1, as the bill uses “notwithstanding” language to disregard the existing trigger law and say its non-pension appropriations — $2.5 billion — do not count as General Fund spending under it.

Republicans’ longtime goal is to eliminate the income tax, with Senate budget committee chairman Chris McDaniel saying earlier this month they tried to keep spending low enough to improve the odds of hitting future tax cut triggers.

As the House took up HB 6, Democratic Rep. Chad Aull of Lexington referenced these tax cut triggers in his floor speech against the bill, saying Kentucky is falling behind neighboring states on teachers’ salaries and universal pre-K because of Republicans’ pursuit of tax cuts.

“We have decided, as a body, our top priority is to hit these artificial triggers so we can cut the income tax,” Aull said. “That's our top priority. It's not our schools. It's not our kids. It's not the citizens of the Commonwealth of Kentucky.”

Among the last-minute changes added to the revenue bill, HB 8, were new tax incentives for an unnamed data center project in Louisville that would make a $450 million investment.

The bill also included a late change to exempt bullion — such as gold and silver bars — from the state sales and use taxes.

Democratic Sen. Cassie Chambers Armstrong of Louisville noted that while the bill exempts bullion from the sales tax, it did not pick up on Democrats’ call to exempt diapers from the sales tax.

Beshear now has two weeks to either sign or veto the bills, or let them become law without his signature. The legislature returns to Frankfort April 12 for the final two days of the session, where they can override Beshear’s vetoes and pass new legislation that cannot be protected by a veto override.

This story has been updated to include additional details.

State government and politics reporting is supported in part by the Corporation for Public Broadcasting.

Joe is the enterprise statehouse reporter for Kentucky Public Radio, a collaboration including Louisville Public Media, WEKU-Richmond, WKU Public Radio and WKMS-Murray. Email Joe at jsonka@lpm.org.