Interim Joint Committee on Appropriations and Revenue


Minutes of the<MeetNo1> 4th Meeting

of the 2011 Interim


<MeetMDY1> September 22, 2011


Call to Order and Roll Call

The<MeetNo2> 4th meeting of the Interim Joint Committee on Appropriations and Revenue was held on<Day> Thursday,<MeetMDY2> September 22, 2011, at<MeetTime> 1:00 PM, in<Room> Room 154 of the Capitol Annex. Senator Bob Leeper, Chair, called the meeting to order. Note: roll call and approval of minutes were conducted after the Cabinet for Economic Development presentation.


Present were:


Members:<Members> Senator Bob Leeper, Co-Chair; Senators Walter Blevins Jr., Joe Bowen, Tom Buford, Jared Carpenter, Denise Harper Angel, Ernie Harris, Jimmy Higdon, Paul Hornback, Ray S. Jones II, Alice Forgy Kerr, Vernie McGaha, Gerald A. Neal, R.J. Palmer II, Joey Pendleton, Brandon Smith, and Mike Wilson; Representatives Royce W. Adams, John A. Arnold Jr., Dwight D. Butler, John "Bam" Carney, James R. Comer Jr., Ron Crimm, Mike Denham, Bob M. DeWeese, Kelly Flood, Danny Ford, Derrick Graham, Keith Hall, Jimmie Lee, Reginald Meeks, Lonnie Napier, Fred Nesler, Sannie Overly, Marie Rader, Jody Richards, Tommy Turner, Alecia Webb-Edgington, Susan Westrom, and Brent Yonts.


Guests: None other than agenda presenters.


LRC Staff: L. Bart Hardin, John Scott, Eric Kennedy, Margaret Royar, and Marlene Rutherford.


A Resolution honoring and adjourning the meeting in recognition of L. Bart Hardin, Deputy Director, Office of Budget Review, upon his retirement from LRC was presented by Chair Leeper. Representatives J. Lee, Adams, Ford, and Arnold expressed personal thanks for the ability, dedication, guidance, and assistance Mr. Hardin provided while serving as Budget Director and wished him well in his retirement.


Representative Hall moved approval of the resolution, seconded by Representative Graham, motion carried without dissent.


Update and Discussion of Current Economic Development Incentives and Programs by the Cabinet for Economic Development

Secretary Hayes stated that the cabinet is being reorganized and that there has been a reduction of staffing from 112 in December, 2007 to 79 currently, a 30 percent reduction. He said the cabinet is integrating cabinet operations and performing cross-functional analysis and that the permanent staffing level will be around 84 or 85.


He said that the cabinet is 22 percent above the number of jobs created in Kentucky compared to this time last year and 30 percent above the amount of investments for jobs for the same period. Thirty percent of the investment last year was foreign-direct investments which means Kentucky is operating in a global economy. Because of the legislature’s actions, the cabinet has more flexibility, transparency, and accountability.


Commissioner Dunnigan indicated that the cabinet was faced with older programs that were on the cutting edge for their time but had become increasingly more difficult on business and inhibited the cabinet’s ability to help businesses grow in Kentucky. Companies wanted to reduce their risk and were consolidating. They no longer were competing with their competitors but were competing with sister organizations within the same parent company which forced companies to make decisions. The cabinet had to find ways to recruit new business into the state and work with existing industries to help win a company’s consolidation to keep it in Kentucky rather than possibly closing a facility in Kentucky and moving it to another state.


House Bill 3 allowed the cabinet more flexibility to encourage new job creation and recruiting of new industries but more importantly the cabinet now has the ability to keep companies in Kentucky and keep them competitive within their corporate structures. With the new incentives, the cabinet can now help companies re-tool their facilities and become more cutting edge in the types of products produced or services provided.


The most significant change is a tool to help existing businesses that are not going to create jobs simply re-tool and retain existing jobs. The cabinet now has the ability to help those companies with older facilities install the latest technologies and manufacturing equipment, and make the investments they need to make to be competitive within their corporate structure and keep the jobs in Kentucky. The cabinet can work with the supplier organizations and smaller manufacturers located across the state rather than just the large corporations.


