The 5th meeting of the Interim Joint Committee on Appropriations and Revenue was held on Tuesday, November 28, 2006, at 2:00 PM, in Room 154 of the Capitol Annex. Senator Charlie Borders, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Charlie Borders, Co-Chair; Representative Harry Moberly Jr, Co-Chair; Senators David E Boswell, Carroll Gibson, Denise Harper Angel, Ernie Harris, Dan Kelly, Alice Forgy Kerr, Robert J (Bob) Leeper, Vernie McGaha, R J Palmer II, 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, W Keith Hall, Joni L Jenkins, Jimmie Lee, Lonnie Napier, Fred Nesler, Stephen R Nunn, Marie L Rader, Charles L Siler, Tommy Turner, John Vincent, Jim Wayne, Robin L Webb, and Rob Wilkey.
Guests: Dr. Hatim Omar, Director of Adolescent Medicine & Youth Parent Programs, University of Kentucky; Mr. Greg Harkenrider, Office of the State Budget Director.
LRC Staff: Pam Thomas, Charlotte Quarles, John Scott, and Sheri Mahan.
Senator Boswell moved that the minutes from the October 18, 2006 meeting be approved as written. The motion was seconded by Senator Tori. Motion carried by voice vote.
Senator Borders mentioned to the members that their meeting packets contained the Task Force on Local Taxation final report. He then asked if Senator Harper-Angel, who served on the task force, would like to comment. Senator Harper -Angel briefly described the work of the task force.
Dr. Hatim Omar, Director of Adolescent Medicine & Youth Parent Programs of the University of Kentucky, discussed the clinic and its programs. He stated that the Adolescent Medicine & Youth Parent clinic is the only one of its kind in the United States. The clinic provides services to adolescents relating to mental health, behavioral issues counseling, gynecology, and suicide prevention. The clinic also offers a youth parent program which targets teenage mothers and their babies, providing prenatal and postnatal care for both mother and child. He stated that the clinic is making a difference for Kentucky's youth.
Dr. Omar discussed various issues affecting Kentucky's youth. He stated that the occurrence of suicide among Kentucky teens is higher than the national average. Rural areas in the state have an even higher average than urban areas. He discussed the clinic's youth suicide prevention program which began in 2000. Since the program began, the clinic has helped over 1500 youth, for which the clinic receives no compensation. Because the program does not require payment for services, children without insurance have the same access to services as those who are insured.
Dr. Omar discussed the services the clinic offers to disabled children, including reproductive services. A patient named Samaria McNeil, who has Vaters syndrome, addressed the committee and discussed the services the clinic provides to her. Dr. Omar stated that 7% of the children in Kentucky have some variety of mental or physical disability. He noted that providing care for these children is prohibitively expensive and time consuming for most doctors and clinics.
Dr. Omar discussed the services the clinic provides sexual abuse victim. He stated that the Child Advocacy Centers are doing a good job, but they do not provide 24 hour 7 days a week care. Dr. Omar discussed the case of a young female who was sexually abused within her family and the services the clinic has provided to her. The young female's mother, Wanda Proctor, discussed how much the clinic's services have meant to her and her two young girls.
Senator Boswell asked if there is coordinated cooperation between Dr. Omar's clinic and any other state agencies. Also, the senator asked if Dr. Omar has a plan to coordinate efforts that could be presented to the Health and Human Services Cabinet. Dr. Omar replied that he does have support from the Department of Public Health, but lacks support from the Department of Mental Health and Mental Retardation. He also noted that the Comprehensive Care Centers are the only providers that receive payments from mental health services under Medicaid. Dr. Omar said that his hopes to eventually have a clinic in every region to better service the youth of Kentucky. He said that with the $150,000 appropriation each year of the biennium in the last budget they have started a clinic in Lincoln County and will soon open a clinic in Pulaski County.
Representative Webb asked if the Department of Education assists the clinic in identifying at risk children. Dr. Omar replied that he helped train employees of the department in screening at risk youth, and there is currently a pilot project at Tates Creek High School in Lexington. Representative Webb asked if the regions with the highest risk have been identified and if funding should be focused in those areas. Dr. Omar stated that the highest risk areas are the Cumberland Lake area, Hazard-London-Pikeville area, and the Paducah region.
Representative Lee asked how much additional funding would be needed to start a state-wide comprehensive program. Dr. Omar replied that $1 million per year would allow clinics to expand in the Somerset area and open a clinic in Pikeville. Also that level of funding would allow the main clinic to open more days per week and have longer hours.
Finally, Ms. Kara Howard, a clinic patient, discussed how important it is to her and other youth to increase the funding for the clinic to provide support to at risk children. She also expressed her concerns regarding the foster care system.
