The 2nd meeting of the Interim Joint Committee on Appropriations and Revenue was held Thursday, October 25, 2001, at 1:00 p.m., in Posey Auditorium, the Stratton Building, Eastern Kentucky University, Richmond, Kentucky. Representative Harry Moberly, Jr., Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Representative Harry Moberly, Jr., Co-Chair; Senator Richard Sanders, Jr., Co-Chair; Senators Brett Guthrie, Alice Kerr, Robert Leeper, Vernie McGaha, Ed Miller, Daniel Mongiardo, Gerald Neal, Dan Seum, Robert Stivers, Johnny Ray Turner, and Jack Westwood; Representatives Royce Adams, Rocky Adkins, Joe Barrows, Dwight Butler, Jim Callahan, Mike Cherry, Larry Clark, Jack Coleman, Barbara White Colter, Jesse Crenshaw, Robert Damron, Danny Ford, Bob Heleringer, Joni Jenkins, Jimmie Lee, Mary Lou Marzian, Thomas McKee, Lonnie Napier, Fred Nesler, Stephen Nunn, Charles Siler, John Will Stacy, Mark Treesh, John Vincent, Jim Wayne, Robin L. Webb, and Rob Wilkey.
Guests Appearing Before the Committee: Joanne K. Glasser, President, Eastern Kentucky University; Ann Durham, Mayor, Richmond; Kent Clark, Madison County Judge/Executive; John Bizzack, Commissioner, Department of Criminal Justice Training, Justice Cabinet; Pam Miller, Mayor, Lexington/Fayette Urban County Government; Jack Blanton, Senior Vice President, University of Kentucky; Bob Quick, President, Greater Lexington Chamber of Commerce; John Nicholson, Executive Director, Kentucky Horse Park; Dr. Gary S. Cox, President, Association of Independent Kentucky Colleges and Universities (AIKCU); Dr. Charles Shearer, President, Transylvania University; Dr. John Roush, President, Centre College; Judge Wilson, Assistant to the President and General Counsel, Berea College; Kevin Flanery, Secretary, Finance and Administration Cabinet; Dr. Larry Lynch, Consultant for Appropriations and Revenue Committee; and Dr. Jim Ramsey, State Budget Director.
Guests: Gay Dwyer, Kentucky Retail Federation; Jay Westbrook, CSX; Tom Underwood, NFIB/KY; Leah MacSwords, Division of Forestry; Dan Dott, Kentucky State Nature Preserves; Mark Turner, Greater Lexington Chamber of Commerce; Jim Seibert, KPTA; Sheri Witisman, Division of Energy; Jacque Smith, Supported Living; Carolyn Wheeler, Statewide Council on Vocational Rehabilition; Jerry Frantz, Economic Development; Jim Wilson, Libraries and Archives; Rick Graycarek, Kentucky Youth Advocates; Bill Owen, Lexington Center Corporation; Sheila Schuster, Kentucky Mental Health Coalition; Cathy Allgood Murphy, Center for Acc Living; Steve Shannon, KARP; Bob Benson, RAR/Louisville; Pam Helton, ABC; Mike Helton, KPMA; Mike Ridenour, Lexington Chamber of Commerce; Paul Blanchard, EKY; Libby Marshall and Alicia Sells, KSBA; and William Nixon, EKU.
LRC Staff: Terry K. Jones, Louis Pierce; Susan Viers; and Kathy King.
Chairman Moberly asked for a motion to approve the minutes of the September 27, 2001 meeting. A motion to approve the minutes was made by Representative Lee, and properly seconded and adopted without objection.
Chairman Moberly introduced Joanne K. Glasser, President, Eastern Kentucky University (EKU). President Glasser said she is excited and honored to serve as EKU's tenth president. Kentucky's initiatives on education reform and EKU's reputation as a comprehensive university were the compelling factors that directed her to the Presidency at EKU. The EKU community understands that the legislature will be facing many complex and very important issues in the next legislative session. When EKU presents its budget needs, it will do everything to support the request at both the executive and legislative levels of government. Once funding decisions are made, EKU will support those decisions and manage resources wisely.
