Friday, September 23, 2011

Budget Committee Notes

The Interim Joint Committee on Appropriations & Revenue met yesterday and heard testimony regarding Kentucky's Economic Development efforts and a staff report regarding Kentucky's use of bonding and current credit status.

Budget Staff Changes: Of particular importance, it was announced at the meeting that Bart Hardin the current LRC Budget Director would be retiring next week. Beginning October 1, Greg Rush will take over those duties. Greg has most recently been the Budget Review staff for Education. He will be joined by Stephanie Craycraft as his Deputy. Stephanie is coming from the Budget Review staff for Transportation.

Economic Development
Secretary Larry Hayes and Commissioner for Business Development Erik Dunnigan presented an update to the committee on current economic development efforts and the status of implementation of House Bill 3 from the 2009 Special Session. Much of their presentation followed very closely with their slides which are available for download HERE, the highlights are below:

- Staffing at the Cabinet is down 30% from 2007. They have been looking at their structure and trying to get "flatter" by reducing down from 3 Commissioners to 1 and by tearing down silos to be more cross-functional. This has been in response to the changes in HB 3.

- Prior to the passage of HB 3 in 2009, they had the K-programs, which were useful, but they took a piecemeal approach to trying to help a company. The focus was on new business location and not necessarily helping the companies Kentucky already had. Business changed the way they were doing things, competition wasn't for the next Toyota, but inter-company for a Kentucky business unit to compete against the same company's unit in another state or country. Incentives had to change.

- HB 3 has been helpful because of the reinvestment incentives, the consolidation of the K programs, and the increased accountability if companies do not meet the goals in their economic development agreements.

- Since 2009, the Cabinet credited HB 3 with $3.5 billion in new investment from 350 firms that have been approved. Creating nearly 20,000 new jobs and retaining more than 7,000 existing jobs.

State's Debt
LRC Staff for the Capital Projects and Bond Oversight Committee, Kristi Culpepper, gave a presentation on the state's debt. Her presentation served as the highlights from a recent report she compiled that is more in depth on Kentucky's bonded indebtedness. You can download the presentation slides and the report are attached, and the highlights are below:

- Due to structural budget imbalances, high levels of debt per capita and dept as a percent of revenues, and due to high levels of unfunded liability in Kentucky's pension system Fitch and Moody's have each downgraded Kentucky in the last year. Further, the outlook from all three of these agencies is negative.

- The practical impact is that Kentucky will have difficulty issuing more debt going forward, because investors will want higher rates thus costing more in terms of state appropriations for debt service.

- There are no silver bullets to solve the problem as increased appropriations to fund items like pension liabilities eat up revenues that could be used to pay debt service on new or expanding projects and programs and actually reduce the states cash position.

The attached presentation and report provides more in depth analysis.

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