Next, Mr. Greg Harkenrider of the Office of the State Budget Director discussed tax increment financing (TIF) and the Tourism Development Act. Mr. Harkenrider provided a brief history of the use of TIFs and provided definitions for basic terms and concepts for the committee. He stated that the first TIF legislation was passed in 2000, and he outlined the statutes containing the enabling language. There are five basic types of TIFs: The state pilot TIF found in KRS 65.490; the wage assessment TIF found in KRS 65.6581; the local only TIF; the infrastructure TIF found in 65.6971; and the project specific TIF found in 65.6972.
Representative Clark asked Mr. Harkenrider to provide the amount of state tax forgiveness associated the Churchill Downs and Galt House TIFs. Mr. Harkenrider replied that those TIF agreements were limited to 25% of the approved costs, meaning that over 20 years the maximum recovery is 25% of the cost of the project. Representative Clark asked Mr. Harkenrider to supply staff with copies of both grant agreements.
Mr. Harkenrider described the flow of money for a traditional TIF arrangement. There are three entities in a typical grant contract: the state; a local government; and the project developer. The city or county creates a Development Authority which issues bonds. The bond proceeds go to the project developer. The development area is geographically defined by ordinance. The developer then makes the investment which must create economic development in the state for the incremental tax revenues to materialize. Once the project is underway the incremental tax money from the defined geographical area then flows to the state and local government. The state then refunds the local government up to 80% of the taxes from the defined area to pay for the bond debt service.
Mr. Harkenrider also described the proposed TIF arrangement for funding of the Louisville arena project. The TIF applicant (project developer) would have bonding authority, and would issue their own bonds. The state and local governments would pay the tax refund amounts directly to the applicant who would then in turn pay the bond debt service.
Mr. Harkenrider discussed local only TIF, briefly explaining the wage assessment TIF and the occupational license taxes/ad valorem tax TIF. He discussed the various reasons for utilizing these two types of TIFs, and the requirements for each.
Next, Mr. Harkenrider discussed project specific TIFs in which state participation may be requested. These types of TIFs must meet certain criteria, such as created new economic activity in the state, having a $10 million capital investment, creating at least 25 new jobs within 2 years, having a net positive impact and having at least 25% of its projected revenue attributable to sources outside the state.
Senator Boswell asked who makes the determination whether the project provides new economic activity to the Commonwealth. Mr. Harkenrider replied that the state engages a consultant for the project and the consultant certifies that each of the criteria are met. Mr. Harkenrider noted that the criteria are not well defined in the statute.
Mr. Harkenrider discussed the concept of net positive impact. He reviewed the differences between new spending, recaptured spending and redirected spending. He defined the three types of spending and explained how each affects the General Fund. He specifically discussed redirected spending and how that can possibly be a detriment to the General Fund.
Senator Kelly stated that all new development creates new demand for services, such as utilities, schools, and transportation. Generally these costs are covered by the taxes paid to the state in that locality. He noted that when new development that does not contribute tax revenues to the base is permitted pressure is put on existing businesses and other taxpayers to raise taxes to pay for the services necessitated by the new development. He also discussed the limits of capacity in localities, such as limits on workforce, utilities, and transportation infrastructure. He discussed how a TIF area put added demand on these areas without contributing back to cover the cost of these new demands.
Mr. Harkenrider briefly discussed TIFs in other states. He stated that 49 out of 50 states have TIF laws. These laws were commonly implemented as a solution for addressing blighted areas of cities and municipalities. Most states have loosened eligibility over the years. Mr. Harkenrider also discussed current and proposed TIF projects in the state, and the administrative hurdles created by utilizing TIFs, outlining the administrative process and the actions local governments must take to facilitate the use of a local TIF.
Representative Clark asked who will set the rates for the four proposed TIFs to fund the Louisville Arena project. Mr. Harkenrider replied that the rate will be negotiated and set out in the grant agreement. Representative Clark stated his concerns regarding having a 6 square mile TIF area, saying that the area comes very close to the airport distribution area and stifles growth. Representative Clark asked Mr. Harkenrider to provide the committee the grant specifics for the four Louisville Arena TIFs and if he would supply suggestions how to improve the TIF statutes.
Mr. Harkenrider continued, briefly explaining the Tourism Development Act. He discussed the funding mechanisms, eligibility requirements, enabling legislation, and various project throughout the state.
Senator Borders notified the members that the committee would next meet on December 14 at Kentucky State University. He also noted that the member's packets include a list of items received by the committee since the prior meeting as well as appropriations adjustment information from Janie Miller. He noted that members could get a copy of any noted item through the committee staff.
There being no further business, the meeting was adjourned at 3:40 p.m. A tape of this meeting and all meeting materials are available in the Legislative Research Commission library.