Ms. Glasser said EKU has reversed a trend of declining enrollment and is making a significant effort in the retention process. An increasing number of Kentucky's best and brightest students are recognizing EKU as a student-centered institution, and students are drawn to the campus by innovative, cutting edge programs, and a dedicated faculty. EKU has one of the nation's finest honors programs, and is one of the three campuses for the Governor's Scholars Program.
EKU has many programs and partnerships that help meet students' educational needs. The College of Justice and Safety has formed statewide, national, and international partnerships that have provided unprecedented levels of opportunity and service. EKU remains devoted to its original mission of preparing teachers and administrators for Kentucky's schools, and the College of Education will continue to provide outstanding leadership in developing programs to address teacher shortage in Kentucky. A new initiative being proposed will create an education incubator for recruiting, educating, retaining, and renewing Kentucky's educators for the future. The Center for the Renewal of Schools will integrate professional education programs and Kentucky's teachers and school administrators. Another very important initiative is the Business and Technology Center, which will enhance economic development and support Kentucky's transition to the new economy. EKU's College of Health Sciences produces more nurses and more health care professionals at the undergraduate level than any other college, or university in Kentucky. EKU also has extended campus centers in Corbin, Danville, and Manchester, and these centers will continue to provide access to educational programs and services for nontraditional students, place-bound students, and other individuals who are unable to travel to ordinarily traditional college campuses. EKU is moving ahead with plans to develop the Southeast Kentucky Postsecondary Education Center in Corbin, a facility that will meet southeastern Kentucky's future educational needs.
Ms. Glasser said a top priority will be to pursue alternative funding sources to compliment state funding that has been provided in the past. She said she will also aggressively seek private funds to enhance EKU's academic programs, student scholarships, and for the endowment program. Another top priority is maintaining a climate of inclusiveness, understanding, and acceptance for all students at EKU.
Ann Durham, Mayor of Richmond, said Richmond lacked opportunities for growth and expansion when she took office in 1990. The city invested in its future with the help of grants from the state and expanded sewer and water infrastructure, embracing the concept of "smart growth," which is now a statewide initiative. It is a tremendous responsibility to serve at the local level and a great source of discomfort when there are elements on the horizon that threaten the tax base and the ability to deliver needed services. Richmond is proud to be a frontrunner in initiatives for downtown improvement, recreational opportunities, utility expansion, planning for residential, commercial, and industrial areas, and educational opportunities because of EKU. Mayor Durham said Richmond is now at a juncture in its development because the road system desperately needs attention. In today's economy, the legislature will have a difficult task providing for all the needs throughout the state.
County Judge/Executive Kent Clark said Madison County is one of the fastest growing counties in the state. The county, along with the cities of Richmond and Berea, have combined resources to expand water and sewer services. A $3 million water project is currently being finalized that will provide water to 99 percent of the county. The county, in an agreement with the city, and with legislative help, was able to do a $3.4 million sewer project that will service about 330 families. A $3 million county road reconstruction project was just completed, and Richmond and Berea are working together on land acquisition for parks and recreation areas outside of the cities. He said the cities and county have joined together to plan for this growth, and with the help of the legislature, Madison County will continue to work together to provide services to individuals for the least amount of money.
