Call to Order and Roll Call
The 2nd meeting of the Interim Joint Committee on Appropriations and Revenue was held on Thursday, July 25, 2013, at 10:00 AM, 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 Walter Blevins Jr., David P. Givens, Sara Beth Gregory, Denise Harper Angel, Ernie Harris, Stan Humphries, Ray S. Jones II, Christian McDaniel, Gerald A. Neal, and Robin L. Webb; Representatives Dwight D. Butler, Jesse Crenshaw, Ron Crimm, Robert R. Damron, Mike Denham, Bob M. DeWeese, Myron Dossett, Jim Glenn, Martha Jane King, Jimmie Lee, Reginald Meeks, Marie Rader, Jody Richards, Steven Rudy, Sal Santoro, Arnold Simpson, Rita Smart, John Will Stacy, Tommy Turner, Addia Wuchner, and Jill York.
Guests: Dr. Terry Holliday, Commissioner of Education; Hiren Desai, Associate Commissioner, Administration and Support; Charles Harman, Director, Division of Budget and Financial Management, Department of Education; Beth Jurek, Executive Director, Office for Policy and Budget, Cabinet for Health and Family Services; Mack Gillim, Executive Director, Office of Processing and Enforcement, Kentucky Department of Revenue, Finance and Administration Cabinet.
LRC Staff: Pam Thomas, John Scott, Charlotte Quarles, Eric Kennedy, Jennifer Hays, and Sheri Mahan.
Anticipated impact of federal sequestration
Dr. Terry Holliday, Mr. Hiren Desai, and Mr. Charles Harman from the Department of Education discussed the anticipated impact of federal sequestration on the department. Dr. Holliday provided background regarding the sequestration, discussing the federal Budget Control Act and the American Taxpayer Relief Act of 2012. He outlined the budget cuts required by the federal legislation.
Mr. Harman outlined the fiscal impacts to Kentucky’s education system state-wide from the reduction in federal funding in several programs. Title I, Part A would see a $10.4 million reduction (4.74 percent), resulting in fewer student intervention services. IDEA Part B Special Education would have an $8 million reduction (5.13 percent), resulting in fewer instructional staff for programs and support services for students already at risk. Title II, Part A Improving Teacher Quality would see a $813,519 reduction (2.2 percent), decreasing statewide training and professional learning opportunities for teachers.
Mr. Harman discussed the reduction in funding for 21st Century Community Learning Centers, which provide resources for rural communities. These programs provide supplemental enrichment support for students in literacy, math, science, technology, arts, nutrition, and health education. The centers will see a $1.46 million reduction (8.4 percent) in funding.
Mr. Harman discussed other federal programs, including Title I, Part C; Title II, Part B; and Title III, Part A. The other federal programs will see a total of $2.02 million reduction in funding. Kentucky Department of Education administration and discretionary funds will be reduced by $610,271. Current year cuts were implemented as across the board reductions. FY 14 cuts will be addressed through the normal federal appropriations process.
In response to a question from Representative Rand, Dr. Holliday stated that the department has no discretion as to which areas will take funding cuts. Mr. Desai discussed maintenance of effort issued faced by the department as a result of the funding cuts.
In response to a question from Representative Damron, Mr. Harman said that the first payment from the federal government for the Build American Bonds issued by local districts was short. The department will collect data regarding bonds issued and distribute it to committee members.
In response to a question from Representative Stacy, Mr. Desai said that the four factors that negatively affect school districts are: the end of ARRA stimulus money; declining enrollment; reductions in SEEK funds; and sequestration. He discussed the effect of budget cuts on construction and renovation of school facilities. He also discussed the effects of sequestration on the department administration.
Ms. Beth Jurek, Executive Director of the Office for Policy and Budget for the Cabinet for Health and Family Services, discussed the impact of federal sequestration on the cabinet, outlining the impacts on various agencies. The Department for Community Based Services’ funding will decrease by $3.4 million for FY 13 and $12 million for FY 14. The Department for Aging and Independent Living’s funding will decrease by $1.23 million in FY 14. Funding for the Department for Public Health will decrease by $4.6 million in FY 13 and between $2.1 and $2.8 million in FY 14. The Commission for Children with Special Health Care Needs will see a decrease of $146,800 by the end of FY 14. Funding for the Kentucky Commission on Community Volunteerism Services will decrease $40,472 in FY 13 and $160,856 in FY 14. The Office of the Inspector General will have funding cuts of $114,000 in FY 13 and $250,000 in FY 14. The total funding decreases expected for FY 13 is $8.27 million and between $17.67 and $18.43 million for FY 14. Ms. Jurek detailed where cuts would be made within each agency.
In response to a question from Representative Wuchner, Ms. Jurek stated that most programs which have taken cuts under sequestration have maintenance of effort requirements. Some of the programs also have match requirements. Some grants offer waivers for maintenance of effort requirements, but it is best to avoid applying for a waiver if possible.
Department of Revenue amnesty collections and new employees hired
Mr. Mack Gillim, Executive Director of the Office of Processing and Enforcement with the Kentucky Department of Revenue, discussed the results of the 2012 tax amnesty program. Preliminary results show $110.8 million in gross amnesty revenues and $1.6 million in post amnesty interest and fees. After deducting local government distributions and accelerated collections, the net new revenue that can be directly attributed to the tax amnesty program in FY 13 is $58.6 million.
Mr. Gillim stated that approximately 1,500 payment arrangements were made during the amnesty period, and 60 new businesses were registered with the department. Approximately 27,000 amnesty applications were received, with 21,000 being approved. Taxpayers were denied participation in the amnesty program based on noncompliance with the department’s request for information or failure to pay the total amnesty amount due. He discussed post-amnesty enforcement actions, including collection of taxpayer data and compliance requirements for approved tax amnesty applicants. Tax data collected is being used to create a data warehouse to assist in identifying non-filers and under reporters. The department is also implementing an upgraded tax collection system.
Mr. Gillim discussed utilization of additional employees hired to implement the tax amnesty program. The department hired 85 additional revenue enhancement initiative employees as a result of 12 RS HB 499. These employees identify non-filers and under- reporters by utilizing compliance programs and field audits. They also collect delinquent accounts for the General Fund. About $8.1 million was dedicated in FY 13 to fund these additional 85 positions. As of May, 2013, the new employees have collected $24.9 million, with an additional $2.6 million collected for local government distribution. Mr. Gillim stated the final report regarding the tax amnesty program will be completed by August 31, 2013.
In response to a question from Representative Rand, Mr. Gillim said that the department estimates that 5 percent of all taxpayers are not fully compliant and have some type of tax liability.
There being no further business, the meeting was adjourned at 2:35 p.m.