Call to Order and Roll Call
The 4th meeting of the Interim Joint Committee on Natural Resources and Environment was held on Thursday, September 6, 2012, at 10:30 AM, in the Salato Center of the Department for Fish and Wildlife Resources. Senator Brandon Smith, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Brandon Smith, Co-Chair; Representative Jim Gooch Jr., Co-Chair; Senators Joe Bowen, Ernie Harris, Ray S. Jones II, Bob Leeper, Dorsey Ridley, Johnny Ray Turner, and Robin L. Webb; Representatives Hubert Collins, Tim Couch, Keith Hall, Stan Lee, Reginald Meeks, Tim Moore, John Short, Kevin Sinnette, Fitz Steele, Jim Stewart III, and Jill York.
Guests: Mr. Greg Harkenrider and Mr. John Hicks, Office of the State Budget Director; Commissioner Tony Wilder, Department for Local Government; Commissioner Jon Gassett, Department for Fish and Wildlife Resources.
LRC Staff: Tanya Monsanto, Stefan Kasacavage, and Kelly Blevins.
There being a quorum present, Representative Collins moved that the minutes from the August meeting be approved. Representative Steele seconded the motion and the minutes were approved by voice vote.
Chairman Smith remarked that the budget revenue forecasts are used by local government to make their budget priorities. Many counties have water projects with federal matches and those projects are funded by coal severance revenues. Projects with federal matches should be funded. The first approach to dealing with revenue shortfalls from coal severance taxes should be across the board cuts rather than targeted reductions.
Update from the Office of the State Budget Director regarding trends in coal severance receipts and the impact on counties and projects
Mr. Greg Harkenrider, Deputy Director of the Office of the State Budget Director (OSBD), testified that there were two consecutive years of increase in coal severance tax receipts after the recession. Four or more years have been record receipts for coal severance; however, the Consensus Forecasting Group expects to see a reduction in receipts this year and next. Coal prices have dropped, and OSBD has identified a softening in the coal market. July 2012 posted a 19 percent decrease in coal severance receipts, and the expectation is that in 2013 coal severance receipts will decrease by 22.8 percent.
In response to a question regarding the difference in receipts from one quarter to the next, Mr. Harkenrider replied that receipts were down 19 percent from the previous quarter in 2011. There have been a few factors affecting demand, and lower demand has reduced the price of coal. Input substitution on energy feedstock, changes in type of coal being purchased, and weather patterns affecting demand and supply have all played a role in the reduction in coal severance receipts. In 2013, Kentucky will likely experience a 22.8 percent decline in coal severance. Compounding that situation, Kentucky realized a 19 percent reduction from the earlier quarter this year.
In response to inquiries on the administration of severance tax, Mr. Harkenrider explained that the company pays the severance tax at the point of sale. The reason is that the time of the mining, the price that the coal will obtain in the market is unknown. There is no severance paid on stock piles of coal.
Mr. Harkenrider explained that the impact of estimated reductions on the budget. Two funds will lose revenue: the general fund and single county funds. The multi-county fund will be affected too. Coal severance is only two to three percent of total revenue receipts, so the significance to the state’s overall revenue picture is not stark. The overall impact on the state budget becomes acute when there is a total revenue shortfall, meaning revenues of all types, rather than a shortfall in one specific type of revenue which is a small percentage of the total state revenue.
Mr. John Hicks, Deputy Director at OSBD, told the committee that there is a 31 percent reduction to the Local Government Economic Development Fund (LGEDF) and 13 percent reduction to the Local Government Economic Assistance Fund (LGEAF). These reductions are principally due to the decrease in coal severance. Both funds receive a proportion of the total coal severance receipts paid to the Commonwealth. Within the LGEDF, coal severance is further apportioned for the single county and multi-county funds.
