The1st meeting of the Interim Joint Committee on Appropriations and Revenue was held on Thursday, June 4, 2009, at 1:00 PM, in Room 154 of the Capitol Annex. Senator Charlie Borders, Chair, called the meeting to order, and the secretary called the roll.
Members:Senator Charlie Borders, Co-Chair; Representative Rick Rand, Co-Chair; Senators David E. Boswell, Denise Harper Angel, Ernie Harris, Dan Kelly, Alice Forgy Kerr, Bob Leeper, Joey Pendleton, Brandon Smith, Robert Stivers II, Gary Tapp, Elizabeth Tori, and Jack Westwood; Representatives Royce W. Adams, John A. Arnold Jr., Scott W. Brinkman, Dwight D. Butler, James R. Comer Jr., Jesse Crenshaw, Mike Denham, Bob M. DeWeese, Danny Ford, Derrick Graham, Jimmy Higdon, Jimmie Lee, 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, Robin L. Webb, Ron Weston, and Brent Yonts.
Guests: Dr. Larry Lynch, Consensus Forecast Group and Ms. Mary Lassiter, State Budget Director.
LRC Staff: Pam Thomas, John Scott, Charlotte Quarles, Whitley Herndon, and Sheri Mahan.
Senator Borders welcomed the members and gave a brief overview of the meeting.
Dr. Larry Lynch addressed the committee regarding the revised revenue estimates made by the Consensus Forecast Group (CFG). He stated that the estimates were the result of blending the control and pessimistic modeling scenarios. He stated that both nonfarm and manufacturing employment is expected to continue to decline through the end of FY 2010. U.S. retail sales are expected to continue to decline until mid 2010 and sales tax will continue to fluctuate. He said that sales tax receipts are expected to decline by 1.5% in FY 2010 and have a modest gain of 2.2% in FY 2011.
Dr. Lynch continued, stating that the growth in Kentucky wages and salaries will continue to decline, bottoming out during the second quarter of FY 2010. This decline will result in a decline in individual income tax revenues, which the CFG estimates to decline by 2.5% for FY 2010 and have moderate increases during FY 2011 and FY 2012.
Dr. Lynch discussed coal severance tax receipts, which are expected to decline by 6.9% in FY 2010, 1.0% in FY 2011, and have a moderate increase of 3.6% in FY 2012. He also discussed tobacco tax receipts, stating that receipts are forecasted to be $260.5 million in FY 2010, with a decline in receipts for FY 2011 and FY 2012.
Dr. Lynch then discussed the General Fund forecast agreed to by the CFG in May, 2009. He stated that decreases in receipts for FY 2010 will be seen in sales and use tax, individual income tax, coal severance tax, and other taxes. This will result in a total decrease in revenue of 1.7%, bringing the estimated General Fund total to $8.3 billion. He said that the official CFG estimate given in January 2008 for FY 2010 was $9.296 billion. The revised official CFG May 2009 estimate decreases the expected FY 2010 General Fund total to $8.3 billion, a decrease in revenue of $996 million.
Finally, Dr. Lynch discussed the Road Fund revenue forecast. He stated that motor fuels tax revenues will increase by 1.2% in FY 2010, decrease by .3% in FY 2011 and rebound by 5.6% in FY 2012. He said that consumer spending on light vehicles is expected to continue to decrease into FY 2010, but start a slow rebound in the last quarter of FY 2010. He stated that motor vehicle usage tax revenues are expected to decrease by 7.9% for FY 10 but begin increasing in FY 2011 and FY 2012. The total Road Fund estimate for FY 2010 is $1,166 million, $1,201 million in FY 2011, and $1,253 million for FY 2012. The official CFG FY 2010 estimate for the fund had been $1,405 million, but the estimate has been revised down by $239 million.
Next, Ms. Mary Lassiter, State Budget Director, addressed the committee regarding the FY 10 budget balancing plan and the impact of the American Recovery and Reinvestment Act (ARRA) on state revenues. First, Ms. Lassiter provided a general overview of the ARRA, discussing the federal and state objectives for the money. She then outlined how much money Kentucky can expect from the ARRA, detailing which areas of the state budget will be impacted by the expected $3 billion in federal stimulus money. The breakdown is as follows: $990 million to Medicaid; $924 million for education; $421 million for roads and bridges; $272 million for health and welfare; $120 million for government services; $71 million for water and sewer lines; $66 million for job training and public safety; $63 million for energy projects; $50 million for transit; and $12 million for community development. Ms. Lassiter then provided some examples of where federal stimulus money will be spent in each category.
Next, Ms. Lassiter discussed the General Fund and Road Fund revenue shortfall. She stated that there is expected to be a shortfall of $1,005 million in the General Fund and a shortfall of $239 million in the Road Fund. The proposal to balance the budget for FY 2010 includes no new taxes, the use of stimulus funds to avert severe cuts, reductions in spending, restructuring outstanding debt, enhanced revenue collection, suspended pay for certain state holidays, and adding required funding in limited areas.
Ms. Lassiter outlined the sources of the shortfall in the General Fund, stating that not only decreased revenues, but decreases in severance tax revenues, necessary governmental expenses, and other requirements have all played a part in the shortfall. She then provided more detail regarding the plan to balance the General Fund, which includes utilization of stimulus funding, spending reductions, and debt restructuring. She discussed the governor’s priorities, which include preserving funding at current levels for education, health care, public safety, economic development, and retirement. Finally, Ms. Lassiter discussed budget planning estimates for the next biennium.
Next, Representative Bill Farmer discussed the provisions of his 2010 BR 31, stating that the basic components of the bill include eliminating state income tax, reducing the sales tax rate, extending sales tax to selected services, and applying a 5.5% sales tax to the lease or rental of commercial real estate space.
Finally, Representative Jim Wayne discussed the provision of his 2010 BR 2, which include the creation of two new income tax brackets for higher income taxpayers. Also, the proposal would include allowing a refundable Kentucky earned income tax credit, decoupling from current federal estate tax computation, and implementing a sales and use tax on selected services.
Being no further business, the meeting was adjourned at 4:3 p.m.