Interim Joint Committee on Appropriations and Revenue


Minutes of the<MeetNo1> 3rd Meeting

of the 2005 Interim


<MeetMDY1> September 22, 2005


The<MeetNo2> 3rd meeting of the Interim Joint Committee on Appropriations and Revenue was held on<Day> Thursday,<MeetMDY2> September 22, 2005, at<MeetTime> 1:00 PM, in<Room> the Student Center at Kentucky State University. Senator Charlie Borders, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Charlie Borders, Co-Chair; Representative Harry Moberly Jr, Co-Chair; Senators Tom Buford, Carroll Gibson, Denise Harper Angel, Alice Kerr, Robert J (Bob) Leeper, Vernie McGaha, R J Palmer II, Tim Shaughnessy, Robert Stivers II, Gary Tapp, Elizabeth Tori, Johnny Ray Turner, and Jack Westwood; Representatives Royce W Adams, Joe Barrows, Scott W Brinkman, Dwight D Butler, Larry Clark, James R Comer Jr, Jesse Crenshaw, Bob M DeWeese, Jon Draud, Danny R Ford, Joni L Jenkins, Jimmie Lee, Mary Lou Marzian, Lonnie Napier, Fred Nesler, Stephen R Nunn, Don R Pasley, Marie L Rader, Charles L Siler, Arnold Simpson, John Will Stacy, Tommy Turner, Jim Wayne, Robin L Webb, and Rob Wilkey.


Guests:  Dr. Mary Evans Sias, President, Kentucky State University; Beth Jurek and John Hicks, Office of the State Budget Director; Secretary Gene Strong, Cabinet for Economic Development; Commissioner Gene Wilhoit and David Couch, Kentucky Department of Education.


LRC Staff:  Pam Thomas, John Scott, Charlotte Quarles, Nicole Anderson, and Sheri Mahan


Senator Borders welcomed the members and thanked Kentucky State University for hosting the committee's meeting.


Senator Harper-Angel moved that the minutes from the previous meeting be approved as written.  Second by Representative Ford.  The motion carried by voice vote.


President Mary Evans Sias welcomed the members to Kentucky State University and discussed the accomplishments and progress being made by the university.


Beth Jurek and John Hicks from the Office of the State Budget provided an update to the committee on the status of the executive budget capitol projects and bonding.   Mr. Hicks stated there are about 560 line-item capitol projects that were appropriated funds in the 2006-2007 budget.  Ninety-five (95) of these projects include bond funds.  Fifty (50) projects have General, Road, Investment Income or Capital Surplus funds.  The remainder of the projects involve Restricted or Federal Funds, with postsecondary projects making up about 90% of this group. 


Mr. Hicks stated that the total capital projects appropriations was $3.6 billion.  Included in this total was about $1.9 billion in projects which will be bond financed.  Projects which will be bond financed include 48 construction/renovation/infrastructure projects, 16 line-item pools, 12 information technology projects, 14 grant projects, and 5 design/study projects.  He stated that 83% of the bond funded construction projects are under contract for design and most of the remainder are scheduled for consultant selection during the next two months.  Mr. Hicks then briefly outlined the bonding plan calendar for the next year. 


Representative Clark asked if the recent natural disasters on the Gulf Coast are expected to affect construction prices and has this been taken into account in the anticipated costs of projects.  Mr. Hicks replied that these events are being taken into account in cost estimates for future projects.  Tentatively, it is anticipated to not have a major long term affect on construction costs.


Representative Brinkman asked if there is upward pressure on yields on the most recent debt issuance.  Mr. Hicks replied that there has not been any major upward pressure on the yields to date.


Next, Beth Jurek discussed the effects of gasoline pricing on state revenues and expenditures.  She stated that the last Consensus Forecast Group planning report assumed that the motor fuels rate would be 9% of the Kentucky average wholesale price (AWP) of a gallon of gasoline.  The current minimum is $1.22 and by statute the AWP cannot increase more than 10% in a fiscal year.  The maximum AWP for fiscal year 2006 cannot exceed $1.34 and the maximum for fiscal year 2007 cannot exceed $1.48.  These estimates are pre-hurricane Katrina and Rita.  The next forecast is due October 15, which will take into consideration these natural disasters.  Ms. Jurek then discussed the taxable volume of gasoline in Kentucky.  In July 2004 the total volume was 294 million.  The total for July 2005 is slightly less, at 290 million, a decrease of 1.09%. 


Ms. Jurek stated that the cost of fuel purchases for fiscal year 2005 by Fleet Management was $7.5 million, which is an annualized price of $1.74 per gallon.  The averages since the beginning of fiscal year 2006 has been steadily increasing.  At this point it is unknown what the average for fiscal year 2006 will be, but one assumption is that it might average $2.50 per gallon.  This would equal $10.9 million in Fleet Management fuel costs for fiscal year 2006.  Non-essential state travel has been curtailed, so this may effect state fleet consumption levels.  Expenditures on gasoline in excess of the budgeted amount for fiscal year 2006 will come from the vehicle replacement account. 


