The 2nd meeting of the Interim Joint Committee on Appropriations and Revenue was held on Monday, July 26, 2004, at 1:00 PM, in Room 131 of the Capitol Annex. Representative Harry Moberly, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Representative Harry Moberly, Co-Chair; Senators Brett Guthrie, Ray Jones II, Alice Kerr, Robert Leeper (teleconference), Vernie McGaha, R.J. Palmer II, Joey Pendleton, Robert Stivers, and Jack Westwood; Representatives Royce Adams, Joe Barrows, Scott Brinkman, Dwight Butler, Jim Callahan, Mike Cherry, Larry Clark, Jesse Crenshaw, Robert Damron, Bob DeWeese, Jon Draud, Danny Ford, Joni Jenkins, Jimmie Lee, Mary Lou Marzian, Thomas McKee, Fred Nesler, Charles Siler, John Will Stacy, Tommy Turner, Robin L. Webb, and Rob Wilkey.
Guests: Bradford Cowgill, Bill Hintze and John Hicks, State Budget Office; Bobbie Hughes, Department of Corrections; Clyde Caudill, Charles Price, Sean Cutter, McBrayer, McGinnis, Leslie and Kirkland; and Sarah Nickolson, KHA.
LRC Staff: Pam Thomas, Lou Pierce, and Sheri Mahan.
Representative Wilkey moved that the minutes from the June 22, 2004 meeting be approved as written. Second by Representative Adams. Motion carried by voice vote.
Mr. Brad Cowgill, state budget director, provided the committee with an overview of the Governor's spending plan. Mr. Cowgill discussed the General Fund balance which as of the end of the fiscal year 2004 is $249,475,130. The January projection is $110,419,300, which leaves a General Fund balance of $139,055,830. The sources of this increase are expenditure reductions, increase in FY04 General Fund revenue and unconsummated transfers. Mr. Cowgill then further discussed these three areas.
Mr. Cowgill discussed reconciliation of the continuation plan, stating that the plan was published prior to the FY04 close-out and that it relies on year-end projection for revenue and expenditures. He then stated that the General Fund balance is $26.5 million greater than the plan had anticipated. He also provided an update of the status of the budget reserve trust fund stating that the FY05 beginning balance is $64,042,144, which is greater than anticipated.
Mr. Cowgill discussed General Fund revenues, stating that as enacted they were $7,096,520,000, but that the actual revenues were $6,977,623,130. Then he reviewed the FY05-FY 06 forecasts and the increases in revenue for FY04 through FY 06. He discussed the FY04 Road Fund balance, stating that the FY04 ending balance was $23,011,727.
Next, he outlined the FY05 General Fund revenue resources, including the consensus revenue forecast, tobacco settlement monies and continuing appropriation reserves.
Mr. Cowgill then outlined Governor Fletcher's objectives and conclusions, discussing the continuation plan, the differences from the enacted budget, and consequences of a lack of enacted budget. He highlighted the authorized spending which includes an increase in the budget reserve trust fund, full year debt funding in the first quarter, maintenance of the state's credit rating, and a 2% raise for stated employees and school personnel. Mr. Cowgill discussed the decision to implement the governor's budget quarterly instead of annually and outlined the annual spending estimates for the executive, judicial, and legislative branch budgets and continuing appropriations.
Representative Moberly asked Mr. Cowgill if the executive branch’s opinion of necessary governmental services defined within the scope of the governor’s spending plan. Mr. Cowgill replied that the spending with is authorized in the terms of the executive order from now until September 30 is within the governor’s constitutional authority. Representative Moberly then asked where that authority is stated within the constitution. Mr. Cowgill responded he did not have legal opinion regarding that question and respectfully declined to respond.
Representative Moberly asked where additional money was spent within the order as compared to the governor’s original proposed budget including the amendments. Mr. Cowgill clarified that the original proposed budget dealt with annual figures and that the executive order deals only with quarterly figures. Then he stated the only spending that was authorized on an annual basis within the first quarter was existing debt service. Mr. Cowgill stated that the annual figures presented are a projection of future quarterly spending. He stated that those totals are not firm and are to be used as a guideline for spending only.
Representative Moberly asked if the $10 million increases in spending for elementary and secondary education were more than anticipated in the original budget proposal. Mr. Cowgill that the governor’s recommended budget was the beginning point for the spending plan. Representative Moberly the asked if primary and secondary school have been promised a $10 million increase in funding and has the Commissioner of Education been ask to recommend how these funds should be spent. Mr. Cowgill replied yes to both questions. He then stated that the intention is to budget some of the newly available money to K-12 and post-secondary education.
Representative Moberly asked where the increases are within the spending plan. Mr. Cowgill stated that with the exception of debt service, the order does not authorize any spending one hundred percent or more than one hundred percent of the annualized totals that were represented in the governor’s recommended budget.
Representative Moberly asked if only $139 million of the $249 million FY04 ending balance is recurring revenue. Mr. Cowgill replied that he did not think so and that the projections for FY05 and FY06 are higher than the $139 million estimate.
Representative Wilkey asked what is the actual increase in total additional dollars over the current fiscal year for FY05 and FY06 on a recurring basis. Mr. Hintze replied that $250 million in FY05 over what was received in FY04 and $280 million for FY06 over FY04.
Representative Barrows asked what was reflected in the spending plan that was similar to the $110 million reductions in the recommended budget. Mr. Cowgill answered that to reach the $110 million target the proposed budget was going to reduce spending 2½ percent within the General Fund spending and restricted fund spending with the exceptions of the SEEK formula, Medicaid and the repayment of debt. Mr. Cowgill stated that the state universities were asked to submit spending plans. Universities were allowed to choose either to reduce their General Fund or restricted fund portions of their budgets and their proposals were diverse. The $20 million anticipated transfers from some of the CPE institutions were not made on June 30 because of the lack of an enacted budget.
Representative Barrows asked if the spending plan reflected the zero percent increase in the SEEK formula, and if the $10 million and $8 million increases were to be distributed within the formula. Mr. Cowgill stated that the $8 million is earmarked for certified non-teacher salary increases. He said that the $10 million is to go towards KERA strand programs and then $8 million is to go into the SEEK formula for the salary increases.
Representative Droud asked if teachers would be entitled to the same five percent salary increase that state employees would be entitled to if the law suit is successful. Mr. Cowgill replied that the question is probably better address by the Office of General Council.
Representative Wilkey asked if it is correct that the recommended 2 percent salary increase for school district employees would be funded 1.5 percent by the school districts and .5 percent by the state. Mr. Cowgill stated yes, but that the certified non-teacher proposed increase would be totally state funded.
Next, the committed reviewed appropriation increases. Representative Moberly asked if the committee had any discussion or questions regarding the increases. The committed did not move upon the increases.
Being no further business, the meeting was adjourned at 2:20 p.m.
All meeting materials and a tape of the full meeting is available for review in the Legislative Research Commission library.