The 5th meeting of the Interim Joint Committee on Appropriations and Revenue was held on Monday, November 16, 2009, at 1:00 PM, in Room 154 of the Capitol Annex. Senator Bob Leeper, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Bob Leeper, Co-Chair; Representative Rick Rand, Co-Chair; Senators David E. Boswell, Denise Harper Angel, Ernie Harris, Vernie McGaha, R.J. Palmer II, Joey Pendleton, Tim Shaughnessy, Brandon Smith, Robert Stivers II, Gary Tapp, and Jack Westwood; Representatives Royce W. Adams, John A. Arnold Jr., James R. Comer Jr., Jesse Crenshaw, Bob M. DeWeese, Danny Ford, Derrick Graham, Keith Hall, Jimmie Lee, Reginald Meeks, Lonnie Napier, Fred Nesler, Sannie Overly, Don Pasley, Marie Rader, Jody Richards, Charles Siler, Arnold Simpson, Tommy Thompson, Tommy Turner, Jim Wayne, and Ron Weston.
Guests: Dr. Larry Lynch, Consensus Forecast Group; Ankur Gopal, Agent511; Steve Hinz, Accenture; Deputy Secretary Shannon Morgan, Finance and Administration Cabinet; Paul Kaplan, The Green Bank of Kentucky; Bryan Sunderland, Kentucky Chamber of Commerce; Brad Blain, Kentucky Association of Health Underwriters, Sean Rafferty, Occupational Health Solutions, Representative John Tilley.
LRC Staff: Pam Thomas, Eric Kennedy, Jennifer Hays, Charlotte Quarles, John Scott, and Sheri Mahan.
Representative Thompson moved to approve the minutes from the October meeting as written. The motion was seconded by Representative Simpson. The motion carried by voice vote.
Dr. Larry Lynch, chairman of the Consensus Forecasting Group, addressed the committee concerning revised revenue estimates for the upcoming biennium. He stated that the forecast indicates some potential economic growth, but this growth will be subpar due to slow employment growth and weak consumer spending. Dr. Lynch said that sales tax receipts are projected to decrease by 3.3% in fiscal year 2010, and increase slightly in fiscal years 2011 and 2012, with a 3.6% and 4.6% increase respectively. He then stated that individual income tax is projected to decrease by 5.8% in fiscal year 2010, slightly increase in fiscal year 2011 by 2.4%, and fiscal year 2012 by 4.2%. He also stated that corporate income tax will decline in fiscal year 2010 by 5.3%, show a slight increase of 3.4% in fiscal year 2011, but then return to a decline of 0.8% for fiscal year 2012. The coal severance tax is projected to decrease by 16.5% in fiscal year 2010 and 10.4% in fiscal year 2011, but will show a slight increase in fiscal year 2012 of 4.4%. Cigarette tax revenue projections are an increase of 51.6% in fiscal year 2010, but a decline of 0.7% in fiscal year 2011 and of 0.9% in fiscal year 2012. Property tax revenues will decrease by 0.4% in fiscal year 2010, but increase by 1.6% in fiscal year 2011 and 3% in fiscal year 2012. The total general fund projections for the biennium are $8,135 million in fiscal year 2010, $8,316.9 million in fiscal year 2011, and $8,625.1 million in fiscal year 2012.
Rep. Wayne asked if the implementation of the alcohol sales tax has increased General Fund revenues. Mr. Greg Harkenrider of the Office of the State Budget Director replied that the annualized estimate for the tax is $52 million, but this is difficult to confirm.
Chairman Leeper asked if this is the first time there has been three consecutive years of revenue declines for the General Fund. Dr. Lynch replied that no, but this is typically due to inflation. Chairman Leeper stated according to the CFG projections the General Fund receipts will not recover to fiscal year 2008 levels until at least 2012. Dr. Lynch stated that is correct.
Senator Stivers asked if the alcohol tax reached projected levels in revenues. Mr. Harkenrider replied that it is believed that the revenue did reach the projected levels. Senator Stivers asked if the revenues from wholesale taxes on distilled spirits and beer have increased. Mr. Harkenrider replied they have remained flat.
Senator Shaughnessy asked how Kentucky’s coal severance tax compares with other states. Mr. Harkenrider replied that West Virginia does have a coal severance tax, but is unsure of the tax rate. Senator Shaughnessy then asked for a comparison of how other states tax coal.
Dr. Lynch also discussed the Road Fund revenue estimates for the upcoming biennium. He stated that the revenues are projected to increase by 2.7% in fiscal year 2010, 1.8% in fiscal year 2011, and 7.6% in fiscal year 2012. These slight increases are based upon projected increases in the motor vehicle usage tax, consumer spending on light vehicles, and motor fuels tax.