Rob Rumke, Executive Director of the Richmond Chamber of Commerce, said Madison County and Richmond have dynamic leadership and have done a remarkable job promoting the Madison County area over the last several years. A new, exciting project is the Battle of Richmond Association. The Chamber has been working very closely with the Kentucky Heritage Council and people at the state level to develop a preservation area commemorating one of the largest Confederate victories in the Civil War, which is very important to the history of the Civil War. The Bluegrass Army Depot has agreed to donate a house that was built in 1811 that served as a hospital in the Battle of Richmond. There is also an opportunity to secure another 62 acres for the park. Another Chamber endeavor is EKU's new business technology center, which will benefit the county's arts community, and also serve as meeting space. Mr. Rumke said he serves as chair of the Bluegrass Workforce Investment Board, which Richmond strongly supports. The board works closely with EKU to develop and train a workforce. Richmond has developed a new employability certificate that will assist in training and reaching a level of attainment for technology jobs and basic service jobs to people who have been displaced from their jobs. A person can earn an employability certificate and get an interview with any company that is part of the employability certificate program. Mr. Rumke said he also serves as project manager for the new Kentucky Music Hall of Fame, which is being built at Renfro Valley, and scheduled to open in May 2002. The induction ceremony will be held in Lexington on February 28, 2002. Mr. Rumke said the Chamber supports workers compensation and will continue to monitor that legislation, which is important to all businesses throughout the state. The Chamber also supports the Kentucky River Authority and rebuilding the locks and dams, because of the importance of that water source to central Kentucky.
Commissioner John Bizzack, Department of Criminal Justice Training, Justice Cabinet, said the department provides entry level and in-service training for approximately 9,000 students each year, including city and county police officers, law enforcement telecommunicators, coroners, sheriffs and deputy sheriffs, and university police. Training is also provided for officers charged with water enforcement, motor vehicle enforcement, alcoholic beverage control, mining reclamation, and those from several other state and federal agencies. Instruction is provided by 70 law enforcement training instructors who are supported by a 40-member administrative staff. These highly qualified instructors must have at least three years of law enforcement experience and a bachelor's degree. Instructors in the legal section must have a law degree and membership in the Kentucky Bar Association. Mr. Bizzack said the department is housed on EKU's campus in the state-of-the-art Funderburk Building, a 92,000 square foot facility specifically designed for training Kentucky's law enforcement officers, and includes: a complete, fully-functional telecommunications training center training police and other emergency dispatchers; a computerized firearms training system; laboratories for forensic and breath test instruction; and a modern fitness and exercise room, utilized by students in the physical fitness and wellness training programs.
Bob Quick, President and CEO, Greater Lexington Chamber of Commerce, said Lexington-Fayette County appreciates the committee's important service to the state. He said Lexington and Fayette County have united over the past several sessions to present a common vision of local needs and issues and community investment priorities. It is believed that the mutual common vision is useful for members of the General Assembly and is the community's attempt to develop priorities in an effort to assist the General Assembly with its budget decisions.
Mayor Pam Miller said Lexington, like the state, has to balance its budget and has to do so with disappointing revenues. She said city officials are cognizant of the fact that the state will need to make cuts in certain areas as it seeks to give extra support to others. Lexington is very appreciative of the General Assembly's past assistance and has tried to be disciplined in its requests to the General Assembly in the upcoming session. Top priorities are the Phase II continuation funding of $15 million for the completion of the Civic Center Rupp Arena project and funding for parks. Mayor Miller said Lexington local government is also excited to learn what recommendations the Commissioner of the New Economy will have for the Lexington area. She said the report on technology recommendations is due soon and Kentucky must move forward in this age of technology, which is critical for the region and the entire state.
Dr. Jack Blanton, Senior Vice President, University of Kentucky, said that Dr. Lee Todd was unable to attend the meeting because of travel obligations but Dr. Todd has clearly set out an agenda to strengthen the ties between the University and the city of Lexington. The University's top priorities are included with "community priorities" because the university is a major entity within Fayette County. The top priorities are the Research Challenge Trust Fund "Bucks for Brains;" an addition to the Morgan Building, which houses all biology faculty and creates modern lab facilities at $28.7 million less UK match of $2.9 million; an addition to the Pharmacy Building, which houses new laboratories, and faculty and staff office space at $45 million less UK match of $12 million; the Gatton Building Complex, which would allow for needed classroom space and the expansion of research and service programs at $75 million less UK match of $37.3 million; and the Law School Building at $65 million less UK match of $13 million, which would provide new office space, modern classroom, and student activities areas. Another priority is expansion of the Lexington Community College at $23 million, which will accommodate increased student enrollment by expanding classroom, office, and science lab space. Dr. Blanton said the university is also looking forward to learning more about the report on new technology and hopes that the university and community will have the opportunity to play a key role.
