Candidate Filing Deadline

As we have mentioned in our various reports leading up to and during the legislative session, the 2014 State Legislative elections look to be an important dynamic impacting all issues for this session. Yesterday the candidate filing deadline past, and so now the field of candidates for May and November elections is set.

The spreadsheet below provides a quick look at the candidates that have filed. There are tabs for State House, State Senate, and Supreme Court. On the charts the colors signify: Yellow are primaries, green are unopposed incumbents, and red are incumbents with races. 

This is all very preliminary in terms of analysis, but here are a few facts:

State Senate

- Of the 19 Senate seats up in 2014, 13 are contested and 4 of those are open seats (Leeper, Rhoads, Denton, Stine).

- 9 of the 13 contested seats are currently held by Republicans, 3 by Democrats, and 1 by Independent. 

- 3 Incumbents have primaries (Gregory, Hornback, and Wilson)

- The Republicans currently control the Senate 23-14-1. 

State House

-  Of the 100 seats up in 2014, 62 are contested in either the primary or general election, of which Democrats hold 34 and Republicans hold 28.

- There are 7 open seats all contested (J. Adams, B. Damron, D. Butler, J.W. Stacy, CB Embry, and J. Crenshaw).

- 12 incumbents have May primaries (6 Democrats: Hall, D.Watkins, Glenn, J.Lee, Steele, Collins) & (6 Republicans: Moore, Webber, Bunch, Rader, Upchurch and Wuchner)

- The Democrats currently hold the House 54-46.

Gov. Beshear's Budget Address

Governor Beshear gave his Budget Address this evening to a joint session of the General Assembly. A copy of the Governor's speech and accompanying press documents are attached. To preview an actual copy of the Governor's Budget proposal access it HERE.

A few highlights from the Governor's budget proposal, we will be previewing and providing more analysis:

- To meet the Governor's spending goals in his plan it was necessary for him to come up with roughly $756 million. The sources of those funds are: 

Fund Transfers -- $370,769,500 

Savings from the Affordable Care Act -- $166,763,600 

Spending Cuts -- $98,599,400 

FY 14 Estimated Ending Balance -- $69,458,400 

Other Resources and Lapses -- $49,546,200 

- Of the roughly $99 million from spending cuts, the Governor cut most state agencies 5%. Though he held several agencies harmless from the cuts including Education Funds, Medicaid, Public Health, Economic Development Cabinet, and many others.

The Governor's spending priorities included:

- Restoring K-12 education funding, increased funding for education supports, and making investments to pre-school by expanding eligibility

- Raises for state employees

- Fully funding ARC for public employee pensions

- Restoration of child care subsidy cuts

- A robust capital construction plan for universities and KCTCS, including an advanced manufacturing training center in Georgetown

- Investments in Eastern KY for broadband, 4-laning the Mountain Parkway, and economic development efforts

On the Road Fund: 

- The Governor froze the floor on the gas tax

- Identified several high priority projects (I-65 widening, completion of several bridge projects, and 4 laning the Mtn Parkway)

- Additional monies for revenue sharing and maintenance

In terms of political analysis, the Governor proposed a budget that has a little something for everyone. The initial areas of concern for some members of the General Assembly may be: the budget proposal increases bonded indebtedness to 7% an all-time high, some state agencies through the 5% cuts proposed by the Governor will have been cut over 40% over the last 5 years, and some of the funds the Governor has "found" may create structural imbalances that are difficult to deal with in the future.

The real question is whether the General Assembly will feel compelled to look at new revenues through either expanded gaming or tax reform to forgo these significant cuts to some agencies and prohibit the significant use of one-time monies. 

More analysis to come.

Attached please find a copy of Governor Beshear's budget address and budget fact sheets on education, families, healthcare, jobs and SOAR. 

Commonwealth of Kentucky Office of the Governor
FOR IMMEDIATE RELEASE	Contact:	Kerri Richardson 502.564.2611 502.330.6633 Terry Sebastian 502.564.2611 502.229.6130

Education Gets Historic Lift in Gov. Beshear's Budget

Investment in education, children means deep cuts to many agencies

FRANKFORT, Ky. (Jan. 21, 2014) – Saying Kentucky needs to lead, not cower, Governor Steve Beshear on Tuesday unveiled a two-year budget proposal that combines harsh cuts and strategic borrowing to create funding for historic proposals that support Kentucky's schools and workforce.

