The 4th meeting of the Interim Joint Committee on Appropriations and Revenue was held on Thursday, November 13, 2008, at 1:00 PM, in Room 171 of the Capitol Annex. 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; Senators David E. Boswell, Tom Buford, Denise Harper Angel, Ernie Harris, Alice Forgy Kerr, Bob Leeper, R.J. Palmer II, Tim Shaughnessy, Brandon Smith, Elizabeth Tori, Johnny Ray Turner, and Jack Westwood; Representatives Royce W. Adams, John A. Arnold Jr., Scott W. Brinkman, Dwight D. Butler, Larry Clark, James R. Comer Jr., Jesse Crenshaw, Mike Denham, Bob M. DeWeese, Derrick Graham, Keith Hall, Jimmy Higdon, Jimmie Lee, Lonnie Napier, Fred Nesler, Don Pasley, Marie Rader, Rick Rand, Charles Siler, Arnold Simpson, John Will Stacy, Tommy Turner, John Vincent, Jim Wayne, Robin L. Webb, and Brent Yonts.
Guests: John Hicks, Acting State Budget Director; Greg Harkenrider, Deputy Executive Director for Financial Analysis, Office of the State Budget Director; Bill Caylor, Kentucky Coal Association.
LRC Staff: Pam Thomas, Jennifer Hays, Eric Kennedy, Charlotte Quarles, John Scott, and Sheri Mahan.
Senator Boswell moved that the minutes from the previous meeting be approved as written. The motion was seconded by Representative Webb. The motion carried by voice vote.
Chairman Moberly thanked Representative Vincent for his service to the committee. Representative Vincent introduced his newly elected replacement, Representative-elect Kevin Sinnette.
Mr. John Hicks, the acting State Budget Director provided the committee with a quarterly economic and revenue report, discussed the revision of the enacted revenue forecast for FY 2009 by the Consensus Forecasting Group (CFG), and detailed budget reduction planning being done by the state. He discussed the less than expected individual income tax, sales tax, and corporate income tax revenues for the first quarter of FY 2009, stating that estimates of expected FY 2009 revenues are down $293.6 million from the current CFG estimate. He stated that this decrease has been caused by several factors, including weaker withholding growth, decline in retail sales, and high levels of corporate tax refunds.
Mr. Hicks discussed the current outlook for the United States gross domestic product, national average personal income as compared to Kentucky’s average personal income, and the rate of inflation. He also highlighted national and state-wide nonfarm employment figures, comparing current nonfarm employment and employment growth with last year’s employment figures for the same sectors.
Next, Mr. Hicks discussed the estimates for the FY 2009 Road Fund, stating the revised estimate is a decrease of $70.6 million in revenues from the current CFG estimate. He discussed the various reasons for this decrease, citing lower motor fuel consumption, decline in motor vehicle purchases, tighter credit standards, and higher unemployment as factors affecting the decline. The decreases in the Road Fund revenues started before the fiscal year began. He discussed national economic trends and stated that national sources indicate that much of the country, including Kentucky, is now in a recession.
Representative Moberly discussed the inadequacy of the current budget and the effects the budget reduction plan set forth in the budget bill could have on education and health and human services within the state. He also discussed the potential for the budget deficient to increase over the biennium. Mr. Hicks said that the trend among most other states is that the second year of the biennium budget shortfalls will be worse than the first year.
Representative Yonts asked how the less than expected state employee retirements have affected the budget shortfall. Mr. Hick replied that the Budget Director’s office is working on a plan to satisfy the $179 million budget expenditure reductions which does not take into account retirement savings.
Representative Moberly asked if the executive branch had to include some one time money to reach the $179 million budget reductions. Mr. Hicks stated that some of the plan required debt restructuring which has been implemented, but these savings are not recurring because it stretches out over time.
Next, the committee heard testimony from Mr. Bill Caylor, Executive Director of the Kentucky Coal Association, regarding the status of the state’s coal industry. He discussed current coal prices, production, and employment statistics. He stated that coal production is up by 2.9% in east Kentucky and by 4.5% in the western part of the state. He discussed the economic impact coal mining has on the state economy, creating over 18,000 jobs and $355 million in direct wages. He discussed various issues surrounding coal mining permit applications. Mr. Caylor finally discussed improvements in mine safety and the positive aspects of mountain top removal.
Senator Smith commented on the importance of coal in the state. He then asked Mr. Caylor to discuss issues with the 404 permit process. Mr. Caylor responded that the Army Corp of Engineers for the Louisville region is delaying the processing of 77 coal mining permits because of litigation filed by environmental activists. The Corp of Engineers has asked the permit applicants for more detailed information regarding cumulative impact assessment on watersheds surrounding potential mining sites.
Representative Clark asked how the coal industry recruits mine workers. Mr. Caylor stated that the average age of a miner is 50 years old. He stated that labor pool in Appalachia has decreased and drug abuse in the region is high. It is difficult to replace workers that are retiring, but some community colleges are starting to offer mine training. Representative Clark discussed the prevalence of drug use among the labor force and the difficulties it presents to companies.
Representative Moberly asked what the coal industry believes needs to be done for the state to handle a future carbon emission reduction mandate. Mr. Caylor replied that there will probably be cap and trade legislation at the federal level, and that carbon capture research is of primary importance.
Being no further business, the meeting was adjourned at 2:45 p.m. A tape of this meeting and all meeting materials are available in the Legislative Research Commission library.