TheDecember 17, 2003 meeting of the Program Review and Investigations Committee was held at 1:00 PM, in Room 131 of the Capitol Annex. Senator Katie Stine, Co-chair, called the meeting to order, and the secretary called the roll.
Members:Senator Katie Stine, Co-chair; Representative Charlie Hoffman, Co-chair; Senators Charlie Borders, Brett Guthrie, Paul Herron Jr, Vernie McGaha, and Dan Seum; Representatives Adrian Arnold, Sheldon Baugh, Dwight Butler, Ruth Ann Palumbo, Tanya Pullin, and Dottie Sims.
Guests: Mike Robinson, Commissioner, Department for Medicaid Services, Cabinet for Health Services; Vickie Bourne, Executive Director, Office of Transportation Delivery; Cindy Stoops, Director of Provider/Vendor Relations, Department for Medicaid Services; Rusty Cress, Associated Industries of Kentucky; Dean Stork, Lexmark; Chris Fitzpatrick, General Electric; and Steve Stevens, Senior Vice President, Public Affairs, Northern Kentucky Chamber of Commerce.
LRC Staff: Greg Hager, Committee Staff Administrator, Lowell Atchley, Lynn Aubrey, Kara Daniel, Tom Hewlett, Joseph Hood, Margaret Hurst, Erin McNees, Stacie Otto, Cindy Upton, and Susan Spoonamore, Committee Assistant.
Minutes of the November 13, 2003 meeting were approved upon motion made by Sen. Herron and seconded by Sen. McGaha.
Cindy Upton, Program Review staff, presented a summary on the first phase of the study Improved Coordination of Adult Protective Services, which addressed the coordination of the care of vulnerable adults and how they are protected from abuse, neglect and exploitation [Her initial presentation on the report was at the committee’s November 13, 2003 meeting.] She stated that Kentucky’s adult protective services process was well designed in statute (KRS Chapter 209), but in practice the process had problems. Ms. Upton presented an overview of staff’s seven recommendations:
1. The Cabinet for Families and Children (CFC) should provide better oversight and coordination of the Adult Protective Services (APS) investigations conducted by its social workers at the 16 regional offices. This coordination should include standardized procedures for notifying law enforcement and other agencies when the social workers start an investigation.
2. CFC’s standards of practice should be revised to identify specific conditions under which the social workers must call a specified law enforcement agency or a specified law enforcement officer to further explain a situation.
3. CFC should develop a standardized DSS 115 form that provides information on the potential crime.
4. CFC should assign a social services priority code to each law enforcement referral.
5. Training on adult abuse, neglect, and exploitation should be mandatory and timely for CFC social workers, law enforcement officers, prosecutors, and judicial officials. Training materials and public awareness material should be made available to other agencies at cost.
6. CFC, the Cabinet for Health Services (CHS), and other state agencies should establish new and renewed relationships among themselves to provide training, share information, and promote awareness of adult abuse, neglect, and exploitation.
7. CFC, CHS, and other state agencies should establish new and renewed relationships with local agencies and advocacy groups, such as the local long-term care ombudsmen, local law enforcement agencies, bankers, attorneys, providers of nonemergency transportation services, and local charitable and faith-based organizations.
Sen. Stine asked if the relevant agencies agreed with the recommendations, except for the recommendation related to training. Ms. Upton stated that the recommendation that dealt with training was an issue for the Cabinet for Families and Children.
The report Improved Coordination of Adult Protective Services was adopted by roll call vote, upon motion made by Sen. McGaha and seconded by Rep. Baugh.
Tom Hewlett, Program Review staff, presented the report Human Service Transportation Delivery: System Faces Quality, Coordination, and Utilization Challenges. He stated that staff had been requested to review aspects of Kentucky’s Human Service Transportation Delivery (HSTD) program, which included how the Transportation and Health Services Cabinets had addressed recommendations from an earlier study, whether the broker system of nonemergency medical transportation had resulted in cost savings, and if quality of service and protections for recipients had been maintained. He said that staff had also been asked to provide an update on the status of the situation in Region 6, which had experienced problems in implementing the broker system.