Gov. Beshear's proposed 2014-2016 biennial budget increases per-pupil K-12 funding to its highest level ever; restores damaging cuts to teacher training, textbooks, school safety and Extended School Services; expands preschool services to more than 5,100 more children; dedicates funds to expand high-speed broadband access throughout the state; uses "agency bonds" for the first time ever to invest in the campuses of Kentucky's two-year community and technical colleges; restores funding to desperately needed child-care assistance programs that help parents stay employed; and builds a $24 million advanced manufacturing training center that will supply workers to the auto industry and other sectors.

In his budget address to legislators, Gov. Beshear urged legislators to join him in using the two-year budget to make a tangible and bold difference in the lives of Kentucky families.

"So tonight, we must answer a fundamental question: Does Kentucky march aggressively into the future, or do we cower under the covers as the world leaves us behind? Do we lead, or are we too afraid to even follow?" the Governor asked.

"This budget proposal clearly gives my answer: We can and we must build a more vibrant Kentucky. And this proposal provides the roadmap to do just that."

In his State of the Commonwealth address two weeks ago, the Governor signaled his intentions to cut other areas of state government to fund education, although he said Tuesday that he was "painfully aware" of what those cuts would do.

The challenge, he said, was that moderate projected increases in revenue are not sufficient to cover the growth in required expenses and maintenance of current levels of services.  As a result, Gov. Beshear recommended $98.6 million in cuts over the biennium.  Many agencies will see reductions of five percent in the first fiscal year, then a straight-lined (no increase or decrease) budget for the second year.  Since 2008, many of those agencies have seen their budgets slashed by 41 percent.  These cuts could lead to delays in service, loss of federal funds, possible facility closures, and even possible layoffs.

"Imagine running a business and being told to maintain the same level of services while slashing your budget 41 percent. That is a difficult and sometimes impossible task," said Gov. Beshear.

The Governor exhorted legislators to make these investments in education, even by slicing funding for other needs.  The state's school district budgets are stretched to their limits thanks to the simultaneous impacts of diminished property taxes and years of stagnant state budget allocations.  Despite those challenges, the Governor said Kentucky schools and students have excelled – and it is critical to maintain that momentum.

  

"We are accelerating the momentum that has seen Kentucky leap ahead of many other states in measures of student performance and policy reform," he said.  "This budget proposal strategically focuses our very limited resources on what I believe will deliver the greatest return: a more highly educated population that will become a more talented workforce."

Improving Kentucky's Competitiveness through Strategic Investments

Improving Competitiveness through Education:  The most important investments in the Governor's proposed budget are in K-12 education. The largest item is SEEK, the main funding formula for our classrooms.  From 2000 to 2008, SEEK grew an average of 3.4 percent each year.  But from 2008 to 2014, funding flatlined – even as enrollment expanded, costs increased and local support in some areas declined. In effect, per-pupil spending dropped, even though the annual SEEK allocation remained the same.

Governor Beshear recommends investing $189 million over the biennium into SEEK, bringing per pupil spending to its highest total ever.

That allocation will include pay increases for all teachers and classified school personnel (2 percent the first year, 1 percent the second year).

Gov. Beshear's proposed education investments also include:

·         $95.4 million over the biennium for textbooks, professional development, school safety and Extended School Services (restoring funds to near-2008 levels)
·         $36 million over the biennium to expand preschool services to serve 5,125 more 4-year-olds by increasing eligibility from 150 percent of the poverty level to 160 percent. This is a 22 percent increase in enrollment.
·         $50 million for technology and school equipment upgrades, funded through General Fund-supported bonds
·         $100 million for school facilities construction to replace aging K-12 school buildings through General Fund-supported bonds

Improving Competiveness through Higher Education:  The Governor also recommends using $520.3 million in General Fund supported bonds and $704 million in agency bonds to invest in critical infrastructure for our state universities. These investments include new construction, such as new science buildings, health care and student services facilities, as well as renovation and maintenance projects. 

