BUDGET SUMMARY

Kentucky General Assembly 2005 Regular Session

I. Quick overview

A.) The FY 2005-06 budget is $43.5 billion, which includes everything, from state and federal funds that flow through state government to restricted funds like college tuition. The House/Senate compromise passed the House 99-0 and the Senate 34-2 on March 8^th.

1.) The General Fund – the portion the General Assembly appropriates and uses to guide the other funding – totals $15.2 billion for the biennium. Of that total,

a.) 45% goes to K-12 education

b.) 16% goes to colleges

c.) 12% goes to Medicaid

d.) 8% is for other health services

e.) 9% is for government operations and finance

f.) 7% is for justice and public safety

g.) 2% is for commerce, econ. develop., and other education

h.) 1% is for environmental and public protection

2.) The Road Fund, meanwhile, totals about $3.15 billion in state and federal dollars for the biennium.

a.) Of that, about $2.1 billion is state-authorized projects, and about $1 billion is federally funded projects.

b.) In the latter four years of the Six-Year-Road-Plan, there are about $3.6 billion in projects.

B.) The Consensus Forecasting Group announced in Jan. 2005 that the current budget cycle would have $622 million more to spend than was forecast in Jan. 2004. Part of that was used last fall for the special session on improving the health-insurance for teachers and state workers. The remainder is being used to bolster such things as education.

C.) Key facts

1.) State employees and teachers will get a 3 percent raise in the 2006 fiscal year.

2.) Tobacco-producing counties get $126 million in water/sewer projects.

3.) Coal-producing counties get $80 million in water/sewer projects.

4.) Tobacco growers will get $114 million to replace Phase II checks, a plan initiated by the House. $87 million of that will be paid by bonds; the rest will come from agriculture’s portion of the Phase I tobacco settlement. County ag development funds will not be used.

5.) Families near Louisville’s airport will get $5 million to help more of them re-locate.

6.) SEEK gets $52.5 million more, boosting per-pupil spending from $3,240 this year to $3,445 in the 2005-06 school year.

7.) Postsecondary schools will get $50 million more added to their base.

8.) Active and retired teachers won’t see sudden increases in health insurance premiums.

9.) The hospital provider tax is capped at $150 million.

10.) There will be significantly more newborn screenings for genetic disorders.

11.) State troopers, motor vehicle officers, hazardous-device and arson investigators, and dispatchers will get a $3,100 annual training incentive, in addition to 3 percent pay increases.

12.) Local jails will see per diem for each state prisoner rise from $26.51 a day to $30.31 – the first increase since 1984.

13.) The teacher and state employee health-insurance plan will remain in effect for all of the 2006 calendar year. This means premiums, deductibles, co-pays, and benefits will NOT change from what is now in effect for 2005.

D.) Key projects; all told, there are about $2 billion worth

1.) There are $600 million in bonds for road projects. In breaking that down:

a.) $300 million is for state road projects

b.) $150 million is for federal GARVEE bonds to widen I-65, I-64, and I-75

c.) $100 million is for county roads

d.) $50 million is for municipal roads.

e.) The bonds sold for these city/county road projects will be paid for by making the extra penny added to the state gas tax last year permanent. The penny generates about $30 million a year, although not all of that will be needed for the bond payments.

2.) When you add the bonds paid for by the General Fund and by the universities themselves, postsecondary institutions will get $625.7 million in capital construction projects. That includes:

a.) $100 million for a University of Kentucky hospital addition.

b.) $39.1 million for phase III of the University of Louisville’s health science campus research facility

c.) $33 million for phase II of renovating Western Kentucky University’s science complex

d.) $32.8 million for phase II of Eastern Kentucky University’s business/technology center

e.) $54 million for Northern Kentucky University’s special-events center

f.) $15 million for a new Murray State University science complex

g.) $12.2 million for Morehead State University NASA space science center.

h.) $40 million for UK biological/pharmaceutical complex

i.) $31.7 million for Lexington Community College classroom/lab building

j.) There are several technology centers receiving money:

1.) Ashland, $18 million

2.) Madisonville, $14 million

3.) Owensboro, $13 million

4.) Henderson, $13 million

5.) Franklin, $12 million

6.) Warren Co., $7.5 million

3.) 16 new courthouses costing $218 million will be built.

a.) Also, there will be eight new circuit judgeships created.

