Call to Order and Roll Call
The2nd meeting of the Interim Joint Committee on Appropriations and Revenue was held on Thursday, July 26, 2012, 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.
Members:Senator Bob Leeper, Co-Chair; Representative Rick Rand, Co-Chair; Senators Walter Blevins Jr., Joe Bowen, Jared Carpenter, Denise Harper Angel, Ernie Harris, Jimmy Higdon, Paul Hornback, Ray S. Jones II, Vernie McGaha, Gerald A. Neal, R.J. Palmer II, Joey Pendleton, Brandon Smith, and Jack Westwood; Representatives Royce W. Adams, John A. Arnold Jr., Dwight D. Butler, John "Bam" Carney, Jesse Crenshaw, Ron Crimm, Mike Denham, Bob M. DeWeese, Kelly Flood, Danny Ford, Derrick Graham, Keith Hall, Richard Henderson, Jimmie Lee, Reginald Meeks, Sannie Overly, Marie Rader, Jody Richards, Steven Rudy, Sal Santoro, Arnold Simpson, Jim Stewart III, Tommy Turner, Alecia Webb-Edgington, and Brent Yonts.
Guests: Ms. Mary Lassiter, State Budget Director and Secretary of the Executive Cabinet; Mr. Kevin Cardwell, Deputy State Budget Director; Mr. Greg Harkenrider, Deputy Executive Director, Governor’s Office of Economic Analysis; Mr. J. Michael Brown, Secretary of the Justice and Public Safety Cabinet.
Representative Lee moved for the approval of the minutes as written. The motion was seconded by Senator McGaha. The motion carried by voice vote.
Fiscal Year 2012 Year-End Financial Report
Secretary Mary Lassiter provided the committee with an overview of the Fiscal Year 2012 (FY 12) year-end totals for the General Fund and Road Fund. She updated the committee regarding incoming Tobacco Settlement funds and provided an economic outlook for FY 13. General Fund revenues increased by 3.8 percent for the year. There was growth in all of the major taxes, with 5.4 percent in sales tax, 2.8 percent in individual income tax, and 24.5 percent in corporate income tax, but there was a downturn of 7 percent in the limited liability entity tax.
Secretary Lassiter discussed historic revenue growth rates, stating that the FY 12 General Fund revenues increased for the second year following declines in FY 09 and FY 10. The receipts exceeded the official FY 12 estimate by $83.3 million. After deduction for dedicated severance tax appropriations and adding in unbudgeted lapses, the total General Fund surplus is $45.7 million. In accordance with the HB 265 surplus expenditure plan, the surplus funds will be allotted to FY 12 necessary government expenses and the Budget Reserve Trust Fund.
Secretary Lassiter discussed FY 12 necessary government expenses (NGE), stating that these are certain expenses provided for in the budget, but for which no funds are appropriated. The funds typically are allotted from the General Fund Surplus Account and the Budget Reserve Trust Fund to cover these expenses. The total NGE for FY 12 was $45.5 million, consisting of disaster relief funds, forest fire suppressions, additional funds for corrections, and guardian ad litem funds. The secretary outlined the authorized NGE expenses for the FY 12–14 executive branch budget, and provided historical information regarding recent NGE totals.
Secretary Lassiter provided the committee with an update of the FY 12 Road Fund revenues. The Road Fund increased by 7.8 percent in FY 12, primarily through increases in the motor fuels tax and motor vehicle usages tax receipts. Revenues exceeded the projected estimate by $31.3 million. The Road Fund finished FY 12 with a surplus of $50.3 million, with all surplus funds deposited into the State Construction Account. The secretary stated that the increase in Road Fund revenues reflects the statutory formula increase in the fuels taxes.
Secretary Lassiter discussed Tobacco Settlement Fund receipts for FY 12. The receipts were 0.9 percent less than budgeted. Proportionate reductions were made in the Rural Development Fund, and areas of early childhood development and health care improvements.
Mr. Greg Harkenrider discussed the general economic outlook for the next biennium. The actual General Fund growth needed to meet budgetary requirements is lower for FY 13 and FY 14 than during the last biennium. The trend for General Fund revenues over the next biennium is generally positive, with modest growth and both major taxes performing slightly better than the national average. There is some concern regarding coal severance revenues, and the underlying economic uncertainty will limit upside potential.
Mr. Harkenrider discussed the anticipated performance of the Road Fund over the next biennium. The actual Road Fund growth needed to meet budgetary requirements is lower for FY 13 and FY 14 than during the last biennium. The trend for Road Fund revenues over the next biennium is generally positive, with growth foreseen in the motor vehicle usage tax. Falling fuel prices could destabilize Road Fund revenues.
In response to a question from Representative Crimm, Secretary Lassiter stated that the coal severance receipts are not a direct reflection of the state of the coal producing regions of the state as a whole. However, there is a potential for future decreases in receipts in other tax areas if the decline in severance revenues indicates an economic downturn in those regions.
In response to a question from Senator Bowen, Secretary Lassiter said that the interest payments on restructured debt are now factored into the enacted budget.
In response to a question from Senator Higdon, Mr. Harkenrider replied that gasoline consumption in Kentucky has remained predominately stable, but shows indications of a slight declining trend.
In response to a question from Representative Meeks, Secretary Lassiter stated that many states have local option sales taxes. If the sales tax rate in the state is lower than the sales tax rate in Jefferson County, it is possible that consumers would make purchases deliberately outside of Jefferson County. Allowing a local option sales tax could interfere with Kentucky’s participation in the Streamline tax initiative. If Jefferson County is allowed to have a local option sales tax, there are much broader implications from a tax policy standpoint.
State Prison Population
Mr. J. Michael Brown, Secretary of the Justice and Public Safety Cabinet, discussed state prison population trends over the past 12 months. The current population is 21,641 inmates, but inmate totals vary daily. This total is below the 2010 inmate forecast but higher than the expected totals after the enactment of HB 463. The average length of inmate incarceration has been in line with forecasted levels.
Secretary Brown stated that Mandatory Release Supervision (MRS) releases have been greater than forecasted, and this program has been one of the primary reasons that the inmate population is below the forecasted levels. There have been 2,398 program releases. Of this total, 1094 are on active MRS supervision, 823 have successfully completed the program, with the remainder either having MRS revoked or revocation pending.
Secretary Brown stated that the parole grant rates have been below the forecasted level, with the projected rate at 51.6 percent. The actual grant rate has been 46.1 percent. This equates to 1,326 fewer inmates paroled in FY 12 than in FY 11, which results in 510 more inmates than forecasted for FY 12. He presented estimated additional funds needed for inmate care above the HB 265 budgeted amount, which was based on the forecast.
In response to a question from Representative Yonts, the secretary stated that typically the largest requirement that must be met for parole is completion of a substance abuse program (SAP). The lack of approved programs in the state can prove as a hindrance to inmates and the prison system in expediting a parole process. There have been recent grants that will allow for the implementation of three new SAP programs in the system, and the expansion of three existing programs.
In response to a question from Senator Blevins, Secretary Brown replied that inmates who serve out their sentence, or are within a few months of reaching their serve out date, and are released are required to participate in the MRS program.
In response to a question from Representative Rand, the secretary stated that since the FY 13–FY 14 budget was based upon the 2010 forecast, there will most likely be budget shortfalls within Corrections in FY 13. If the inmate population continues to be above the budgeted count, then the shortfall would continue through the remainder of the biennium. Necessary programs for the implementation of HB 463 would be paid for as a NGE.
Being no further business, the meeting was adjourned at 3:20 p.m.