He said the new program also focuses on training. The cabinet has the ability to invest in the workforce and create better skills to put people back to work.


While focusing on job creation the cabinet has expanded the availability of incentives. The new legislation requires a company to create ten new jobs which gives access to the incentives to small businesses in Kentucky. Commissioner Dunnigan stated there are also added advantages built into Kentucky’s tax code for manufacturing firms. Manufacturing companies investing in new manufacturing equipment in the state are exempt from sales and use tax on the new equipment. House Bill 3 gave the cabinet the tools to reduce the sales and use tax burden on service sectors which are normally higher technology jobs, higher wage, and higher quality jobs in Kentucky.


The most significant part of the legislation is the increased accountability that results from the programs. Under the old program, companies provided projections to the cabinet of what they thought they would do in the future and the cabinet had to make assumptions from those projections as to how to structure the incentive, but there was no way to measure whether the company fulfilled their obligation. If a company met the minimums, it could access the incentives. Companies are now monitored on an annual basis and must create at least 90 percent of the new jobs they projected or they are penalized and the incentives reduced proportionately based on how far the company missed their target.


The cabinet also looks at the wages paid by the company. If the company does not create and pay employees within 90 percent of the company’s wage projection, it is again penalized. For reinvestment types of opportunities where companies are required to retain jobs to receive incentives, the cabinet requires the company to uphold a percentage of employment. As an example, he said if a company employs 100 people, by law it is only required to create 85 percent, but the cabinet uses that percentage as a negotiating tactic and actually increases the accountability on the reinvestment projects. If the company wants to access the incentives, it needs to retain 100 percent of its jobs. He pointed out that this cannot always be done but it is a variable that can be negotiated. The more jobs a company can maintain, the more flexible the cabinet can be with the incentive program.


Along with accountability, Commissioner Dunnigan said that transparency has also been built into the system. Public information is posted on the cabinet’s website and updated every day. The cabinet and the public have the ability to look at the incentives that have been approved and compare the performance of the companies.


Using an existing company as an illustration, he stated that a company projected to invest just over $2.5 million in an expansion project in the state had to retain ten jobs that were currently in the facility. The company projected to create 72 two new jobs at an average hourly wage of $10.34, and as a result of that new job creation and new investment in Kentucky, it was approved for $1 million in tax incentives, which is a performance based incentive that is monitored on an annual basis. If a company fails to produce the number of jobs it projected to create, the incentive benefits are reduced. Using the data as it relates to this particular company, the tax incentive of $1 million approved initially was reduced because the company did not uphold its part of the deal. Measurements will be taken each year by the cabinet to see whether a company created the number of jobs it projected and whether the company is paying the projected wages. If the company meets those requirements, it will receive the benefit it earned for that year. If it does not meet those requirements, the incentives will be reduced proportionately by how much it missed its targets.


Since approval of the incentives in House Bill 3 there have been approximately 350 firms receiving preliminary approval for incentives. Those projects have projected to invest almost $3.5 billion statewide and potentially create more than 19,600 new jobs and to retain 7,350 existing jobs. The cabinet can now monitor those projects in ways it could not before. Companies will now be accountable for the incentives they receive from the state.


Commissioner Dunnigan said that there had been increased activity in new leads generated for the state as well as the cabinet’s focus on existing industry. From 2008 to date, there have been increased new leads into the state that are new opportunities generated through marketing the state, contacts with organizations like local economic development firms, or partners with the cabinet, and marketing efforts through Kentucky United, which is a joint marketing effort with the cabinet and the Kentucky Association of Economic Developers (KAED), as well the cabinet’s marketing management staff and business representatives that are out contacting companies.


Commissioner Dunnigan indicated that since House Bill 3 went into effect in July 2009, the state’s capital investment and new jobs almost doubled in 2010. When comparing 2010 to 2011 year-to-date, the cabinet is keeping the momentum moving forward, and through August 2010, the cabinet was just under $1 billion in new investment. It closed the year in excess of $2 billion in new investment. The cabinet expects this same growth in 2011. Comparing August 2010 through August 2011, there have been 1,200 new jobs created ahead of where the state was last year.


