House Republicans and Gov. Beshear each filed a budget plan. How are they different?

Strong majorities in both chambers of the legislature all but ensure that Republican legislators have control over the state’s budget for the next two years.

It’s one of the most important tasks before the state’s General Assembly this year as it’s tasked with passing a budget for the biennium, and Republicans in the House already got the jump on presenting a budget – a privilege before this year always first conferred to the governor.

Democrat Gov. Andy Beshear presented his massive executive budget on Thursday, with the proclamation that it brought the state “not right, not left, but forward.” But will any of it matter with Republicans’ tight grip on the state’s purse strings?

House Speaker David Osborne, R-Prospect, has said that his party would consider the governor’s recommendations – he even filed a bill version of the Governor’s budget as House Bill 285 on Thursday. Still, Rep. Jason Petrie’s, R-Elkton, House Bill 1 is already on the fast track to passing through both chambers.

It is unclear what exact spending items Republicans would add after passage of HB 1, but the current level of spending gives them a lot of wiggle room. The Kentucky Center for Economic Policy estimated that the Republican plan leaves approximately $1.7 billion in spending on the table. Some components not included in House Bill 1, but included in Beshear’s budget bill, have already been proposed via separate bills.

One of the largest-looming fiscal item after passage of a Republican-backed budget would be tax reform. After years of talk, Republicans have said that reforming the state’s tax code to take a smaller percentage of income tax from people’s paychecks and more from sales is a concrete goal this session.

Senate President Robert Stivers, R-Manchester, likened such an income tax cut to “giving everybody a pay raise.” He and other advocates, like the powerful Kentucky Chamber of Commerce, have also said that such a tax cut allows Kentucky to compete for business with neighboring states like Tennessee.

Beshear last week was sour on the notion of tax reform, questioning why big fiscal policy change is needed when Kentucky’s economy is excelling. Other detractors have said that such a shift away from income tax and towards sales tax is regressive -- disproportionately rewarding the rich while hurting lowest income households.

So, what else sets the two budget proposals apart from each other?

Overall spending

House Bill 1 leaves a lot of money unspent over the next two years, with estimates that the figure reaches $1.7 billion.

A major chunk of that spending left on the table is American Rescue Plan Act (ARPA) funds, which the governor allocates almost twice as much over the next two years.

The two proposals spend the same amount of general fund dollars on the Kentucky Teachers’ Retirement System (KTRS), around $860 million each of the next two years. Both also pay the full amount to Kentucky Retirement System (KRS).

In terms of addressing the state’s public pension crisis, Beshear’s budget allots $750 million over the next two years to chip away at the state’s nearly $27 billion public pension debt.

Republicans’ bill bites off a $415 million chunk in the current fiscal year – $215 for the Kentucky State Police Retirement Fund and $200 million for the Kentucky Employee Retirement System (KERS) Nonhazardous pension fund.

Raises for state employees

Beshear wants to give all state employees a full 6% raise starting May 1.

He said that his budget initially only went to 5%. However, he changed course after noticing that the Republicans’ budget brought the raise up to 6%, though it kicked in during each employee’s anniversary date.

In response to the documented need for more competitive state public defender salaries, House Bill 1 allocates $7.1 million for raises to staff attorneys and related professionals in public defenders’ offices. Beshear’s budget includes no such provisions.

For Kentucky State Police troopers, which have seen an unprecedented shortage in their ranks, the governor’s budget as well as House Bill 1 would provide a $15,000 pay raise.

Hero pay, ARPA differences

Beshear allocates $400 million in ‘hero pay’ bonuses to certain essential workers in the state from the state’s American Rescue Plan Act (ARPA) funds. That includes healthcare, child care, transportation, sanitation, grocery, public health and safety, among others, per the governor’s budget. Workers must have worked from March 6, 2020 through March 6, 2022, and bonuses or hazard pay due to the pandemic may be taken out of their ‘hero pay’ bonus.

House Bill 1 includes no “hero pay” bonuses, or any equivalent, to essential workers.

It also doesn’t designate where much of about $1.1 billion left of ARPA money will go. And it explicitly wouldn’t give Beshear any authority to spend it. It reads that ARPA funds “shall not be expended or appropriated without the express authority of the General Assembly.”

In House Bill 1, $350 million is designated for water and wastewater projects. $14.7 million is allotted for COVID-19 testing in mental health facilities. Over $190 million is set aside for school facilities projects.

Given those expenses, Petrie’s budget only allocates about half of the total ARPA funds for the next two years.

The governor’s budget would allocate $500 million for water and wastewater projects, nearly $56 million for broadband expansion and improvement, $180 million for COVID-19 impact mitigation, $14.4 million for childcare assistance, $21.7 million for meals for senior citizens, $75 million for eligible nonprofits and more.

Overall, Beshear’s $180 million for COVID-19 mitigation dwarfs House Bill 1’s proposal.

Including the $400 million in ‘hero’ pay, Beshear’s budget spends much closer to the full $1.1 billion in leftover ARPA funds.

Economic development

Beshear’s budget proposal includes massive spending on economic development in Fiscal Year 2023, which begins in July 2022. He proposes $374 million to be spent in the area, most of it in one-time spending, which then levels off to $29 million in the next fiscal year.

Republicans’ budget includes $39 million and $40.5 million for the next two fiscal years from the general fund, still a jump from the current year’s $27 million. It includes $10 million in both fiscal years for a “rural product development” initiative.

The two one-time spending items introduced by the governor are a $250 million “site identification and development program” to be used for industrial site acquisition and improvements as well as a $75 million for a “state-of-the-art AgriTech research and development center” in Eastern Kentucky. House Bill 1 does not contain either of these items.

Education, SEEK funding

Both budgets allocate more per-pupil to Support Education Excellence in Kentucky (SEEK) funding program, an algorithm that allocates state funds to school districts. The current rate is $4,000 per-pupil.

Republicans’ House Bill 1 would raise that figure to $4,100 per-pupil, while the governor’s would raise it to $4,300 in the next fiscal year.

One major difference between the two is the funding of early childhood education. House Bill 1 provides funding for full-day kindergarten throughout the Commonwealth, while the governor’s budget allocates for that extension as well as an extra $172 million to establish universal pre-K for four-year-olds, who are too young for kindergarten.

For school transportation, the funding model in House Bill 1 advantages rural school districts, potentially at the expense of more populous urban and suburban districts. Though the budget appropriates $214,752,800 to be spent proportionally by school districts based on their transportation costs, another $59,693,500 is appropriated to be spread among the districts evenly.

There’s also a slight disparity in higher education funding, where House Bill 1 provides $895 million in base funding and another $67 million in performance fund money for both of the next fiscal years – a bump from the current $860 million in base funding – while Beshear’s crosses $1 billion in both years. Notably, the governor’s budget proposal would do away with the performance fund, an initiative of former Gov. Matt Bevin’s administration that gave schools money for meeting certain performance goals.

In response to the worsening financial situation at Kentucky State University, the state’s only public historically Black college or university (HBCU), Beshear’s budget grants the school’s request for $23 million to stay afloat. The Republicans’ budget bill does not include that money, but does allocate $200,000 to State Auditor Mike Harmon’s office to audit the school’s finances; however, James Tipton, R-Taylorsville, has filed a bill appropriating that money in potentially forgivable loans.