Mr. Hewlett explained that the HSTD program had been established in 1998 to help control Medicaid nonemergency transportation cost by coordinating trips among social service agencies. He said that based on the actuarial costs projection, the program appeared to have been successful in containing cost growth. He stated that the current fiscal year (FY04) contract for Medicaid nonemergency transportation was $48.8 million. He said that the key aspect of cost containment in Kentucky’s HSTD program was the network of regional brokers contracting with the state under a capitated payment system. Mr. Hewlett explained that each broker received a payment for each Medicaid recipient in his or her region, and that the payments varied by region from about $5 to more than $8 per month. He stated that in exchange for the payments, the brokers operated nonemergency transportation programs in the 15 regions of the state.
Rep. Arnold asked if there was a specific reason for the large increase in the number of annual trips between 1998 and 2003. Mr. Hewlett replied that in 1998 there was only one broker operating; the rest of the state still used the voucher system. He said that the number of trips increased as the broker system was phased in. In 2001/2002, the program began to stabilize, and the rate of cost growth had been restrained and the cost per trip had been decreasing.
Rep. Palumbo asked for a list of brokers who also provided transport. Mr. Hewlett stated that he would provide that list.
Sen. McGaha asked if the program was continuing to see a 20 percent growth rate. Mr. Hewlett stated that since Region 6’s situation was dealt with, the growth rate in the program had begun to stabilize in the spring of 2003.
Sen. McGaha asked what the current growth rate was. Mr. Hewlett stated that due to the fact Region 6 had been in and out of the program over the course of a year, it was hard to determine the actual amount of growth. He said that the 20 percent growth in costs for 2002/2003 was because of the additional population added by Region 6 when it returned to the program.
Sen. McGaha asked how long Region 6 had been out of the program. Mr. Hewlett stated that the previous broker, CTG, declared bankruptcy in November 2002. Region 6 had a new broker come back online in May 2003.
Sen. McGaha asked if it would be correct to say that the program had continued to see a 10 percent cost growth even though Region 6 went without a broker for six months. Mr. Hewlett stated that would be correct. He said that the program was continuing to see an increase of 7 to 8 percent cost growth per year.
Continuing with his presentation, Mr. Hewlett explained that the program was a program of last resort for Medicaid recipients, including those who were non-ambulatory, and those who were confused as to date and location. He stated that the program also served a small number of clients for the Department of the Blind and the Department for Vocational Rehabilitation.
He explained that the managed care approach as used in the program had been adopted as a cost-saving measure, so it was important that monitoring occur to ensure that quality of services was not adversely affected. He said that the program did conduct surveys to review client satisfaction, but that Program Review staff were concerned that too few individuals and regions were surveyed.
Mr. Hewlett stated that Program Review staff had developed and circulated a client satisfaction survey that received 2,881 responses (42 percent response rate). He said the survey revealed that most riders were either very satisfied or satisfied with the services they received. He stated that the survey also indicated that 25 percent of the riders did not know that they had a right to file a complaint. Over half of the remaining 75 percent of clients surveyed did not know how to file a complaint. He stated that the lack of understanding of the complaint process could affect services. He cited as an example the fact that better awareness of the complaint process would have likely resulted in more legitimate complaints about the 72-hour requirement for phoning in requests for rides. Exceptions are to be made for urgent cases or based on a doctors’ orders, but he stated that staff’s survey revealed that some of the trip requests may have been inappropriately denied.
Rep. Baugh asked what percentage of respondents were not satisfied. Mr. Hewlett stated that 12 percent of the respondents indicated that they were either dissatisfied or very dissatisfied with the program.
In summarizing, Mr. Hewlett outlined the major conclusions of the report and the recommendations as follows:
The Office of Transportation Delivery (OTD), which administers the Human Service Transportation Delivery program, uses a telephone complaint line, as well as field and phone surveys to track problems that Medicaid recipients and providers experience. The system appears weak, however, in identifying specific concerns riders have about quality of services.