4.) Kentucky parks will get $35 million for renovations.

5.) Downtown Frankfort’s state office building will get $35 million for renovations.

6.) The East Wing and East Hall at the Kentucky Fair & Exposition Center in Louisville will get $55 million for design and construction.

7.) $10 million in bonds is set aside this biennium for a new Community Economic Growth Grant Program, which will help local governments and schools.

II. Miscellaneous

A.) Medicaid/Other healthcare

1.) Medicaid’s budget this year is $4.33 billion; in 2005-06, it drops to $4.21 billion. There are about 700,000 people eligible for this program.

2.) There are several cost-containment measures in the budget proposals, with the savings totaling more than $560 million over the biennium. Pharmacy management, for example, would account for $127 million of that.

3.) Nonetheless, despite these changes and the influx of $330 million state dollars this biennium (plus $750 million more in federal dollars), the state is still projecting a deficit of $74.2 million in STATE funds next fiscal year.

4.) The KCHIP program, which provides health insurance to those children of working families who do not qualify for Medicaid, will get more than $100 million, helping 50,000 children.

5.) An additional $8.2 million is provided to add 150 more slots for Supports for Community Living.

6.) An extra $500,000 is provided in FY 2006 for more Older Americans Act services. That includes such things as meals and transportation.

7.) $500,000 is set aside each year of the biennium for a “wellness” initiative to reduce the state group health insurance cost.

8.) $31 million this biennium will be used to improve systems used by the Cabinet for Health and Family Services.

9.) The University of Kentucky and University of Louisville will get $700,000 this biennium to initiate an e-health program, which will bring medical records into the electronic age. This comes from Senate Bill 2.

B.) Education

1.) Extended School Services will get $12.8 million more in FY 2006 than the governor had proposed. His budget would have significantly cut this program.

2.) The Safe Schools program will get $418,000 extra next school year.

3.) Governor’s Scholars program will be fully funded, allowing 1,000 students to participate.

4.) 16 school buildings needing urgent attention will get $91.5 million.

a.) The School Facilities Construction Commission is authorized to make an additional $100 million in offers of assistance this biennium, with debt service being paid beginning next biennium.

5.) The Kentucky Teachers’ Retirement System will get $4.25 million to improve its health-insurance program, avoiding what could have led to sky-rocketing premiums for some teachers. The House initiated this plan.

a.) Retired teachers will get a 2.3 percent cost-of-living raise this year, and 2.2 percent raise next year. The law only mandates an increase of 1.5 percent annually, so this is a needed boost.

6.) KEES, the lottery-based merit scholarship earned by our high schoolers, will be fully funded: $80.5 million this year; $82.6 million next year.

a.) Student financial aid is funded at its highest level ever: $192.3 million this year; $196.5 million next year.

b.) Two other financial assistance programs – the College Assistance Program and the Kentucky Tuition Grant program, both of which help the financially needy – will get $73.3 million this year and $98 million next year. The lottery funds these.

7.) The National Guard Tuition Award Program will get $3.5 million this year and $4.4 million next year.

8.) Kentucky Community College and Technical School System will get $3 million in FY 06 to train more employees for the mining industry.

C.) Fighting crime

1.) $2 million is for new regional drug courts in Kentucky’s coal-producing counties.

2.) $500,000 in FY 06 is for drug and substance-abuse education programs for Eastern Kentucky children.

3.) $1 million in FY 06 is for drug and substance-abuse treatment for nonviolent offenders in jail.

4.) $5 million is for upgrading KASPER, the electronic system which tracks drug prescriptions.

5.) Certain Class “C” and Class “D” felons will be allowed to be home incarcerated.

6.) $960,000 in FY 2006 will be divided equally among counties with a closed jail or life-safety jail. ($20,000 per year each)

7.) The Attorney General’s office will get $500,000 this biennium for additional staffing needs. Commonwealth’s Attorneys will get $712,000 in FY 06, while County Attorneys will get $990,000. This extra money is to handle increased caseloads.