The Incentives for a New Kentucky (INK) program also has a focus on small businesses who can apply for state income tax credits of between $3,500 and $25,000 for small businesses that create one or more jobs and invest $5,000 or more in qualifying equipment or technology. These eligible small businesses include for-profit entities that have 50 or fewer full-time employees. Commissioner Dunnigan said that in addition the cabinet has implemented a variety of small business initiatives to encourage additional growth out of those small businesses including leveraging federal funds, getting banks involved in lending to small businesses, teaching and educating companies in the state on the importance of exporting to international markets, encouraging more seed funding into start-up firms, and putting more efforts into research and development and high technology industries to grow the next big company out of Kentucky.


An update was given on the activity of Tax Increment Financing (TIF) legislation. Commissioner Dunnigan stated that to date there are 13 active projects that have received final approval and are still progressing. These projects are in Louisville, Lexington, Bowling Green, Newport, Dayton, Georgetown, and Versailles. In addition to these active projects, there are three projects in the preliminary stages of development with the Georgetown Events and Commerce Center, the Paddocks of Woodford, and the University of Louisville Research Park. The approved projects represent over $7 billion in new investment in the state and over $2 billion in recoverable funds through the TIF project. He said that the five completed projects are generating new revenue above the baseline for that area in the state, those being the Downtown Louisville Marriott, Churchill Downs, Renaissance Zone, Louisville Arena and Nucleus.


Commissioner Dunnigan said the competition of surrounding states to lure business and create jobs reflects how the cabinet needs to continue the efforts of improving systems, processes internally, and incentive programs.


At this time, Chair Leeper asked that the secretary call the roll.


Senator Pendleton moved that the minutes of the August 25, 2011, meeting be approved, seconded by Representative Hall. The minutes were approved.


In response to a question by Senator Pendleton relating to expansion of retail business and incentives, Secretary Hayes said that traditionally the cabinet is not involved in programs that directly impact retail but the tax increment financing projects have encompassed a significant portion of retail business. The cabinet is focused on re-directing the efforts in assisting small businesses. The cabinet has approximately $15 million in federal funding and is leveraging those funds to help small businesses with capital requirements. The banks are involved and the leverage estimate is about 15 to one. He said that retail business is a different issue currently because there is an excess capacity in retail space available so there is an overbuilt situation that adds to other issues. The salary issue is another area in the retail business.


Representative Webb-Edgington asked that the cabinet look into the incentives package offered by the State of Ohio to lure Omnicare back to that state from northern Kentucky, costing Kentucky several hundred jobs, and to determine if there is any action that may be taken in the next legislative session to address another shortfall of this nature in other situations. Representative Webb-Edgington also commented that in watching the recent candidate debates, that there was discussion of re-defining the role of secretary of state into more of an ambassador in economic development and asked Secretary Hayes for any comment. Secretary Hayes said that since he did not watch the debate he was not familiar with the issue of the office of secretary of state being an ambassador type position.


As for Omnicare, Secretary Hayes asked Commissioner Dunnigan to update the committee. Commissioner Dunnigan said that the cabinet began negotiations with Omnicare last November. Part of the tax modernization that took place in 2005 affected the tax burden that Omnicare would be faced with beginning in 2012. As a result of the Kentucky Business Investment (KBI) program, the cabinet was able to work with Omnicare to alleviate the tax burden which became a nonissue. However, there were two other factors affecting its decision, one being the difference in real estate expenses that Omnicare would have faced in northern Kentucky versus downtown Cincinnati. The State of Ohio offered incentives to Omnicare to reduce its real estate expense, and although the cabinet does not have the details, it is the cabinet’s understanding that there was free space involved that impacted the cost comparison for Kentucky. In addition, the State of Ohio imposes a commercial activities tax that would have to be paid by Omnicare, but Ohio also has a tax credit to help alleviate that tax burden. He stated that, when looking at all the variables, the incentive programs in Kentucky worked. But, it became a bigger issue of both real estate costs and Ohio taxes, which resulted in Kentucky falling short. The revenues belonged to Ohio rather than Kentucky, which lead to the broader question of how Kentucky competes against the Ohio commercial activities tax, as well as the changes in the real estate market in Cincinnati versus northern Kentucky.