The budget also recommends $60 million for Bucks for Brains, the endowment match program which helps universities attract world class faculty for research and innovation.

For the first time, the Governor recommends authorizing $145.5 million in agency bonds for the Kentucky Community and Technical College System.  About 100,000 students access education through KCTCS and its 16 colleges and 73 campuses.  The General Fund can't meet the system's infrastructure needs, so KCTCS leadership recommended issuing agency bonds for up to 75 percent of project costs.  The remaining 25 percent will come from local communities and other public or private sources.  The bonds will support one project at each KCTCS college. 

Improving Competiveness through Economic Development:  The Governor's top priority throughout his administration has been helping Kentucky businesses thrive and attracting new jobs to the Commonwealth.  His proposed budget recommends several investments to continue the state's economic development momentum.

·         Statewide high-speed broadband access through the Next Generation Information Highway:  High-speed Internet access is no longer a luxury in today's economy.  It's a critical need that supports economic development, education, health care, and every business sector.  Kentucky ranks 46^th in broadband availability, and 23 percent of rural areas do not have any broadband access at all. To attack this gap and promote economic growth, Gov. Beshear allocated $60 million in bonds to build the Next Generation Kentucky Information Highway, which will provide high-speed broadband capability for the entire state.  An additional $40 million is planned from federal and private sources. Eastern Kentucky will be the first priority region.  Two-thirds of the state debt service will be supported by existing state expenditures set aside for Internet access. 
·         Building an Advanced Manufacturing Training Center:  Gov. Beshear proposes to spend $24 million in General Fund supported bonds to build an advanced manufacturing training center in Georgetown associated with the Bluegrass Community and Technical College. This College has been partnering with the Kentucky Federation of Advanced Manufacturing Education to produce workers for Toyota and other manufacturers.

Improving Competiveness by Strengthening Eastern Kentucky:  To support the continuing efforts of the "Shaping Our Appalachian Region", or SOAR initiative, Gov. Beshear recommends multiple investments in the region to enhance economic development and leverage public-private partnerships.

·         Four-laning and Extending the Mountain Parkway:  Gov. Beshear's proposed Highway plan recommends a series of projects, totaling $753.6 million, by which the Mountain Parkway would be four-laned and extended by 2020.  The Governor's plan would make the current two-lane section – from Campton to Salyersville – a four-lane highway.  It would then extend the Parkway from Salyersville to Prestonsburg by four-laning 16.2 miles of two connecting routes – U.S. 460 and Ky. 114. At Prestonsburg, the new Parkway would connect with four-lane U.S. 23 – creating a modern, four-lane corridor all the way from I-64 near Winchester to Pikeville. 
·         Funding Coordination of the SOAR Initiative.  Gov. Beshear's budget provides $400,000 over the biennium from multi-county coal severance funds for administrative costs associated with coordinating SOAR-related initiatives. These funds will be matched with other public and private funding to cover costs including staff support, workgroup  meetings, economic analysis, public hearings, and other outreach efforts to improve the region
·         Creating a Regional Strategic Development Fund for Eastern Kentucky: Gov. Beshear's budget creates a new Regional Strategic Development Fund and provides $4 million from the Local Government Economic Development Fund Single County allocations over the biennium.  Details on how the funds should be governed and invested will be discussed over the next several months through the SOAR initiative, and recommendations will be made to the 2015 General Assembly.
·         Increasing Funding for Coal County Scholarships.  Gov. Beshear proposes to double current funding for the Coal County College Completion Program to $2 million per year, which will provide more than 500 scholarships per year in eastern Kentucky.

Improving Competitiveness through Strengthening Families and Children:  Gov. Beshear recommends investing in services that support families and children, to help families become economically stable and to ensure safety for our youngest citizens.

·         Restoring Child Care Assistance Cuts. Last year, the loss of federal funds forced the state to freeze applications to the Child Care Assistance Program and to reduce eligibility guidelines from 150 percent of the poverty level to 100 percent.  As a result, many parents who could no longer afford child care had to quit their jobs, and many child care centers which relied on those payments had to close their doors.  Gov. Beshear's budget restores the funding cut from that vital program. This action will impact 18,000 children and more than 10,000 families.
·         Funding Staff for the Child Fatality Review Commission.  Gov. Beshear will fulfill the request made by the new Child Fatality Review Commission for $840,000 for staffing and support over the biennium.

