GA Schedule Change

The General Assembly has modified its schedule, due to the lack of agreement on the budget. The official release from LRC is below. Essentially, they will be in session on Wednesday and possibly on Friday if an agreement is reached on the budget in the next 24 hours.

Government Strategies -

News Release

March 30, 2010

2010 legislative session to resume tomorrow

FRANKFORT -- Legislative leaders approved a change to the 2010 session calendar yesterday. As a result, the Kentucky General Assembly will not convene in session today, as previously planned.

The Senate will convene tomorrow at 10 a.m. (or the call of the chair) and the House will convene tomorrow at noon.

The revised legislative calendar can be viewed online at http://www.lrc.ky.gov/sch_vist/10RS_calendar.pdf.

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House panel approves revenue measure

The House Appropriations & Revenue committee passed out HB 530 last evening with a committee substitute that contained the House's proposed revenue package including: suspending Net Operating Losses, Accelerated Sales Tax, and other provisions.

HERE is the memo that was handed out to members that provides some summaries and a list of the items that were included in the Committee Substitute. Below is an article from the Courier-Journal that details the hearing as well.

House panel approves revenue measure: "The House budget committee approved a measure Wednesday that would bring in roughly $321 million to the General Fund over the next two years."

Stumbo provides broad outline of House budget plan

We have been saying for weeks that the politics of this session will revolve around the state budget. The House and Senate Leaders have essentially cut the Governor out of the budget process, after he sent the legislature a budget that was based on nearly $800 million in new revenue from expanded gaming that the legislature hadn't dealt with yet. The legislature decided to proceed their own way on the budget without the gaming revenue.

It has been speculated for some time that the legislature would rely on a mix of cuts, sweeping funds, and pulling money out of Medicaid due to an enhanced Federal Match in order to balance the first year of the budget and would rely on more drastic cuts in the second year of the budget. All of this is based on the idea that the legislature will get past the November elections and force the Governor to have to deal with raising revenue in January 2011 when he is up for re-election in November 2011.

With the House unveiling their budget this week it appears that the session will now begin to get underway. The Herald-Leader article below has more details on the House's budget plan.



Stumbo provides broad outline of House budget plan: "

By Beth Musgrave - bmusgrave@herald-leader.com

FRANKFORT — House leaders are poised to unveil a state budget proposal in coming days that cuts more than 250 political appointees, trims spending on private contractors, tinkers with the state health insurance program and delays some construction projects.

House Speaker Greg Stumbo, D-Prestonsburg, also said the plan will rely on $220 million in not-yet-approved federal support for the Medicaid program.

The proposal, which Stumbo described vaguely for reporters, would eliminate a projected $400 million shortfall in the first year of the two-year state budget. Much of those savings would carry over into the second year of the budget, but lawmakers still must determine how to overcome a remaining $200 million shortfall in the second year.

“We have balanced in the first year, we have some carry forward actually and we are very, very close in the second year,” Stumbo said.

The first year of the budget, which begins July 1, does not include any cuts to the main funding formula for schools or cuts to the state Medicaid program, Stumbo said.

However, it does call for reducing the number of state workers to 2007 levels across the judicial, executive and legislative branches, Stumbo said.

Specifically, Stumbo said there are about 250 non-merit positions -- political appointees -- that have been added to the executive branch since 2007."

Tax Reform

The Governor’s budget, with its reliance on gaming revenue was dead on arrival with both the House and the Senate.  For the first time both chambers will be working simultaneously to develop a budget.  The Governor’s budget included 780 million in gaming revenue and with the new dollars he still cut state agencies with the exception of elementary and secondary education 2% and granted teachers and state employees a 1% pay raise only if additional federal stimulus dollars come from Washington.

We think this creates an environment where the legislature will seriously begin to consider tax reform or tax modernization.  Begin to consider is the operative phrase here.  With the November elections and most incumbents drawing opposition, anything having to do with taxes would be difficult if not impossible to consider or pass.  The House will present a bill for consideration and we believe the result could be the development of a structure to begin to review and consider the state’s tax system for either a special session after the November elections or sometime next year. 

The leadership in both the House and the Senate has said they would be willing to look at tax reform as a way to generate more growth in revenue.  Both have said they would like the state tax system to become more consumption based.  Speaker Stumbo has asked a working group of legislators to draft a bill that would repeal the corporate income tax, repeal exemptions to the sales tax, apply the sales tax to services and create an earned income tax credit for the working poor.  In looking at the sales tax exemptions, he has asked them to consider those exemptions that do not impact working families.  On all other exemptions, many of which will impact businesses, the Speaker says they will start from scratch and expect those groups that benefit to come before the General Assembly and justify the exemptions.

Here is some general information on the sales tax exemptions and how they relate to business.  The sales tax is currently 6% and there are 57 exemptions not counting services.  The 57 total about 2.5 billion annually, but six of the 57 make up 1.8 billion and those six would be the hardest to repeal—food, education charity and religious institutions, labor or services used in property , residential utilities, prescription medicine and cities and counties.  The full list of exemptions is included as an attachment.

The largest category of the sales tax that would impact our business and customers would be a new tax on services. The total if all services were taxed is 1.7 billion, but 584 million is estimated for health care which you would expect to be excluded from the list.  Some of those services that would be most associated with businesses are listed below and would total 578 million.  The complete list of what the state considers as services is also attached.

·         Business services (specialized design, computer systems design and R&D ) total 250 million;

·         Advertising—36 million,

·         Professional services—109 million

·         Engineering, accounting, research and management—183 million

We think you need to have your folks begin to think about the impact of losing some of the exemptions and of having the sales tax applied to various services.  Obviously it will impact everyone differently.

Download:  Sales Tax Exemptions

  

Governor's Weekly Address - LIHEAP

About Kentucky 01.22.2010 - LIHEAP: "

	About Kentucky 01.22.2010 - LIHEAP Governor Beshear's weekly address.