D.) Other

1.) The Old Governor’s Mansion is transferred to the Kentucky Historical Society. The lieutenant governor will not live in the old mansion; instead, the lieutenant governor will get $2,500 monthly, with $1,000 intended for housing and $1,500 for his additional duties as a cabinet secretary. This is a House idea, to ensure that future lieutenant governors are not automatically given $2,500 if they perform no other official duty.

a.) Also, the Kentucky History Center will be named for Dr. Thomas Clark.

2.) The veterans nursing homes will get $250,000 extra – a 4 percent increase in operating funds. The Thomson/Hood Veterans Center in Jessamine County will also get $350,000 to purchase adjacent land.

3.) There will be feasibility studies to determine to possibility of a state lodge at Fort Boonesborough AND a Wildlife Education Center near Mammoth Cave.

4.) The budget will cut the red tape for the permitting of many water projects costing less than $500,000. This is a House proposal.

5.) $14 million will be used to further the Sales Tax Simplification System.

III. Tax Plan

A.) Here are the highlights of the plan, as agreed to by the House and Senate:

1.) 27 cent sales-tax increase on a pack of cigarettes, bringing the total to 30 cents. This is not scheduled to increase any more, as the governor had proposed.

a.) Included in that increase is one penny set aside for the Markey Cancer Center at UK and the Brown Cancer Center at U of L. This money will generate about $4.3 million annually for the centers, and it will have to be matched dollar-for-dollar. This will help bring Kentucky more federal recognition in this field.

b.) Snuff is taxed at 9.5 cents per unit. Other tobacco products are taxed at 7.5% of the gross receipts derived from the sale of the product at wholesale.

Individual

2.) Lower individual income taxes by $370 million over the time it takes to implement the plan. That includes removing families earning less than the federal poverty rate – $18,850 for a family of four – from the state income-tax rolls. This will benefit 300,000 families. Right now, they are taxed on income over $5,000.

a.) For all taxpayers, the first $75,000 of their income will be taxed at 5.8 percent. Higher amounts are still subject to the 6 percent tax rate.

b.) In other tax changes, farmers receiving Phase II checks or their state equivalent will not be taxed by the state. Health-savings accounts and historic-preservation efforts will also see tax savings, and there will be a $500 college-tuition tax credit.

Corporate

3.) The top corporate tax rate would be reduced to 7 percent in 2005 and 2006 tax years and 6 percent in later years. The current rate is 8.25 percent. The corporate license tax would also be eliminated, and LLCs will be required to pay corporate income tax. The Illinois Tool Works case inequity is eliminated.

a.) Importantly, this plan adopts a broader “doing business” standard. Kentucky is the ONLY state to require a physical presence and be taxed accordingly. This change brings us in line with the other states.

b.) This tax plan also establishes credits for clean-coal use; cleaning or reclaiming brownfields; biodiesel use; and for major recyclers who make a significant investment in equipment and meet certain employment standards.

4.) Beginning June 1, 2005, sales tax receipts from stud fees will be earmarked for use in creating incentives for breeder awards.

5.) Enterprise zones will be replaced with the Enterprise Initiative Act, a new statewide tax-incentive program. The remaining enterprise zones will continue until they expire in 2007.

a.) Preference is given to companies within existing enterprise zones, and there will be a $20 million cap each year on building materials and $5 million for research and development.

b.) Eligible expenditures are limited to tourist attractions, services, technology, manufacturing, and company headquarters of any industry.

6.) Telecommunication changes

a.) The main change is that, because of a court order, satellite TV will be taxed the same way cable is. Both will have a 3 percent excise tax and, where applicable, a 3 percent school tax.

7.) The wholesale tax on alcohol will increase from 9 percent to 11 percent, bypassing the governor's proposed 6 percent sales tax on package liquor sales.

8.) There will be a new lodging tax of 1 percent, with the funds dedicated to developing tourism and convention business.

9.) The tax plan generates about $100 million extra next fiscal year, mostly through rate adjustments, corporate loophole-closing, and cigarette and alcohol taxes. The plan, however, is revenue-neutral over the five years it takes to implement it (counting corrections for the 2004 tax year).