Secretary Hayes also pointed out that the details of the Ohio incentive package have not been published but the cabinet believes that Ohio treated all of the jobs that were in Kentucky as new jobs for the State of Ohio, despite the fact that that over 60 percent of that workforce already lived in Ohio. The cabinet would be able to provide more details when the details of the incentive package are revealed.


Senator Bowen cautioned the cabinet concerning any contemplation of awarding incentives to retail businesses as being very risky because it can quickly create an unfair business environment. In response to a question by Senator Bowen concerning the measurement of new jobs created and jobs lost, Secretary Hayes indicated that the unemployment percentage is the method of measuring jobs lost. Commissioner Dunnigan also pointed out that when a prospect is lost, the cabinet asks questions of companies as to why it decided to not locate in Kentucky, but does not always receive a response. Secretary Hays said that the big challenge for the cabinet are those projects it never has a chance to negotiate with. The cabinet is active with the consultant community, by working with partners of KAED and local individuals to establish relationships with the site selection consultants. He said some of the biggest obstacles are states to the south.


Senator Leeper stated that in another meeting, in response to a question asked as to what presented Kentucky the most difficulty for competing in southern states, it was mentioned that right-to-work and the personal income tax are important concerns, and he asked how cabinet dealt with these issues. Secretary Hayes said the cabinet tries to get out in front of those issues and to mitigate the differences.


Representative Denham said that the threat from Ohio concerns him because that state is looking for plants up and down the border and has put together a sizable fund to pursue companies, and that West Virginia was also developing a similar fund, and possibly Indiana. It will become tougher for Kentucky to stay competitive, and the legislature needs to be prepared to offer more assistance to recruit businesses and jobs.


In response to a question by Representative Westrom about the airport in northern Kentucky, specifically the Delta terminal, Secretary Hayes indicated that Delta is a concern. It is encouraging at the northern Kentucky airport that DHL is ramping up its services. He and Commissioner Dunnigan have met with DHL’s chief operating officer and hopefully will have another announcement in northern Kentucky soon. It will make Kentucky, with UPS in Louisville, a cargo hub of the world. He said that Governor Beshear and Ohio Governor Kasich have met and that Delta is number one on their agenda. He indicated that when Northwest and Delta merged and Minneapolis became the hub for Delta rather than Cincinnati, it was because of clawbacks in incentives that Minneapolis and the State of Minnesota could use against to Northwest, related to an expansion years ago. He stated that Kentucky needs to make sure it has clawbacks that make it a disincentive for a company to change location when there is an occurrence such as merger in midstream.


In response to a question by Representative Crimm, Secretary Hayes indicated neither he nor the cabinet was involved in the negotiations being conducted for Kentucky Kingdom, that this was Tourism Cabinet project.


In response to a question by Senator Buford concerning the approved incentive with Lockheed Martin and a layoff of employees, Commissioner Dunnigan said that the cabinet did not know about the layoffs, that it was an internal change within Lockheed. Because of the way the incentive is structured, the cabinet holds Lockheed to the employment it had in place at the time of approval of the incentives and Lockheed will have to create jobs in excess of that number in order to access the $15 million in incentives. The layoff is actually a change from an in-house contractor to Lockheed employees. Lockheed still must meet those minimum requirements. Employees Lockheed had on the payroll at the time of the cabinet’s approval, which was prior to the announcement by Lockheed of the layoffs, is the number of employees it must have before incentives would be provided for hiring any new employees. The minimum employee requirements will have to be maintained statewide, not just the number of employees it has in Lexington and that Lockheed is aware of this requirement.


Commissioner Dunnigan did not have the numbers available as to the average salary incomes before and what Lockheed will have to maintain in the incentive package, but said he would provide that information. He said 224 new jobs are involved above the baseline employment of 1,706 before accessing the incentives.


