Kentucky House passes budget with $1.14 billion in unspent funds and hint of tax cuts

The Kentucky House advanced its two-year, roughly $65 billion spending plan for state government on Thursday with more information about plans for possible tax cuts and a proposed $10 million annual fund to let lawmakers give away money back home in their districts.

The House budget committee approved House Bill 1 and sent it to the full House, which voted 85-to-8 hours later to pass the measure along to the Senate.

The committee adopted a substitute version of the bill adding some items, including several priorities from Democratic Gov. Andy Beshear’s budget proposal, such as more money for capital projects at universities and expansion of a senior citizens meals program. It also added money to identify sites to be used for recruitment of employers under the state’s economic development, something Beshear requested.

Otherwise, HB 1 looks much as the Republican-led House first crafted it and released it on the fourth day of the legislative session, sponsors said.

There would be long-sought 6 percent pay raises for state employees, with larger salary boosts for smaller groups, such as Kentucky State Police; enough state funding to cover the cost of full-day kindergarten for school districts statewide; and more than $4.2 billion required for contributions to the pension funds for state workers and school teachers.

Unlike the governor’s budget proposal, the House bill would not fund statewide pre-K programs for 4-year-olds, and it would not mandate a pay raise for school teachers.

The General Fund derived from various state revenue sources would be about $13 billion a year, with $19.4 billion in federal funds in fiscal year 2023 and $18.1 billion in federal funds in fiscal year 2024.

House budget chairman Jason Petrie, R-Elkton, said the bill would leave $1.5 billion in the state’s budget reserve trust fund and $1.14 billion in “unappropriated” funds that would neither be spent nor go into the trust fund.

Petrie suggested that some of that unspent $1.14 billion could be returned to taxpayers through changes to the tax code that GOP lawmakers hope to make. Some legislators have spoken of continuing to move from dependence on the state’s income taxes in favor of sales taxes, following on changes they started in 2018.

“Of those moneys, those are not ours. They do not belong to the General Assembly. They’re not in our bank account. We have no special hold on them, it doesn’t have our thumbprints on it,” Petrie told his colleagues.

“Whose money is it? It’s the taxpayers’ money,” he said. “How do we best return that money?”

But Democrats challenged the idea of leaving money on the table when Kentucky still has unmet needs.

Rep. Josie Raymond, D-Louisville, said this is a rare opportunity after many years of state budget cuts to invest aggressively in education and other essential public services. Raymond said she is disappointed to see relatively modest increases in spending in certain areas while more than $1 billion is going unspent.

“When it’s fiscally sound, we don’t let money sit when we could put it to work for us,” Raymond said.

Across the Capitol, in the Senate, there has been discussion about whether to use a portion of any surplus funds to make a large payment on the state’s nearly $27 billion pension debt at the retirement systems for state workers and school teachers. Kentucky is in the early stage of a long-term plan to pay down that pension debt.

Petrie also fielded a question about a new $10 million annual grant pool at the Department of Local Government that is included in the bill. The pool would allow each state representative and state senator to award public money to local governments, educational units and quasi-governmental agencies at their discretion.

The money would be divided on a population basis, so each senator should get $130,000 to spend, and each representative should get $50,000. Although lawmakers already can include spending items in the budget for their home districts, if they have the clout, this fund would let them deliver money throughout the year.

Petrie said the grant pool seemed like a good idea because lawmakers so often have local projects, such as a roof repair on a park building, that would cost only a few thousand dollars — too small to practically qualify for a state budget line-item or for most state grants.

However, Petrie cautioned his colleagues that their funding requests will be public documents made available on request to reporters and other citizens.

“Don’t get stupid. Don’t be cute,” Petrie said. “Think about what those local needs are ... and understand that you’re going to be publicly on the hook for what the requests are.”

Among other items in the House budget bill:

▪ One hundred additional social worker positions in each year of the budget, for a total of 200. There also would be funding to provide an unspecified number of “additional personnel” at the Office of the Attorney General and in the local offices of commonwealth’s attorneys and county attorneys.

▪ An increase in the guaranteed per-pupil SEEK funding for school districts, from $4,000 this year to $4,100 in Fiscal Year 2023 and $4,200 in Fiscal Year 2024.

▪ A boost in state funding for school districts’ student transportation costs, going from the current $214 million to $274 million. While this would bring more money to districts, it falls short of the full transportation funding that the state once provided.

▪ More than $2 billion in actuarial required contributions for the Teachers’ Retirement System of Kentucky, which provides pensions for educators. Also, the state would pay $479 million to clear the outstanding obligations that the teacher pension system owes to retiring educators for their sick leave and cost-of-living adjustments.

▪ The $1.2 billion per year in actuarial required contributions for the primary state workers’ pension fund at the Kentucky Public Pensions Authority. That fund has only 18 percent of the assets it needs to meet future liabilities, making it one of the weakest public pension funds in the country. There would be $215 million more to pay down a worsening unfunded liability for the separate Kentucky State Police pension fund, also managed at KPPA.

▪ Clean water and wastewater projects in each county that would be paid for with $350 million in federal American Rescue Plan Act funds. Also, $312 million more in ARPA money would go to the state’s unemployment insurance fund to return it to pre-pandemic funding levels.

▪ Just under $13 million a year to increase the state’s daily payment to local jails for each state prisoner they hold, taking it up to $35.34. To avoid building more prisons, the Kentucky Department of Corrections long has relied on local jails — even those that are dangerously overcrowded — to house thousands of state inmates serving felony sentences.

▪ $372 million for this fiscal year and the next two fiscal years to increase the state’s reimbursement to nursing homes, using state and federal funds. The nursing home industry says it has struggled financially since the start of the COVID-19 pandemic in March 2020.

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

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