The single county fund receives two-thirds of the total severance going to LGEDF. For 2012, there is $29 million to be spent on new projects, and $50 million budgeted for 2013. Therefore, for FY 2012-2013, with the coal severance allocation being less than expected, there is about a $20 million difference. In 2012, the General Assembly repealed the law which allocated $19 million to the Workers Compensation Special Fund which resulted in an additional $4.5 million being allocated to LGEDF.
In response to a question regarding a pending legal case dealing with workers compensation that might affect coal severance further, Mr. Hicks responded that statutorily $19 million of coal severance receipts was combined with an assessment. This money was then used to pay workers compensation claims. There was a question about whether severance dollars were comingled with other funds. Part of the case has been settled, but the payback requirements have not been resolved. It is another step in the law suit.
Mr. Hicks explained that even though the state is losing an estimated $15 million due to the shortfall in coal severance receipts. The state’s obligations are expected to be less than expected receipts.
In response to a question about developing benchmarks for revenue expectations, Mr. Hick responded that benchmarks do exist and are used as part of the forecast.
In response to a question about debt service being paid from coal severance receipts, Mr. Hicks said that debt service was paid from coal severance in the 2004 or 2006 biennial budget. In response to another question about when the third quarter forecast of coal severance revenues would be available, Mr. Hicks responded by October 30th. A task force is needed to see what can be cut to save single-county and multi-county money.
Commissioner Tony Wilder, Department for Local Government (DLG), testified that DLG will be looking at quarterly receipts, projects pending, and estimates to determine project approvals. DLG will use low projections while attempting to fund good projects. Currently, DLG is in the black with respect to revenues, but being cautious about the future. Projects are based on demand and project merit. DLG does not look at the amount of coal severance in the county when reviewing a project request.
Senator Smith presented a committee resolution that proposed the formation of a working group. Representative Steele moved for the adoption, with a second by Representative Couch; the motion passed by unanimous voice vote.
Update from Commissioner Jon Gassett, Kentucky Department for Fish and Wildlife Resources, on Laws Governing Trade in Wildlife and Wildlife Parts
Commissioner Jon Gassett, Kentucky Department for Fish and Wildlife Resources (KDFWR), described the department’s role in enforcement explaining the corporate mission is fisheries, wildlife, and boating safety. The commissioner explained that the officers have the most contact with the public. However, conservation officers also perform duties such as search and rescue, first responder, and water survival. Kentucky has one officer per county on average. The primary authority for KDFWR enforcement is found under KRS 150. KDFWR is involved with boat accident investigations, homeland security issues, and KDFWR plays a role in the protection of the state’s bridges, dams, and power plants.
Commissioner Gassett commented that the department has been put into situations such as the discovery of methamphetamine laboratories and the provision of aid in relief efforts after disasters such as Hurricane Katrina, the 2009 ice storm. Due to their training and equipment, KDFWR enforcement officers are asked to work with other enforcement agencies. Commissioner Gassett described the organization of the conservation officers and stated that there is a cap of 165 officers. KDFWR is working to fill nineteen vacancies.
Commissioner Gassett discussed the issue of trafficking animal parts, noting KRS 15.4111 requires the use of a certified taxidermist to broker sales. Regulation and documentation on the front end of the illegal trafficking can increase penalties for illegal take. Commissioner Gassett explained how the penalties are assessed and discussed legislative precedent regarding illegal sale of paddlefish.
An emerging issue is catfish in the Ohio River. The fish are being commercially targeted by pay lakes in other states. KDFWR expects that catfish, in the future, will need to be regulated like paddlefish. Currently, there are no protections in place for the catfish.
KDFWR made policy recommendations which included: protecting premier species by statute; allowing trade of inedible parts for legal harvest; and setting penalty fee of $1000 and six months jail time.
In response to a question regarding a flea market raid where 32 counts of illegal sales were filed, Commissioner Gassett remarked that the incident is being investigated. The officers involved in the raid were taking part in an undercover operation. No excessive force was taken. Regardless of whether the animal was killed legally, it is illegal to sell inedible parts of the animal.
There being no further business the meeting adjourned at 12:40 pm.