Finally, Ms. Jurek discussed the impact of fuel price increases on local school districts in Kentucky.  She stated that there are approximately 9,650 school buses statewide, and that more than 99% use diesel fuel.  She said that fuel prices became a serious problem during fiscal year 2005.  Fuel prices increased from 7.9% to 10.5% of the pupil transportation enacted appropriation.  School districts tried to absorb cost increases with offsetting cuts elsewhere and by deferring purchases of new buses.  Given the recent fuel cost increases, most district fuel budgets will nearly double during fiscal year 2006.


Representative Nunn moved that the committee send a resolution to the governor asking him to release additional funds to offset fuel cost increases for school districts.  The motion was seconded by Representative Draud.  Chairman Borders ruled that the motion was out of order and the committee would readdress this issue at its next meeting. 


Secretary Gene Strong of the Cabinet for Economic Development and Commissioner Deborah Clayton from the Department of Commercialization and Innovation  updated the committee on economic development in Kentucky. Secretary Strong briefly discussed the cabinet reorganization.  He then discussed Kentucky's current economic development status, stating that Kentucky is ranked 4th in the Site Selection 2004 Competitiveness Award based on 10 criteria for measuring business expansion activities.  He also said that the state ranked 12th for most new and expanded facilities.  Kentucky ranked 6th for most micropolitan areas and 8th for top metro areas.


Secretary Strong stated that since January 2005, 68,387 jobs were created in Kentucky, ranking as the 7th best among our competitor states.  More Kentuckians were employed during June 2005 than any previous month in the state's history with 1,906,846 employed.  July ranked as the second highest month on record.  The state had over $1 billion in announced investments for new and expanding manufacturing and supportive firms from January through August of this year, which will created 10,167 new jobs.  Secretary Strong then provided a brief overview of some of these expansion projects and briefly discussed the unemployment figures for the past fiscal year.


Secretary Strong stated that Kentucky was ranked 8th per capita in exports, and was one of only two states ranked in the top 20 that do not border an ocean or another country. He also discussed foreign investment in Kentucky, stating that there are 348 foreign-owned facilities in the state, employing 68,657 full-time employees.


Finally, Secretary Strong briefly discussed per capita personal income and average wage and salary for Kentucky.  He also discussed the number of Kentuckians with a high school degree education or higher, and the number of adults in the Commonwealth with a Bachelor's degree or higher education.  He correlated this statistics with Kentucky's ability to compete within the New Economy. 


Next, Commissioner Deborah Clayton of the Department of Commercialization and Innovation provided a brief history and an overview of the functions of the department.  She stated the purpose of the department is to create commercialization and entrepreneurship infrastructure to grow innovation-driven and knowledge based companies. Also the department is to monitor the effectiveness of the Kentucky Innovation Act Initiatives.  She then discussed the funding resources available to the department, which are the High-Tech Investment and Contruction funding pools.  She discussed the New Economy investments made during fiscal years 2001 through 2005, which totaled $77 million.  She stated that for fiscal year 2005 - 2006 31 proposals have been submitted, requesting $32 million.  A total of $26 million is currently available to meet these requests.   Commissioner Clayton also discussed the new department policies in reviewing these requests.  As a result of these new policies over $3.6 million was either delayed or cut from the initial proposal requests and a total of $8.9 million was recommended for approval.  Finally, she discussed a few new initiatives on the horizon for fiscal years 2007 and 2008.


Representative Draud commended Secretary Strong for his emphasis on increasing higher education in Kentucky.


Representative Wilkey asked if the cabinet still has an Office of the New Economy.  Secretary Strong replied that this office has been transferred to the Cabinet for Economic Development and it is now the Department of Commercialization and Innovation.


Representative Moberly welcomed Commissioner Clayton to Kentucky.  He also expressed his concerns that eastern and western Kentucky's need might not be met by the department. He also stated that he believes some actions already taken by the department might have a detrimental effect on this region. 


Finally, Commissioner Gene Wilhoit and Associate Commissioner David Couch of the Kentucky Department of Education discussed the technology needs in Kentucky's schools.  Commissioner Wilhoit stated it is a topic of great concern within the department that Kentucky's status as an education technology rich state is rapid declining.  He then discussed how Kentucky compares to other states in education technology implementation.


Associate Commissioner David Couch then discussed the specifics in operations, maintenance and incremental upgrades of K-12 education technology.  He stated that the lack of investment in school technology since 2000 has impacted Kentucky's ability to keep pace with ever-improving technology. Kentucky has dropped from being ranked #3 in education technology implementation to the current #27 ranking.  Only 1 state currently has older computer equipment than our state, and it is expected that Kentucky will be ranked #50 by 2006.  He discussed several specific technology needs including high speed inter-school system connectivity, upgraded workstations, upgrades to allow online testing, and updated software for student training. 


Senator Westwood asked if the department has a state wide implementation plan to address these technology needs.  Commissioner Wilhoit replied that there has been some discussion by the Governor's Office of Technology in developing a statewide computer network, but no on cohesive education network has been discussed.


Representative Nunn stated there are other issues in public education which also need to be addressed along with keeping pace with technology.  He stated it is the responsibility of the legislature to provide a first class education for the youth of Kentucky.


Representative Webb stated her support of Representative Nunn's statements and also believes greater efforts needs to be made by the legislature to improve KERA.


Being no further business, the meeting was adjourned at 3:10 p.m.