John Nicholson, Executive Director of the Kentucky Horse Park, said the Kentucky Horse Park has become a nationally recognized tourism facility and is generally considered to be among the best equine competition sites in the world. The Kentucky Horse Park generates $132 million of economic activity annually, and that activity returns $9 million back to the General Fund each year. Because of its location, the Horse Park is a highly desired site for major international equestrian competitions. Horse shows are an economic activity engine that have benefits far beyond the competition itself. Mr. Nicholson said the Horse Park would like funding for a new, climate-controlled, indoor arena seating approximately 5,000 to 7,000 people to make the park competitive with other facilities around the country. The Horse Park would also like to expand its campground by 100 sites, from 261 sites to 361 sites, because the current capacity of the campground is not adequate to meet the demand during peak travel months in the summer. The project would also include a new registration building, bathhouses, and other amenities.
Dr. Gary Cox, Executive Director of the Association of Independent Kentucky Colleges and Universities, said other college presidents had been invited but were unable to attend because of previously scheduled board meetings. Dr. Cox said there are 19 independent colleges in Kentucky that educate over 23,000 students. They employ 5,000 faculty and staff, offer 125 degree programs, and award 3,400 bachelor's degrees. They raise $93 million a year in private gifts, and their expenditures total about $350 million a year. Dr. Cox said 61 percent of independent college students are female; 73 percent are from Kentucky; one in four students is 25 years of age, or older; three out of four students attend full-time; 90 percent of the students are undergraduates; 11 percent are ethnic, or racial minorities; over 95 percent of the students receive financial aid; and 70 percent stay in the state of Kentucky after graduation. In any one year, independent colleges award 38 percent of the biology degrees at the bachelors degree level; 34 percent of the math degrees; 23 percent of the education degrees, and 25 percent of the teachers that teach in Kentucky claim one of these institutions as their primary educational institution; 32 percent of the chemistry degrees; 23 percent of the physics degrees; 45 percent of the economics degrees; 29 percent of the business degrees; and 23 percent of the nursing degrees. The graduation rate is the highest in the state. Dr. Cox said independent colleges enroll 19 percent of the four-year students and award about 21.5 percent of those degrees, but they receive less than two percent of the state appropriation for postsecondary education. Based on statistics from Kentucky Long-Term Policy, every student enrolled in a public college or university in Kentucky is subsidized by the state for about $6,600. He said some states have formed partnerships between their state government and independent higher education programs, and they are going beyond student financial aid by providing funding to underwrite technology expenditures; funding to encourage minority and low-income enrollment at independent colleges; funding for academic program contracts, particularly in areas of high need like nursing and teacher education; and assistance in bonding authority. Dr. Cox said the same authority that approves public institution programs reviews independent college programs, and it makes a lot of sense to partner in those areas.