Competitiveness through Improving Health:  The federal Affordable Care Act created $166.7 million in savings for the Commonwealth, which the Governor is reinvesting in health and family services such as Medicaid, child care assistance and numerous other services.  Among those investments: 

·         Funding for Colon Cancer Screening.  For the second straight budget, Gov. Beshear will again provide $1 million for the Kentucky Colon Cancer Screening Program to provide screenings for low income and uninsured Kentuckians.  The Kentucky Cancer Foundation will match the budget allocation.  To date, more than 900 Kentuckians have participated in the program. 
·         Funding to Increase Screening for Women for Breast and Cervical Cancer.  Gov. Beshear proposes $1 million to expand screenings through the Kentucky Women's Cancer Screening Program to increase breast and cervical cancer screening among Kentucky women.  The funding will also develop systems to help women navigate the health care system.

Investing in Pension Solvency and State Workforce:  Gov. Beshear's budget proposal fully funds the actuarially recommended contribution (ARC) for the Kentucky Retirement System.  That means additional General Funds of $101.3 million in FY15 and $106.3 million in FY16.

The state's workforce has not had a raise since 2010.  Gov. Beshear recommends a sliding scale of salary increases for all state workers, with the largest percentage increase – 5 percent – going to workers earning $27,000 or less per year in FY15, and a 1 percent across-the-board raise in FY16.

Competitiveness through Transportation Infrastructure:  The Governor's Biennial Highway Construction Plan would provide about $1 billion in new construction each year for transportation improvements across the Commonwealth.

Proposed projects include widening and extending the Mountain Parkway for economic development in eastern Kentucky, completion of the six-laning of Interstate 65 and continuation of funding for the Ohio River Bridges Project.

The proposed plan also would provide for badly needed new bridges across Lake Barkley and Kentucky Lake, funding to support the Brent Spence Bridge project in northern Kentucky and continuation of long-awaited projects to complete the I-69 Corridor in western Kentucky.

New Investments Funded through Severe Cuts Elsewhere

Gov. Beshear noted that this budget does not rely on new funding from sources like gaming or tax modernization. Instead, the new investments are largely created through new, deep cuts of 5 percent for many state agencies.  Some agencies are held to just 2.5 percent reductions, including higher education institutions and state police.  A few agencies are protected entirely from cuts.

"Look, I am painfully aware that with this reduction, our colleges and universities will have undergone cumulative cuts of 17 percent during this historic recession. This was one of the most difficult choices made in this budget, because higher education deserves more support, not less," lamented Gov. Beshear. "But there simply is no way to create enough money to make the needed investments in pre-K through 12^th grade unless higher education is included in the reductions.

The Governor warned that with these new cuts, many agencies will have endured cumulative cuts of 41 percent since 2008.  The impact of these cuts may include service delays, more employee attrition, possible layoffs, loss of federal funds, and possible facility closures.

"I am deeply disturbed by the damage these reductions will cause. Much of the "right-sizing" we've done with state government over the last seven years was needed," he said. "But some cuts went way too deep."

Governor Calls for Bipartisan Cooperation; Support for Gaming, Tax Reform

The Governor acknowledged that he could have simply slashed the budget across the board, but instead, he chose to make damaging cuts to some areas in order to make strategic investments in education.  He pointed to tax reform and gaming as two alternatives that would allow much more progress and more investment with far less damage to needed services. 

The Governor will present a tax modernization proposal to legislators soon, which will offer specific recommendations on how to move the Commonwealth's antiquated tax system into the 21st century and make the state more competitive.

"One of the silver linings of a more competitive tax structure is that it will, as the economy grows, also stabilize long-term revenue – not because of higher rates, but because it's aligned with today's economy, instead of one that existed a century ago," said Gov. Beshear.

Expanding gaming would produce additional recurring revenue even faster – again, not by creating a new burden on Kentuckians but by capturing a revenue stream that already exists.