Mr. Steve Hinz from Accenture and Mr. Ankur Gopal from Agent511 discussed a proposal to help the state communicate with Kentuckians on their mobile phones using text messages during times of emergency. Mr. Gopal stated that the text messages would provide important emergency information to citizens from the state in real-time in an efficient, cost-effective manner. This service could reduce strain on 911 call centers, and potentially help save lives in critical emergency situations. Mr. Gopal provided an estimate of how much providing this service would initially cost the state.
Senator Pendleton stated he supports the idea of emergency alert texting, but that some areas of his district have no cell phone service. He then stated a resolution to this problem should be found before implementing this type of alert system.
Mr. Shannon Morgan, Deputy Secretary of the Finance and Administration Cabinet, and Mr. Paul Kaplan, director of The Green Bank of Kentucky, provided testimony regarding the Green Bank program. Mr. Morgan stated that the mission of the Green Bank of Kentucky is to promote energy efficiency in state buildings through the provision of low interest loans to state agencies, which may be used to reduce operating costs, reduce energy use, protect the environment, save taxpayer dollars, promote economic development, and create new green collar jobs by means of education, engineering analyses and building improvements. The Green Bank has a fund amount of $18.75 million in ARRA funds, $14 million in the revolving fund which can be distributed within three different loan programs. Mr. Morgan stated that the three programs are the eSELF Revolving Loan Program which allows state agencies to self-perform energy efficiency projects costing between $50,000 and $225,000, the Hybrid Revolving Loan Program which allows funding for energy projects in state facilities that cost between $50,000 and $600,000, and the ESPC Revolving Loan Program which funds energy efficiency projects typically costing more than $600,000.
Mr. Morgan then stated that the Green Bank financing will pay for up-front costs of energy-savings projects. He said that future reduced energy usage will help repay the loan. Energy loans approved by the Green Bank Program Loan Committee carry a fixed rate for the term of the loan. He stated that the minimum amount that may be borrowed is $50,000. He stated that the energy loans, including secondary loans, may be used for construction, upgrades or retrofits that are intended to result in reduced energy usage and costs. Loans may also be used to pay for certain administrative costs associated with an energy project. Projects may involve one or more measures for individual or multiple sites. He said that the Green Bank is being funded through federal stimulus dollars and subsidies through the American Recovery and Reinvestment Act (ARRA).
The committee discussed a resolution introduced by Representative Richards concerning the United States Postal Service processing and distribution center located in Bowling Green, Kentucky.
Representative John Tilley, Bryan Sunderland from the Kentucky Chamber of Commerce, Brad Blain of Kentucky Association of Health Underwriters, and Sean Rafferty of Occupational Health Solutions discussed 2010 BR 210 which establishes a wellness project credit. Mr. Sunderland highlighted some of the health issues facing Kentucky. He stated that the purpose to a wellness credit is to encourage employers to promote good health among its employees. Wellness programs can help lower private insurance costs, as well as help ease the strain on Kentucky’s Medicaid system. Mr. Blain discussed the provisions of the bill, which would provide employers with a tax credit up to 50% of expenses incurred by the employer, limited to $100 per employee per year with a maximum of $30 per month for physical fitness per employee. Mr. Rafferty discussed the process of setting up a wellness program and provided examples of how wellness programs have helped cut wellness costs for businesses in the state.
Chairman Leeper asked if any other states provide businesses with a wellness program tax credit. Representative Tilley replied that Indiana has had a credit in place since December of 2007. The credit is limited to employers with less than 100 employees.
Representative DeWeese asked if there are any criteria which must be met to show progress in order to be approved to receive the credit the next fiscal year. Representative Tilley replied that the bill does not include criteria at this time. The only requirement is that the businesses’ program must be approved by the Cabinet for Health and Family Services.
Representative Lee stated he believes that businesses offered wellness program credits should be required to prove progress towards health cost reductions.
Senator Harris presented the subcommittee on Economic Development, Tourism, Natural Resources, and Environmental Protection report and moved for its adoption. The motion was seconded by Representative Ford. The report was adopted by voice vote.
Representative Thompson presented the subcommittee on Primary and Secondary Education and the subcommittee Postsecondary Education report and moved for its adoption. The motion was seconded by Representative Graham. The motion was adopted by voice vote.
Representative Crenshaw presented the subcommittee on Justice and Judiciary report and moved for its adoption. The motion was seconded by Representative Richards. The motion was adopted by voice vote.
After additional discussion, Representative Thompson moved for the adoption of the committee resolution introduced by Representative Richards. The motion was seconded by Representative Ford. The motion was adopted by voice vote.
There being no further business, the meeting was adjourned at 3:25 p.m. A cassette tape of this meeting and all meeting materials are available in the Legislative Research Commission library.