President Charles Shearer said Transylvania University is a residential campus with 1,050 enrolled students and 80 percent of those students live on campus as full-time students. On an annual basis, about 75 to 80 percent of the students are from Kentucky. Because tuition and fees in the private sector are somewhat higher than the public sector, there is an impression that private institution student's families are more well-to-do and have more resources, but about 60 percent of those students qualify for federal or state aid based on their family incomes. The average tuition at Kentucky's independent colleges this year is about $10,600, which is 65 percent of the national average for independent colleges. About 40 percent of the students receive federal Pell grants, and the average income for a Pell grant recipient family is less than $30,000 per year. Dr. Shearer said 25 percent of the students receive a College Access Program (CAP) grant, and 70 percent of the CAP grant recipients come from families who have incomes less than $20,000 per year. Over 50 percent of the students in the independent sector receive a Kentucky Tuition Grant (KTG), and 63 percent of the 50 percent come from families making less than $40,000 per year on annual basis. The CAP grant program and the KTG program are very important to making higher education work for Kentuckians, especially in the independent sector. In 2000-2001, almost 8,000 independent college students received a KTG grant amounting to $11.1 million. At Transylvania, 443 students received a KTG grant with the total amount being $270,000, which represents 42 percent of the student body. In the same year, over 4,550 independent college students received a KEPT grant amounting to $4.8 million. At Transylvania, about 150 students received the KEPT grant and the total amount distributed was $170,000. Last year, independent colleges and universities supplied $90 million in institutional financial aid. Some of the institutions, like Transylvania are providing $7 to $8 million a year in institutional financial aid on an annual basis. Dr. Shearer said the Kentucky Educational Excellence Scholarship (KEES) program is also very important to the private sector. The KEES program, initiated in 1998, is a merit-based program designed to reward outstanding high school students with scholarship dollars and to keep those outstanding students in Kentucky. Last year, over 4,550 independent college students had KEES scholarships totaling $3.8 million. At Transylvania, 436 students came with KEES scholarships totaling $450,000. The Transylvania students are receiving $1.6 million from the three scholarship programs during the current fiscal year. In 1982, Transylvania established what was first called the Jefferson Scholarship progam, now the William T. Young scholarship program, which provides full tuition scholarships to 25 students on an annual basis. Dr. Shearer said the goal of the scholarship is to keep Kentucky's most talented, and best and brightest students in the state. Transylvania contributes a great deal to the state and wants its students to stay in the state and serve the state upon graduation. He said it is a wise investment for Kentucky to continue its support of independent colleges even in these difficult times.
President John Roush said Centre College is a national liberal arts college, but approximately 70 percent of its students are from Kentucky. Sixty percent of its students are on need-based aid and 85 percent of the students receive some other kind of aid, so Centre College is in the business of competing for Kentucky's brightest and best students and keeping them in Kentucky. Dr. Roush said higher education provided by independent colleges and universities in Kentucky is clearly a factor for the common good of Kentucky, and more creative ways must be found to help them continue to serve an important higher education need in Kentucky. All public and private higher education institutions are in a very competitive market, always trying to attract and retain the brightest and best students. Even with private fundraising, the gap continues to widen as private institutions try to find ways to remain a more viable and contributing part of the higher education system in Kentucky. Providing funds to assist campuses in improving quality as the state does for comprehensive campuses is sound fiscal policy. In the upcoming General Assembly session, the independent institutions will be seeking recognition and inclusion in matching programs designed to encourage private fundraising. Independent institutions are also seeking inclusion in the state's recruitment and retention program assuming that the Council on Postsecondary Education recommends another round of funding. Dr. Roush said private institution campuses are major partners with the state and failure to include them weakens Kentucky's ability to serve students and reduces fiscal viability when students are recruited away to other campuses.
Dr. Cox said tuition covers about 50 percent of the cost of education for an independent college student so private fundraising is a critical issue for an institution serving needy students.
Judge Wilson said Berea College is a college of opportunity that serves not only the southern Appalachian region but all of the state of Kentucky. Over one-third of the students at Berea College have zero expected family financial contribution, and the next third has an expected family contribution of less than $1,000 a year. For many students at Berea College, it is the difference between college, or no college, because students do not pay tuition. For Kentucky students alone, Berea College provided over $13 million in student financial aid last year. In addition to its tuition subsidies, Berea provides over $3 million a year in labor grants to all of the students who work at Berea College. Mr. Wilson said the student financial aid appropriations make a huge difference for Kentucky students attending Berea College. For the last two years, Berea College has worked closely with Dr. Gary Cox on behalf of all of Kentucky's independent colleges and universities looking at what other states do in partnership with independent higher education. He said Kentucky has three or four significant constitutional provisions dealing with schools and secular endeavors and prohibitions against the support of religious activities with public moneys, but analysis suggests that the issues are political and economic rather than legal issues.