"Kentuckians are currently spending hundreds of millions of entertainment dollars on gaming – but they're spending it in other states, funding programs outside our borders," said the Governor. "Let's allow Kentuckians to decide this issue by placing a Constitutional Amendment on the ballot related to expanded gaming."

He concluded his remarks by reminding the legislators of their recent successes attained by working across party lines – everything from robust prescription drug laws to pension reform.

"I believe that with the same level of respect, collaboration and vision, we can direct the resources of this budget to help Kentucky maintain its position as an innovative force in this 21^st century world," he said.  "Now, let's get to work."

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Gov. Beshear: State of Commonwealth Kentucky’s Positive Momentum in Jeopardy

Governor Beshear gave his State of the Commonwealth address to a joint session of the General Assembly this evening. The press release and a copy of the Governor's speech is attached. A few highlights from our perspective were:

- On Budget & Revenue - The Governor said he would push for tax reform relying on recommendations from the Blue Ribbon Task Force in 2012, including a constitutional amendment for a local option sales tax. He also said he would push once again for a constitutional amendment on expanded gaming. 

- On Health Care - He will announce a new public health initiative in the near future to address Kentucky's poor health ratings. He will also push for a statewide smoke-free legislation and banning the sale of e-cigs to minors. 

- On Education - The Governor dedicated significant time in his speech to education issues. He focused heavily on early childhood education and the ALL-STARS program to increase the quality of preschool and kindergarten readiness. He highlighted Kentucky's adoption of the Common Core and Next Generation Science standards. In terms of education funding he reiterated his intent to find the money to restore SEEK funding even if it meant cutting other areas of government drastically.

- On other initiatives - The Governor mentioned his interest in: "no phone" zones limiting cell phone use, battling heroin problem, and help on the SOAR initiatives like improving the Mountain Parkway and an upcoming Federal grant announcement related to SOAR. 

In general, the speech was politely received by the legislators in attendance. Maybe it was due to the lack of new policy issues or the length of the speech, but members were not generally enthusiastic with their applause of tonight's speech. We will have more analysis in the days to come leading up to the Governor's Budget address later this month.    

Commonwealth of Kentucky Office of the Governor
FOR IMMEDIATE RELEASE	Contact:	Kerri Richardson 502.564.2611 502.330.6633 Terry Sebastian 502.564.2611 502.229.6130

Gov. Beshear:  Kentucky's Positive Momentum in Jeopardy

Speech urges action this session to support education progress, improve tax climate

FRANKFORT, Ky.  (Jan. 7, 2014) – Kentucky Governor Steve Beshear exhorted legislators in his seventh State of the Commonwealth address Tuesday to ignore the lure of partisan politics and continue collaborating with him on improving the state's business climate in two key areas:  strengthening Kentucky's future workforce by investing in education and creating a healthier population, and modernizing the tax code to make the state more competitive.

National observers have taken notice of Kentucky's progress in "shrugging off an historic reputation for backwardness and writing a new narrative founded on change and innovation," the Governor said, but he warned that the Commonwealth's future growth and opportunities, especially in education, will grind to a halt unless legislators take substantive action in this session.

"We must continue to focus our attention not on the next headline or next election but on a collective vision of a stronger Kentucky," said Gov. Beshear.  "What does that Kentucky look like?  It's a place where every person who needs a job has one, where every child has the opportunity to be successful, and where every family enjoys financial security and a high quality of life.

"But core challenges continue to stand in our way, and although we have made significant progress, much more needs to be done."

The Governor used his speech to a joint session of the General Assembly to discuss Kentucky's progress in creating jobs, building a more seamless and effective education system and making health care accessible and affordable to all Kentuckians, and to lay out an agenda for the 60-day session and the coming year.

Job Creation is Top Priority; Maximizing Competitiveness Key Goal

Creating jobs remains his top priority, the Governor said.

"Putting Kentuckians to work is the single-best thing we can do both for our families and our state," he said.  "The good news is that companies want to come to Kentucky, and Kentucky companies continue to expand workforces, facilities and production lines."

But to continue that progress, Kentucky needs to make itself more attractive to businesses.

Competitiveness through Modern, Business-Friendly Tax Reform:  The first step requires long-overdue changes in Kentucky's tax code to improve economic competitiveness, reduce assessments that create an unlevel playing field for existing Kentucky businesses and treat working families more fairly.

