Call to Order and Roll Call
The 3rd meeting of the Interim Joint Committee on Appropriations and Revenue was held on Thursday, August 22, 2013, 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 Walter Blevins Jr., David P. Givens, Sara Beth Gregory, Ernie Harris, Stan Humphries, Christian McDaniel, Gerald A. Neal, and Robert Stivers II; Representatives Dwight D. Butler, John Carney, Leslie Combs, Jesse Crenshaw, Ron Crimm, Robert R. Damron, Mike Denham, Bob M. DeWeese, Myron Dossett, Kelly Flood, Jim Glenn, Martha Jane King, Jimmie Lee, Marie Rader, Jody Richards, Steven Rudy, Sal Santoro, Arnold Simpson, Rita Smart, David Watkins, Susan Westrom, Addia Wuchner, and Jill York.
Guests: Larry Hayes, Secretary, Cabinet for Economic Development; Erik Dunnigan, Commissioner, Department for Business Development; Mandy Lambert, Deputy Commissioner, Department for Business Development; Jane C. Driskell, State Budget Director; John Hicks, Deputy State Budget Director, Office for Policy and Management; Greg Harkenrider, Deputy Executive Director for Financial Analysis; Jim T. Ward, Judge/Executive of Letcher County; Albey Brock, Judge/Executive of Bell County.
LRC Staff: Pam Thomas, John Scott, Charlotte Quarles, Jennifer Hays, and Sheri Mahan.
Representative Damron moved to approve the minutes from the previous meeting as written. The motion was seconded by Representative Richards, and it carried by voice vote.
Economic development update
The Cabinet for Economic Development Secretary Larry Hayes, along with Mr. Erik Dunnigan, Commissioner and Ms. Mandy Lambert, Deputy Commissioner of the Department for Business Development, discussed economic development efforts in the Commonwealth. Following Secretary Hayes’ opening comments, Mr. Dunnigan discussed Kentucky’s economic growth. The state should reach pre-recession employment levels by the end of 2013, with economic growth in both rural and urban areas. There have been over 100 new project announcements, and there are over 200 projects awaiting final approval. As of July 2013, there have been over $2 billion newly investment and over 800 new jobs.
Mr. Dunnigan discussed Kentucky’s robust automotive production industry. All three major automotive manufacturers have recently made major investments in their Kentucky facilities. Since January 2010, more than 200 motor vehicle-related projects have been announced, representing 14,500 new jobs and $3.5 billion in capital investment. Kentucky’s mid-year production ranks third in the nation and first on a per capita basis. Seventy-eight counties have an employer linked to the automotive industry.
Mr. Dunnigan discussed foreign investment in the state. Kentucky has 400 foreign-owned facilities representing 30 different countries. Collectively, they employ over 80,000 workers. The three year employment growth rate in these facilities was 12 percent, compared to an overall growth rate of 6 percent for the state. In 2012, nearly 35 percent of all new capital investment and 20 percent of all new jobs announced were a result of foreign investment.
Mr. Dunnigan discussed Kentucky exports, stating that exports reached a record of $22.1 billion in 2012, with products and services going to nearly 200 countries. Kentucky’s mid-year export growth is ranked second in the nation, up 12.6 percent compared with the overall U.S. average of 1 percent. He reported on the efforts of the Kentucky Export Initiative and the Office for Entrepreneurship.
Mr. Dunnigan discussed the cabinet’s workforce development efforts and the need for an educated workforce. The cabinet’s goal is to provide clients with a primary point of contact in this area, serving as a more integrated and easily identifiable workforce service provider. This goal will be attained by combining efforts with other cabinets to provide training, assessment, job screening and other services for potential employees and employers. He also discussed the Work Ready Communities program. Certification through this program lets companies know that a community meets standards in categories such as community commitment, educational attainment, and infrastructure availability.
Ms. Mandy Lambert, Deputy Commissioner of the Department for Business Development, discussed the recently launched “Select Kentucky” GIS site selection tool. This is a centralized portal for businesses to search for available properties, existing industry data, and community demographics. The tool is a partnership with the Commonwealth Office of Technology, designed to provide potential employers with the most up-to-date data and pleasant site selection experience possible. She also discussed media familiarization tours which showcase Kentucky’s industry and quality of life to a global audience.
In response to a question from Representative Carney, Mr. Dunnigan stated that the cabinet is working with many rural counties to help them achieve the Work Ready designation.