Dr. Cox said the core educational values of the 19 independent colleges focus on quality teaching. They are small institutions with small classes that provide a very effective education even though it is a high cost education in many ways. As part of their education, students fulfill a civil obligation by having a commitment to community services. Virtually all of the students are mentored and tended to individually to prepare them for life and work. Dr. Cox said these are the advantages and values that this segment of higher education asks the General Assembly to embrace when thinking about promoting the cause of postsecondary education at all levels.
Chairman Moberly asked the chairs of the budget subcommittees to present their subcommittee reports.
Representative Jimmie Lee, Co-Chair of the Subcommittee on Human Resources, said the subcommittee met and approved appropriation increases #945, #955, #958, #967, #1074, #1077, #1025, and #1027. Representative Lee moved for adoption of the subcommittee report. The motion was properly seconded, and adopted by voice vote without objection.
Representative Royce Adams, Co-Chair of the Subcommittee on General Government, Finance, and Public Protection, said the subcommittee met and approved appropriation increases #815, #820, #927, #913, #914, #843, #1110, #1084, #930, #923, #988, #1032, #1072, #1086, #1088, #873, #877, #950, #911, #912, #986, and #1007. Appropriation increase #947 was withdrawn at the request of the agency. Representative Adams moved for adoption of the subcommittee report. The motion was seconded by Representative Wayne and adopted by voice vote.
Senator Robert Leeper, Co-Chair of the Budget Review Subcommittee on Transportation, said the subcommittee met and approved appropriation increases #885, #1009, and #1116. Senator Leeper moved for adoption of the subcommittee report. The motion was seconded by Representative Ford and adopted by voice vote.
Representative Joe Barrows, Co-Chair of the Budget Review Subcommittee on Education, said the subcommittee did not meet, but he and staff had reviewed appropriation increases #836, #1001, #1036, #1039, #1042, #1090, and #1133, and agreed that the appropriation increases should be approved. Representative Barrows moved for adoption of the subcommittee report. The motion was seconded by Representative Heleringer and adopted by voice vote.
Representative Jesse Crenshaw, Co-Chair of the Subcommittee on Justice, Corrections, and Judiciary, said the subcommittee met and approved appropriation increases #800, #998, #1013, #1102, and #1103. The State Budget Director approved appropriation increase #1014 as an emergency appropriation increase on October 10, 2001, therefore, no action was required by the committee. Representative Crenshaw moved for adoption of the subcommittee report. The motion was seconded by Senator Westwood and adopted by voice vote.
Representative Rob Wilkey, Co-Chair of the Subcommittee on Economic Development, Natural Resources, and Tourism, said the subcommittee did not meet but that he and Co-Chair McGaha had reviewed appropriation increases #803, #889, #882, #899, #903, #971, #975, #1130, and #1114 and recommended approval. Representative Wilkey moved for adoption of the subcommittee report. The motion was seconded by Representative Callahan and adopted by voice vote.
Senator Sanders said some agencies are using part of their restricted funds to meet the Governor's required two percent budget reduction. Some agencies, however, do not have restricted funds so the fiscal impact of a budget reduction on these agencies is much greater. He asked staff to prepare a list of the agencies that do not have restricted funds.
Kevin Flanery, Secretary of the Finance and Administration Cabinet, said the Consensus Forecasting Group is a contingent of economists and people who are familiar with Kentucky's economy and the national economy. As required by statute, the Consensus Forecasting Group must provide revenue estimates for the next biennium by October 15, and the budget is based on revenue estimates that the Consensus Forecasting Group provides. Comparing the first quarter of FY 2001 to FY 2002, there was a five percent increase in total General Fund dollars as compared to FY 2002, which only had a 0.8 percent increase. The economy has taken a downward turn over the past year beginning after the first quarter of FY 2001. There was 3.6 percent growth in the sales and use tax in FY 2002, but that growth is misleading because the additional moneys that began to be collected in the third and fourth quarters of the last fiscal year for telecommunications are included in that number. If telecommunications were excluded, the actual growth in the sales and use tax is pretty flat. The Road Fund is down 2.5 percent for the first quarter of FY 2002, and it is based on an already negative base down 4.6 percent for the first quarter of FY 2001.