Gov. Beshear said he would present in this session a tax modernization proposal with specific recommendations on how to move Kentucky's archaic tax code into the 21^st Century – a package specifically designed to maximize the state's competitiveness for job growth and sustainability.

The legislative package will be drawn from the report written by the Governor's 2012 Blue Ribbon Commission on Tax Reform, which included such items as:

·         lowering the top individual and corporate tax rates
·         broadening the tax base in the sales tax and retirement areas
·         establishing an angel investor tax credit for certain investments in small businesses; and
·         making changes that favor Kentucky-based companies.

Another recommendation will be a constitutional amendment to allow local communities to vote on local sales taxes for specific projects.

"Kentucky is developing a modern education system, a modern health care delivery system and a modern economy," the Governor said. "So why should the Commonwealth continue to hamstring itself by using an outdated tax structure?"

Competitiveness through Strengthened Workforce:  The second step will be to strengthen Kentucky's workforce by improving the health and education of our citizens, especially the youth who are tomorrow's employers and employees, the Governor said.

"I talk to business executives almost daily about what they need to make their companies successful," he said. "Their No. 1 concern is their workforce – finding enough talented, skilled, energetic, healthy and educated workers."

One challenge is the collective health of Kentucky's population, which ranks among the worst in the nation, the Governor said. About 1 out of every 7 Kentuckians lacks health insurance, which not only threatens those families' financial security but also – on a statewide level -- decreases worker productivity, jacks up health care costs, and diminishes Kentucky's attractiveness to businesses. 

Gov. Beshear seized an historic opportunity to provide accessible, affordable health insurance to every Kentuckian by embracing and localizing federal health care reform.  Last year, he expanded Medicaid and created a state-based health insurance exchange so Kentuckians could find health insurance through a custom web portal called kynect.  Since the website's launch on Oct. 1, more than 130,000 Kentuckians have enrolled in affordable health insurance through kynect – many of them for the first time in their lives. 

Those efforts, combined with Medicaid reform, improved dental care access in rural areas, and expanded access to early cancer screenings, will help Kentuckians enjoy better health in the years to come.

Gov. Beshear pledged to intensify health improvement efforts through a new initiative, to be unveiled in the coming weeks.  The plan will identify multiple health goals and strategies, including:

·         supporting comprehensive state-wide smoke-free legislation
·         banning the sale of e-cigarettes to minors
·         cutting the state's obesity rate
·         requiring HPV vaccinations for youth; and
·         reducing rates of heart disease.

"Kentucky's leaders must recognize the direct relationship between a healthier, more productive workforce and our ability to attract and retain good-paying jobs for our people," said Gov. Beshear.

Competitiveness through Prioritizing Education:  A strong workforce is an educated workforce, and Kentucky has made enormous progress in creating a seamless, cradle-to-career education system that is better preparing students for a complex world. 

With special focus on early childhood education, raising the graduation rate, and increasing college and career readiness for all students, Kentucky's schools are emerging as national leaders in education reform and measurable student progress. 

In 2013, Education Week's annual Quality Counts report ranked Kentucky in the top 10 states in student performance and education progress.  The state is implementing the Graduation Bill passed last session, which will require students to stay in school until age 18.  And last month, Kentucky won a $44.3 million federal Race to the Top grant to improve early learning programs for thousands of Kentucky preschoolers. 

But schools have stretched their dollars as far as they can, the Governor warned, and will lose ground without new investment.

Kentucky has frozen SEEK – the basic funding formula for K-12 classrooms – for six years, even as student enrollment expanded, costs increased and local support in some areas dropped.  Plus, budget pressures forced deep cuts in areas ranging from textbooks to teacher training and school safety.

Meanwhile, because of impending federal sequester cuts, schools face the prospect of significant layoffs, increased classroom sizes and out-of-date technology.

"We are in danger of losing all of the positive momentum which has been built up. And I am not going to allow that to happen," the Governor said.  "I am determined to find money to reinvest in education – even if I have to make harmful cuts in other areas to do so."