In response to a question by Senator Leeper, Commissioner Dunnigan stated that once the approvals are in place there are formal agreements provided.


In response to a question by Senator Wilson relating to the Kentucky Kingdom matter, Secretary Hayes indicated that the cabinet would be glad to help the Tourism Cabinet structure a deal financially if requested, but in terms of evaluating the investment of this type project, the Tourism Cabinet is more experienced.


In response to a question concerning the Heartland Corridor, a high speed rail line from the east coast that runs through West Virginia, Virginia, Cincinnati, and eventually to Chicago, Secretary Hayes indicated he was not familiar with any of the specifics surrounding this rail system.


Debt of the Commonwealth

Kristi Culpepper, Staff Administrator, Capital Projects and Bond Oversight Committee, provided information on Kentucky’s bonded indebtedness.


The report Ms. Culpepper discussed is published every two years for the Capital Planning Advisory Board, and is included in the state’s six year capital plan. The report examines trends in the state’s debt issuance across fiscal bienniums and discusses various factors that influence the cost of issuing new debt including the state’s financial management debt structure and economic situation and explains the impact the various financial practices have had on the state’s credit profile. She said that policymakers are making a trade off in using debt to fund projects. By issuing bonds the state is able to undertake and reap the benefits of projects earlier than if it had to accumulate sufficient cash to fund the projects outright.


As the state’s outstanding debt increases, the amount of money that policymakers must appropriate to pay debt service also increases. That service represents an inflexible long-term commitment that competes with policymakers’ programmatic priorities for funding. There are four financial practices laid out in the report that communicate the state’s willingness to repay what it owes and improve the state’s ability for repayment. They are: (1) enacting a structurally balanced budget; (2) building reserves; (3) maintaining adequate liquidity; and (4) issuing a manageable level of debt.


A budget is considered to be structurally balanced if the recurring revenues equal or exceed recurring expenditures. Ms. Culpepper said that market participants are concerned with the sustainability of the fiscal policies that are underlying current spending. It is important to distinguish between recurring and non-recurring revenues in deciding how much bonded indebtedness to assume. Recurring revenue growth stems from positive economic trends and tax policies that take advantage of those trends. One-time resources such as fund transfers, federal aid to states, and debt restructurings are not available in the future to address recurring expenditures such as debt service.


Nonrecurring revenues used to offset recurring expenditures results in a structural budget gap. The state’s habitual use of nonrecurring resources was cited by the rating agencies as a factor contributing to the recent credit rating downgrade. Kentucky’s structural imbalance has declined from $1 billion in FY 2010 to over $417 million, which is significant. Most of the nonrecurring revenues used in FY 2010 were tied to the federal stimulus legislation passed in 2009. Of note, Kentucky’s structural imbalance pre-dated the economic downturn.


She said that reserves placed in the budget reserve trust fund can be accessed if revenues are lower than projected or expenditures are higher than projected, and that these funds provide added protection to ensure that a state is able to meet its obligations. The statute sets a goal of having a budget reserve trust fund balance of five percent of actual general fund receipts in a fiscal year. The closest the state has come to meeting this goal was in the 2000-2002 fiscal biennium, when the fund had a high balance of $278.6 million or 4.1 percent of revenues. The state has drawn down the reserves fund completely during the past two recessions. Kentucky’s depletion of its reserves has also been cited by the ratings agencies as a factor driving the credit rating downgrade.


Ms. Culpepper said that although the state made a $121.8 million deposit to the budget reserve trust fund in FY 2010, the single largest deposit in the fund’s history that would be viewed favorably from a credit perspective, but it is still below the five to ten percent levels regarded as prudent. Rating agencies now assign a greater priority to liquidity or cash position because of the volatility in revenues and uncertainty in the capital markets. She stated that based on conversations with the rating analysts, a state is considered to be in an ideal cash position if it can meet all expenses directly out of the general fund. Kentucky is not able to meet all of its expenses out of the general fund because the fund maintains a negative balance for much of the fiscal year. In the past, the state has used taxing revenue anticipation notes to fund its cash flow requirements. Since 2009, the state has been borrowing internally from the state’s investment pools. The state maintains roughly $1 billion of daily liquidity and more than that in next day liquidity which is not the ideal cash position but also not the worst position.