Dr. Larry Lynch, member of the Consensus Forecasting Group and consultant for the Appropriations and Revenue Committee, said the economy was already in a downward trend prior to the September 11th tragedy. In looking at national forecasts from U.S. economists, real GDP growth ranged from -0.1 percent to -0.6 percent for the third quarter of FY 2001. Indications are that final estimates for the quarter will not fall below one percent and indications for FY 2002 are that the economy may be more resilient than expected with moderate growth rates ranging from 4.0 percent to 4.6 percent. For Kentucky, for FY 2002, the U.S. real GDP is set at 0.4 percent. It accelerates to 3.6 percent in FY 2003, and drops to 3.3 percent for FY 2004. The CPI for Kentucky is 2.5 percent for FY 2002, 2.4 percent for FY 2003, and 2.5 percent for FY 2004. Personal income in Kentucky is low at 2.9 percent for FY 2002, but it is doing slightly better than U.S. personal income, which is 3.9 percent. Kentucky is expected to grow better than the U.S. in non-agricultural employment. For FY 2002, Kentucky is 0.4 percent, while the U.S. is -0.1 percent.
Mr. Flanery said revenue did not meet the Consensus Forecasting Group's predicted estimate for FY 2002. In fact, the FY 2004 estimate, at $7,191.6 million, is close to the FY 2002 estimate, which the 2000 budget was based on. Mr. Flanery said revenue estimates for FY 2002 were officially revised before the October 15th timeframe and it has had to be revised again subsequent to the September 11th events. He said this has had a tremendous impact. Revenues have taken a two-year downturn, which will take two years longer to get to where it was predicted for FY 2002. Mr. Flanery said the latest revision amounts to a revenue shortfall of $171 million on top of the $296 million revenue shortfall announced in June. Mr. Flanery said some growth is expected in the last half of calendar year 2002 resulting in a 2.9 percent growth for 2003, and about a 4.1 percent growth for 2004. The current revenue estimate for the Road Fund is $1,039.8 million, a negative 2.3 percent for FY 2002, which is less than the predicted Road Fund estimate for FY 2002. Mr. Flanery said some growth is anticipated for the Road Fund in 2003 and 2004, but the growth is off of a very modest base.
Representative Siler asked about coal severance tax projections. Mr. Flanery said the coal severance tax has seen some growth recently, but there is a question as to whether it can sustain that growth. Fuel and winter heating costs projections are down 20 percent and coal reserves that were utilized during the growth spurt have now been replenished so projections are that there will be a decline over the two-year cycle.
Dr. Jim Ramsey said statute requires that the administration take appropriate action to balance the budget when there is a revenue shortfall. The total revenue shortfall to date for FY 2002 is $468.2 million, but the total budget shortfall for FY 2002 is $533 million. Dr. Ramsey said the Consensus Forecasting Group gives the revenue estimate but the administration has to allocate part of that money to local governments, which increases the shortfall on the expenditure side. In the first round of cuts made in June 2001, there were additional expenditures of $30 million, bringing the total budget shortfall to $326.7 million. On October 15th, the Consensus Forecasting Group made another downward revision resulting in a $171.5 million revenue shortfall. Additional expenditures of $34.8 million raise the total cut for Round 2 to $206.3 million. Dr. Ramsey said the administration is working to identify what cuts can be made for Round 2 of the budget reductions. He said there was a $180 million budget cut in April 2001, and now there are two more cuts. Altogether, the budget cuts total $713 million.