Fiscal discipline and aggressive managing of the budget – including some $1.6 billion in spending cuts – helped Kentucky get through the recession, but in some areas the cuts went deep enough to damage programs and services critical to building a stronger future.

"We cannot continue making progress by paying teachers less than they deserve, by ignoring needs like textbooks and technology, by delaying research into innovative energy production, by pricing college out of reach, by leaving needed cancer screenings unfunded, and by retreating from things like child care and mental health services," said Gov. Beshear.

The Governor identified two possible sources of new, recurring revenue with which to make investments: tax reform, because increasing competitiveness by broadening our tax base and improving our business climate will help stabilize future budgets, and gaming.

Gov. Beshear said he would ask the General Assembly again to place a constitutional Amendment on the ballot related to expanded gaming.

Over the years several economic studies of various gaming scenarios have projected potential Kentucky tax revenues in the hundreds of millions of dollars – money that is currently crossing the border "to fund roads and schools in Ohio, Indiana, West Virginia and other states."

Kentuckians "want to vote on this issue," he said.

Additional Legislative Priorities

Also this session, Gov. Beshear will propose and support a series of initiatives designed to promote public safety.

·         Booster seats:  Kentucky should align its booster seat regulations with federal recommendations, because current state laws are not protective enough.  Federal safety officials and doctors recommend using a booster seat until either age 9 or until a child reaches 57 inches tall; in Kentucky, only children under 7 and between 40 to 50 inches tall are required to use a booster seat.  Recent Kentucky statistics show that 70 percent of children hurt in car crashes were 8 or 9 years old – kids who typically aren't tall enough for adult-sized seat belts to protect them properly.  Misaligned belts can cause serious trauma in an auto accident.

·         Substance abuse:  Since 2011, the rate of deaths attributed to prescription drugs has dropped while deaths attributed to heroin have surged.  Gov. Beshear will support legislation to mandate a more aggressive approach for both law enforcement and treatment.

·         'No phone zones':  Given the vulnerability of schoolchildren and construction workers, Gov. Beshear will support legislation creating 'no phone zones', areas such as school and construction zones where drivers are not permitted to use cell phones while driving.

·         Domestic violence:  Kentucky is the only state without any civil protection for victims of violence in a dating relationship.  Gov. Beshear will again support legislation to extend these critical protections to dating couples who do not live together.  

Governor Urges Continued Bipartisanship

Gov. Beshear thanked legislators for working with him in the 2013 session in a bipartisan manner on several difficult issues that threatened state budgets, communities and schools.  Those successes include comprehensive legislation attacking prescription drug abuse, raising the graduation age, shoring up funding for state pensions, and authorizing innovative funding mechanisms for state universities that required no additional taxpayer burden.

The Governor contrasted those efforts with the endless bickering and political posturing of Washington, D.C. 

 

"We have proven over the last few years that here in Frankfort, we can work through those differences and pass meaningful legislation that strengthens our capacity and builds a better quality of life for our people," he said.  "We must remember that we are Kentuckians first, and Democrats and Republicans second.  I believe we can continue to show our Washington colleagues what leadership really looks like."

###

GS Memo - Budget Preview

MEMO

FROM: Government Strategies

SUBJECT: Budget Preview

DATE: January 2, 2014

The Kentucky General Assembly will convene on January 7th for the 2014 legislative session.  Every even-numbered year, the legislature meets for 60 days with the primary goal of putting together and passing a state budget.  The budget will dictate most everything else that is considered and the outcome will define the success of this legislative session.  If you've followed the Kentucky legislature, then you know it's been some time since the General Assembly has gone into a budget session with anything other than a looming deficit and anticipated cuts.  This year will be no different.  State economists aren't predicting any significant revenue growth based on Kentucky's economic recovery – which is occurring but at a very slow pace.  Thus creating an appetite for other sources of more state revenues. However, the realities of current political dynamics and the looming 2014 legislative elections will make it difficult for legislators to consider either new taxes or expanded gaming.  State agencies will likely have to absorb additional cuts.  