As of FY 2010, the state had $7.8 billion in appropriations for debt outstanding. It is projected to be about $9.65 billion in FY 2012 assuming that all debt that has been authorized by the General Assembly that has not been marketed yet will be issued. For each of the last four bienniums the General Assembly has authorized close to or above $2 billion in new debt, which is historically high. This is a trend that has been reflected in the municipal bond market nationally. She said that approximately $1.6 billion of the new appropriations debt has not been issued. This includes approximately $498 million in general fund debt, $482 million in agency fund debt, and $667 million in road fund debt.


Since October 2008, Ms. Culpepper stated the state has restructured outstanding general fund and road fund-supported debt through six transactions for the purpose of providing budgetary relief. These debt restructurings are non-traditional refunding transactions. She explained that a refunding replaces outstanding bonds with new bonds that have different terms. In a traditional economic refunding, the state would replace outstanding debt with new debt issued at a lower interest rate and realize a positive net present value savings. The debt restructurings however, while not extending the maturity dates on the existing debt, are pushing the amount the state has to pay on its debt out to later fiscal years. Although this reduces the state’s debt service payments during the current fiscal biennium, it will cost the state additional interest on the debt over the life of the bonds.


As a result of these restructurings, the state has not had to make $427.7 million in debt service payments from FY 2009 to FY 2012, however the state will have to pay an additional $171.6 million in interest over the life of the bonds. With the road fund debt restructuring, the state did not have to make $81.4 million of debt service payments in FY 2010 but the restructuring will cost $9.6 million in additional interest over the life of the bonds. The rating agencies have cited these debt restructurings as a one-time resource for balancing the budget that has contributed to the state’s structural imbalance, thus contributing to the downgrade.


There are three debt indicators that are used by policymakers and market analysts to evaluate the state’s debt burden: (1) debt service as a percent of revenues; (2) debt per capita; and (3) debt as a percent of personal income. The debt service to revenue represents a percentage of Kentucky’s annual operating budget devoted to paying off existing debt. Policymakers in the past have determined debt service of six percent of total revenues for General, Agency, and Road Fund debt represents a reasonable debt burden. She said it is important to note that the rating agencies acknowledge this is a tool Kentucky uses but expects the state to stay within the six percent limit. The rating agencies use other criteria that are much more expansive, not just one indicator.


In comparison, the appropriation-supported debt service as a percent of total revenues between fiscal bienniums 1991 and 2012, she projected the ratio to be 5.24 percent in 2012 at current market rates and 5.26 percent with a downgrade in rates. As a result of the debt restructuring, the appropriation-supported debt service as a percent of total revenues in 2010 was 3.08 percent because the obligation has been pushed out into later years. While this information may suggest that the state could issue additional debt and stay under the six percent benchmark, it is important to remember that the state has restructured a large amount of debt and the cost of those restructurings has been pushed out into later years, causing new debt to be wrapped around those costs going forward.


Furthermore, the credit rating agencies acknowledge Kentucky uses this as a tool but also acknowledge that there is a lot of debt that could be considered appropriation-supported debt that is not included in the calculation. This would include almost $1 billion of courthouse projects issued by local governments but supported by leases with the state that correspond to the debt service payments on the bonds. The same applies for the Eastern State Hospital project and some energy savings performance contracts.


Ms. Culpepper stated that rating agencies use debt per capita and debt as a percent of personal income as an indicators of whether a state is issuing a manageable level of debt. Kentucky ranks thirteen in the nation in outstanding debt per capita at $1,685 according to Moody’s Investors Service, which is based on a calendar year basis. The median is $936 and the average debt per capita is $1,297. According to her calculations based on a fiscal year basis, she estimates that the debt per capita will be $2,236 in FY 2012.


