Call to Order and Roll Call
The 3rd meeting of the Interim Joint Committee on Appropriations and Revenue was held on Thursday, October 28, 2010, at 1:00 PM, in Room 154 of the Capitol Annex. Representative Rick Rand, 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 Tom Buford, Denise Harper Angel, Ernie Harris, Ray S. Jones II, Alice Forgy Kerr, Vernie McGaha, R.J. Palmer II, Joey Pendleton, Robert Stivers II, and Jack Westwood; Representatives Royce W. Adams, John A. Arnold Jr., Dwight D. Butler, Jesse Crenshaw, Mike Denham, Bob M. DeWeese, Danny Ford, Derrick Graham, Keith Hall, Jimmie Lee, Reginald Meeks, Harry Moberly Jr., Lonnie Napier, Fred Nesler, Sannie Overly, Don Pasley, Marie Rader, Jody Richards, Charles Siler, Arnold Simpson, Tommy Thompson, Tommy Turner, Jim Wayne, Alecia Webb-Edgington, Ron Weston, and Brent Yonts.
Guests: Mary Lassiter, Secretary of the Governor's Executive Cabinet and State Budget Director; John Hicks, Deputy State Budget Director; and Greg Harkenrider, Deputy Executive Director for Financial Analysis; Edward Monahan, Department of Public Advocacy; and Van Ingram, Executive Director for the Kentucky Office of Drug Control Policy, Justice and Public Safety Cabinet.
LRC Staff: Pam Thomas, John Scott, Charlotte Quarles, Eric Kennedy, Jennifer Hays, and Sheri Mahan
Representative Lee moved to adopt the minutes from the previous meeting as written. The motion was seconded by Representative Simpson. The motion carried by voice vote.
The agenda included testimony from the Office of the State Budget Director regarding first quarter receipts and contract expenditure reductions. Also, the Department of Public Advocacy discussed the alternative sentencing social worker program.
First Quarter Receipts and Contract Expenditure Reductions
Secretary Lassiter provided an overview of state revenues. She said that the state has posted two quarters of revenue growth after five consecutive quarterly declines. General Fund revenue growth of 4.2 percent is budgeted for FY 2011. Although the state income and sales taxes have been slow to recover, corporate and coal severance continue to show strength. Also, the Road Fund has shown modest gains.
Mr. Greg Harkenrider stated that the first quarter showed a 4.4 percent growth in the General Fund as compared with the first quarter of FY 2010. Most tax revenues are improving, most notably corporate income tax which was up 44.1 percent and coal severance which was up 3.6 percent. The first quarter receipts are on target, with budgeted revenue of $2,055.1 million, which represents a budgeted growth of 4.2 percent for the year. He then discussed the Road Fund, stating that increased revenue from fuels taxes and the end of the Motor Vehicle Usage Tax credit is leading the fund’s recovery. Improvements in the weight distance tax signal increased shipment of goods, showing a rebound in the manufactured goods sector. The Road Fund shows 11.9 percent growth for the first quarter of FY 2011, and increases were seen in the third and fourth quarters of FY 2010.
Mr. Harkenrider provided a brief overview of the current national economic status, stating that Kentucky is showing a slight recovery. Although employment in the state is increasing, previous peak employment is not projected to occur during this biennium. The employment outlook is consistent with the Consensus Forecasting Groups’ assumptions during the last forecast. Personal income, however, is recovering more robustly.
In response to a question from Representative Rand, Mr. Harkenrider stated the state is in the early stages of recovery, and it is hoped that General Fund growth will continue at the same rate.
In response to a question from Senator Westwood, Mr. Harkenrider replied that the decline in cigarette tax represents the end of the cigarette floor stock tax. This decline in general is due to softer demand, mostly due to increases in state and federal taxes.
In response to a question from Representative Lee, Mr. Harkenrider stated there is no definitive way to review the motor vehicle usage tax data to conclusively prove that the car trade in allowance was the major contributor to increases in that tax’s revenues.
In response to a question from Senator Stivers, Secretary Lassiter discussed net operating loss carry forwards. Conceptually, during the period of recession, companies have been using up their loss carry forwards, and it is believed the increase in corporate tax revenues is reflecting the end of future loss carry forwards for businesses.
Secretary Lassiter updated the committee concerning the state’s current budget balancing measures. She stated that the FY 2011 budget requires $193 million in spending reductions. $62 million represents enacted appropriation reductions, and $131 million is mandated expenditure reductions. The mandated $131 million is being realized through debt restructuring, state employee furloughs, non-merit personnel reductions, asset sales and rebates, and operational cost reductions. Operational cost reductions have come in the form of contract reductions, fleet management, leases, and other efficiencies. These have included a $22 million reduction in General Fund Contracts and $70 million in other agency cost reduction measures.
In response to a question from Senator Leeper, Secretary Lassiter stated that the $67 million in debt restructuring is in addition to the budgeted debt restructuring, for a total of $139 million. She then provided a brief overview of how debt restructuring is achieved.
In response to questions from Representative Adams and Representative Graham, Secretary Lassiter stated that there will be an opportunity to review the furlough plan during the next legislative session.
In response to a question from Senator Harper Angel, Secretary Lassiter explained the executive branch expenditure approval process, in which expenditure requests over $1,000 must be approved by the Finance and Administration Cabinet.
Alternative Sentencing Social Worker Program
Mr. Edward Monahan of the Department of Public Advocacy discussed the alternative sentencing social worker program. He provided basic information regarding the scope of the department’s involvement in Kentucky’s criminal justice system. The department has a presence in all 120 counties, with 30 trial offices statewide. The department represents 147,000 cases annually. He stated that the department is uniquely positioned to move clients towards probation and treatment rather than incarceration.
Mr. Monahan discussed the services Department of Public Advocacy social workers provide clients. There are currently 9 social workers in this program, 4 which are provided for in the budget. The remaining 5 are funded through stimulus funds provided to the department by the Justice Cabinet. These social workers conduct pre-sentencing assessments, obtain records, and indentify treatment resources. During sentencing, the social worker helps to prepare alternative sentencing plans for the attorney to present to the judge, develop a re-entry support plan, and provides any assistance necessary to all parties involved in the court case. And after sentencing, social workers arrange for the clients treatment and provide support and follow up after treatment has begun.
Mr. Monahan then outlined the potential savings to the state that expanding the program could accomplish. He stated that 10,000 days of incarceration is saved by each social worker and that the program’s net annual savings to the state totaled $290,508. For every $1.00 invested in alternative sentencing social workers, the state saves $3.25 in incarceration costs. Projected savings for statewide implementation is estimated to be $3.1 million per year.
The meeting was adjourned at 3:05 p.m.