Budget Numbers

While Kentucky has noticed an upswing in revenues over the past couple years, we are experiencing economic recovery at a noticeably slow pace.  Year to date, we've seen roughly a 2.4 percent increase in revenues, but much of that can be attributed to a revenue package passed earlier this year, to help pay for pension reforms.  Even the modest amount of revenue that can be considered new and not yet earmarked – around $130 Million – isn't enough to cover pension liabilities, childcare subsidies, increases in employee health insurance, and many other obligations.

The administration in the last several months has started outlining the fiscal situation and the challenges that policy makers will face as they begin their work in January.  Governor Beshear recently said that he will not include additional revenue in the budget he introduces in January.  His plan will include prioritizing increased funding for elementary and secondary education.  Budget officials have indicated that state agency cuts are likely, and without new revenue included in the Governor's plan it's almost a forgone conclusion.  Many state government agencies have experienced 13 budget cuts in the past 7 years.

The Consensus Forecasting Group met before Christmas to set the revenue estimates that the Governor and Legislature will base the 2014-16 biennial budget.  The CFG is a group of nonpartisan economist from across the Commonwealth appointed to estimate revenues and the overall KY economy.  The group's official estimates are lower that what they had anticipated in an October meeting, however they do show some growth each year.  They estimate 2.6 percent growth in both FY 2015 and FY 2016, with declines in the cigarette tax revenue both years, and declines in the corporate income tax revenue and coal severance tax revenue in FY16.

Process

Governor Beshear will set the budget process in motion when he introduces his budget during the Budget Address on January 21st.  From there, the bill will be introduced in the House and House Leadership and the Appropriations and Revenue committee will go to work putting together a product that reflects the priorities of their members.  The House A&R committee is divided into Budget Review Subcommittees, with most subcommittees taking testimony from government agencies making their case for funding.  The House generally takes six weeks to work through this process and then the bill will go to the Senate, where they will review what the Governor and House have included and then make their own changes.  The rubber will meet the road in the final days of the session when leadership in both the House and Senate will meet in a conference committee to hammer out differences and negotiate a final document.

New Revenue Options and Dynamics

Tax reform and gaming are the two items most mentioned when looking at ways to increase state revenues.  Both have been discussed at length, most recently with a Blue Ribbon Commission on Tax Reform last year, and this year a new effort by gaming proponents to push for a constitutional amendment to expand gaming in Kentucky. One other option – and perhaps the most likely of all – would be a bond issue to fund a number of projects statewide. This could address some capital needs while also giving legislators projects to take back home, as they run for re-election in November.   All are viable options and could have some legs, however there will be interesting political dynamics at play this session which will certainly impact efforts at new revenue.

Democrats hold the majority in the House with 54 members to the 46 Republican members.  A recent special election win in Western Kentucky pushed the number of Republicans to 46 – the highest number ever in the Kentucky House.  All one hundred members are up for re-election in November and with such tight margins you have to expect that every single issue will be looked at through the lens of how the November elections will be impacted.

Past revenue raising measures have been successful with agreements between both parties to not use the issue in campaigns, but with control of the House at stake it seems hard to think that such middle ground is possible.

The Republicans have solid control in the Senate, 23-14-1.  Half, or 19, members of the Senate will be up in November of 2014.  

Candidates have until the third the week of January to file to run in November, so it will be the beginning of February before we have a clear picture of who has opposition and how this might impact the session.

Bottom Line

- Revenues will grow 2.6% or an estimated $250 million per year of the next biennium. However, only $130 million is available for policy makers to consider spending because of obligations related to funding state pensions.

- Before the policy makers consider spending the $130 million, they will be presented with many needs to consider funding including Medicaid, restoring K-12 education funding, and restoring child care subsidies, among others. In essence, more obligations than revenues.

- With the need for new revenues clear and the potential mechanisms, either tax reform or expanded gaming, fully vetted, it would seem that the policy makers would want to move in that direction. However, the political realities of the 2014 legislative elections with the control of the House of Representatives hanging in the balance may make it difficult for either party or chamber to support either revenue generating method.

- Door number 3 is likely a combination of budget cuts to support increased education funding and bonds for capital construction projects that will give legislators something to take home in an election year.  

Technical Difficulties

We have had some technical difficulties with our the host of our newsletters and they did not send last night. We believe the problem is close to being resolved and hope to have a late afternoon edition out today. We apologize for any inconvenience.