Also, according to Moody’s, Kentucky ranks eighth in the nation as debt as a percent of personal income at 5.4 percent. The median is 2.5 percent and the average is 3.2 percent. Her calculation for appropriation-supported debt as a percent of personal income projects 6.67 percent at the end of the 2014 biennium. The rating agencies consider Kentucky to have a high debt rating compared to some other states.


Ms. Culpepper explained that the state has significant long-term obligations that contribute to the state’s recurring expenditures, notably the state’s unfunded pension liabilities. These obligations affect the state’s capacity to issue additional bonds to the extent that as they increase in scope they begin to compete with the bonds’ annual debt service payments as a budgetary priority, and are taken into consideration of the overall creditworthiness of the state. She said that both of the state’s main pension funds have funding ratios that are below what rating agencies consider adequate.


At the end of FY 2010, the Kentucky Employees Retirement System pension fund was 38.3 percent funded and the health insurance fund was 10.6 percent funded. The Kentucky Teachers Retirement System was 61 percent funded and the health insurance fund was 7.5 percent funded. These funding ratios are expected to decline. She pointed out that addressing these commitments will reduce the state’s budgetary flexibility. Weak pension funding was a key driver of the state’s credit rating downgrade. Kentucky’s liabilities are large compared to other states when ranking pension liabilities and debt as a percent of revenues, per capita, GDP, and personal income.


In response to a question by Senator Pendleton concerning addressing funding for the retirement system and unemployment, Mr. L. Bart Hardin indicated that there are a number of fixed costs and a number of issues that will need to be addressed in January such as retirement, unemployment insurance, increased costs of health insurance, and other fixed costs in general. He said he was cautiously optimistic that the revenue estimates for 2012 will be met and that there will be a slight amount of growth from the consensus forecasting group making their revenue projections for 2013 and 2014. His concern is that the revenue growth may not being enough to offset the increase of costs of retirement, unemployment insurance, etc. To the extent that the costs are more than the revenues, there are basically two options, either cutting spending or raising revenues.


At this time Senator Leeper recognized Greg Rush who will be replacing Mr. Hardin as Deputy Director for Budget Review and Stephanie Craycraft, the new Assistant Director for Budget Review.


In response to questions by Representative Denham as to whether Kentucky is in a position to take advantage of the recently lowered interest rates, Ms. Culpepper said that the rates on municipal bonds are at record lows. She noted that part of the issue is that because the state has authorized a lot of debt over the last four bienniums, close to $2 billion, the debt burden is already high and that the state does not have much debt that it can actually call. She said that typically debt is callable after ten years, meaning after the ten years the state would have the option of repurchasing that debt from the investors or replacing it with new debt which would be at a lower interest rate.


In response to a question by Representative Denham concerning the student loan mortgage loan, Ms. Culpepper indicated that she believed that the debt was restructured but there is still approximately $1 billion in debt outstanding, but that debt is not an appropriations-supported debt.


Representative Westrom asked Ms. Culpepper to provide copies of this report to all members of the Minority and Majority Leaderships. Also, Senator Leeper asked that each member of the General Assembly receive a copy of this report.


Senator Bowen said that it was incumbent upon the General Assembly to consider a debt ceiling for Kentucky similar to that in place at the federal level.


In response to a question by Senator Higdon concerning debt restructuring, Ms. Culpepper stated that a 20-year maturity was typical when restructuring a bond. Municipal bonds are issued in series so that a certain amount comes due in intervals and the amount coming due in the current fiscal biennium is pushed out into later maturities. Senator Leeper said that the restructuring and the movement of principal and interest was within the maturity term or there was no extension of final maturity date.


Representative Crimm asked that the agency responsible for negotiating and administering the Kentucky Kingdom property be requested to appear and update the committee on those negotiations. Senator Leeper asked Representative Crimm to submit the request to Co-Chair Rand, who will be chairing the meeting next month.


Senator Leeper pointed out to the committee that included in the meeting packets was information relating to the interim budget allotment adjustments and emergency appropriation increases for FY 2011 and 2012 from Mr. Hardin.


Being no further business, the meeting was adjourned at 3:12 p.m.