FY 2012 – 2013 year end summary
Ms. Jane C. Driskell, the State Budget Director, presented the FY 13 yearend financial report. She stated that the total year end receipts for FY 13 was $9,348 million, which is a 2.8 percent increase in revenue as compared to FY 12. Sales and use tax receipts decreased in FY 13 by $30.4 million, but individual income tax receipts increased by $210.9 million, corporate income tax receipts increased by $26 million, and LLET receipts increased by $45 million. Total receipts for FY 13 increased by $257 million over FY 12, which exceeded the official estimate by $40.5 million.
Ms. Driskell discussed the FY 13 General Fund surplus, which was $70.6 million. The FY 13 General Fund yearend balance was $122.7 million, and there was a negative $52.1 million carry forward. The surplus represents revenues in excess of the official estimate and decreased spending over budgeted appropriation levels. Ms. Driskell explained necessary government expenses (NGE) and outlined the estimated NGE levels for FY 13, which totaled $49.6 million, $3.9 million over the budgeted amount. She also provided a historical overview of NGE over the past 3 bienniums. The 2012 RS HB 265 General Fund surplus expenditure plan requires that $45 million of the $70.6 million surplus go towards FY 14 NGE. The remainder, $25.6 million, is to be deposited into the Budget Reserve Trust Fund.
Ms. Driskell discussed the Budget Reserve Trust Fund, stating that the current balance is $147.3 million. The balance will drop to $98.3 million after $49 million earmarked by the FY 14 enacted budget is used. She discussed state agencies that had FY 13 shortfalls. The Kentucky State Police, Kentucky State Fair Board, the Department of Parks, Department of Public Advocacy, and Department of Natural Resources suffered FY 13 budget shortfalls.
Ms. Driskell discussed the FY 13 Road Fund summary. Road Fund receipts for FY 13 were $1,491.6 million, which is a 3.3 percent increase over FY 12. The largest receipt increases were in the motor fuels tax and the motor vehicle usage tax. The overall FY 13 receipts fell short of the enacted estimate by $8 million. There is a surplus of $17.7 million over the enacted budget, which will be deposited into the state construction account.
In response to a question from Representative Westrom, Ms. Driskell said that she can provide the committee with a report regarding the impacts of federal sequestration on agency budgets. Mr. John Hicks, Deputy State Budget Director of the Office for Policy and Management, replied that information regarding federal funding was supplied in the July meeting.
In response to a question from Representative Rand, Ms. Driskell said that the shortfalls in the Department of Parks were not associated with the Kentucky Horse Park. Mr. Hicks discussed the Kentucky prison population and stated that the budget estimates should be more accurate for the next budget cycle.
Impact of reductions in coal severance tax receipts on local governments
Jim T. Ward, Judge/Executive of Letcher County and Albey Brock, Judge/Executive of Bell County discussed the impact of reductions in coal severance tax revenues on their counties. Judge Ward noted that, in his county, coal severance funds are used to operate the jail, sewer systems, and senior citizen centers, and to provide other services that residents rely on. Judge Ward noted that his county is down $1.3 million dollars in coal severance receipts out of a $10.7 million dollar budget. The cuts that will need to be made will impact the county’s everyday operations.
Judge Ward reviewed the allocation of funds from the coal severance taxes, and requested that the General Assembly examine and possibly amend the formula for the distribution of coal severance funds. He noted that the “off the top”, “off the middle” and “off the bottom” allocations from coal severance taxes, including the line item projects that are designated in the budget and are paid for with coal severance funds, concern him because those projects are funded first. With less severance money available overall, less and less money is flowing to the counties to assist with general operations. The reduction in coal mining and mining jobs has resulted in lower tax receipts in all areas where local governments impose taxes, creating additional revenue pressures in his county.
Judge Brock noted that Local Government Economic Assistance Fund (LGEAF) funds are used by counties to meet unfunded state mandates such as jails and animal shelters. Until recently, LGEAF moneys were sufficient to support these functions, but with the current reduction in severance tax receipts and an expectation that increases are not forthcoming, the issues created by the lack of resources will continue into the future and the problem will get worse if the General Assembly does not step in to help.
Judge Brock suggested that the formula for fund allocations be amended to allow a larger portion of the total money available to counties to be used more flexibly, as allowed under the LGEAF. Thirty-five percent is deposited in the Local Government Economic Development Fund, and 15 percent is deposited into the LGEAF fund. Judge Brock recommended that the General Assembly consider reversing those percentages so that the larger amount is distributed to counties in a manner that allows for more flexibility.
There being no further business, the meeting was adjourned at 3:15 p.m.