Dr. Ramsey said Round 1 budget cuts exempted Education and Medicaid from General Fund cuts. It also exempted capital construction projects and avoided layoffs. Balance was attained by utilizing lapses, fund transfers, Empower Kentucky savings, management efficiencies, and the Budget Reserve Trust Fund. He said the administration underestimated lapses through SEEK and debt service. SEEK was estimated to be about $50 million, but now it is believed that it will be about $34 million. The assessed value of real property at the local level will not be as great this year as it was last year. Last year, it went up an average of eight percent for the state. This year it will be about 5.8 percent. Also, there has been a dramatic increase in the number of exceptional children in the ADA population. Dr. Ramsey said the administration is also taking a very hard look at personal service contracts, as suggested by Representative Heleringer. After going through budget reduction steps one through six, the budget was still out of balance by $94 million. As a result, the Judicial and Legislative branches were asked to make cuts in their budgets and Executive Branch agencies have been asked to make an additional two-percent cut in their budgets. Through very aggressive management of the debt program, it is anticipated that $46.9 million can be captured in anticipated savings in bond issues. The administration is also seeking to obtain $12.5 million in federal Medicaid money to replace a like amount in state dollars used to pay doctors at the medical schools at the University of Kentucky and University of Louisville. The medical schools were providing services to Medicaid patients but not getting Medicaid dollars. Dr. Ramsey said the administration is still trying to find ways to balance the budget.
Representative Moberly said there has been some discussion that the Executive Branch does not have the authority to make cuts beyond five percent. Bill Hintze, Deputy Director for the Governor's Office for Policy and Management, said the Executive Branch feels that it has a duty and a right to ask agencies to make budget cuts before the effects get even worse.
Senator Leeper asked why there is such a dramatic increase in the number of special needs children. Dr. Ramsey said the reason is not known although special needs children do receive funds from SEEK on top of the amount that they regularly receive.
Representative Heleringer asked what the savings would be if state employees do not receive a five percent annual raise. Dr. Ramsey said the appropriation is already in the budget for 2002 and 2003, but the impact for 2004 and 2005 could be $50 to $60 million.
Representative Heleringer said $82 million in personal service contracts was approved for the month of October. In September, $42 million was approved. He said there should be no more contracts on anything except the most essential spending which would result in some real savings.
Representative Adams said he is concerned about the solvency of the Underground Storage Tank Fund as a source for budget revenue. Dr. Ramsey said the administration believes the fund will be able to meet its obligations. The fund balance is $107 million. The long-term liability is $320 million, but as the balance of the program continues to grow, the liability will decline over the long-term.
Representative Adkins said cuts being made to the Transportation Cabinet's budget are more than ten percent. Of the $123 million Transportation budget shortfall, $93 million of that came out of the state highway construction account. The base budget is now $77 million. He said it will be devastating if there are further revisions. Dr. Ramsey said the Consensus Forecasting Group is meeting regularly and their next estimate is due December 15th. Mr. Flanery said the group will be having a planning meeting probably in the middle of November and is aiming for a December 15th estimate prior to the 2002 session.
Senator Sanders asked if the latest consensus forecasting estimate would be used to start the budget. Dr. Ramsey said agency budget requests are due November 1st and the administration will use the current estimates from October 15th. If more revisions are made when the December 15th estimate is made, the administration will start using those numbers for 2003 and 2004.
Representative Heleringer offered a resolution urging the Governor to look at the issue of personal service contracts and to determine if there are some savings that could be realized in the personal service contract area through the cancellation or non-initiation of unnecessary contracts. If there are savings realized from the cancellation of unnecessary contracts, the resolution asks the administration to allocate $4.2 million back to mental health and mental retardation programs that was cut from the mental health budget. Representative Heleringer moved for adoption of the resolution, and the motion was properly seconded. Following discussion of the resolution, Representative Siler raised a point of inquiry regarding quorum. There being no quorum present, Chairman Moberly said the resolution would be placed on the agenda for the next meeting.
With no further business, the meeting was adjourned at 4:05 p.m.