The HSTD program should institute a quality improvement plan. Such a plan would be helpful for program managers by identifying both short-term and long-term targets for improvement and would show how quality monitoring and utilization measures could be used to improve the system.
Brokers report the encounter data for each trip provided, but the encounter data was found to have errors that may have implications for quality monitoring and the calculation of future rates.
The current provider rate structure was not based on an objective formula, but developed from incremental changes to a system that allowed brokers to negotiate rates with providers in their regions. Rates vary from region to region. The efficient grouping of trips also continues to be a problem in some regions. He stated that based on the results of the Program Review staff survey, some providers were still concerned about distribution of trips by brokers. The dissatisfaction level in some regions is higher than in others.
Program usage has also been increasing, and may be expected to continue to increase based on population trends. Transportation and Medicaid officials should communicate more effectively, and examine more effective ways of measuring system usage for future planning.
Some groups of recipients are having a disproportionate impact on the provision of services. Allowing some recipients to choose who they want to transport them may result in the unintended consequence of reducing brokers’ ability to coordinate trips efficiently. The transportation of Medicaid recipients served by Adult Day Care and Supports for Community Living waiver programs is also putting cost pressures on the nonemergency medical transportation system.
He stated that the next several months would be an opportune time for Transportation and Medicaid to review the necessity for 15 HSTD regions, considering the administrative costs related to each of those regions. He said it was possible that Kentucky might be able to adopt some of the transportation cost-saving measures used in other states.
Mr. Hewlett said that the report recommended that:
· Medicaid Services and OTD should ensure that rider satisfaction surveys and survey methodology are redesigned to obtain valid, generalizable results;
· Medicaid Services and OTD should develop a quality improvement plan;
· OTD should maintain a database of the number and types of errors, with brokers held accountable for the accuracy of the data they submit;
· OTD should match broker financial statements against encounter data to verify accuracy;
· Based on actuarial analysis, rates should be constructed to reflect uniformity and simplicity, adequacy, and incentives for efficient grouping of trips;
· OTD should periodically survey transportation providers to determine if they feel rides are being properly scheduled and equitably distributed;
· To ensure that the freedom of choice rule is not being abused, encounter data should be periodically examined for regions with high numbers of single-passenger trips and regions in which the broker has a substantial percentage of disoriented and nonambulatory passengers;
· OTD, working in cooperation with the appropriate Health Services Cabinet divisions, should gather valid and reliable data on whether transportation providers that also provide Medicaid services contribute to overutilization of transportation services. Depending on the results of analyzing this data and a study of the impact of existing regional rate caps, OTD and CHS may consider imposing caps for all regions;
· Based on analysis of regions’ administrative costs, Transportation and Medicaid services should consider consolidating some regions with low usage, or realigning some regions with similar geography in which sufficient infrastructure is in place to deal with the added population; and
· OTD and Medicaid Services should consult with their counterparts in other states to determine the cost-control measures that would be practical for Kentucky’s capitated system.
Sen. McGaha asked if some of the adult care centers owned their own vehicles for transportation, and if so, were those centers paid through the Human Service Transportation Delivery system. Mr. Hewlett stated that some of the centers did own their own vehicles. He also stated that a center could only be paid through the system if it had a negotiated contract with a broker, and if it had operating authority to provide transportation services in that region.
Sen. McGaha asked that if they were not in the brokerage system, then they did not get paid. Mr. Hewlett stated that if they did not have contracts with brokers, then the brokers would not be required to pay them. He also stated he was reasonably sure that any adult care center providing transportation services was in the program.
Rep. Palumbo asked for a definition of nonprofit, and she also asked if most of the brokers were nonprofit. Mr. Hewlett stated that most brokers were nonprofit. He stated that some nonprofit brokers were rural transient authorities that had expanded into the program. He stated that some development councils and regional transport authorities, which filled a void in rural parts of the state, were providing services before the program was initiated.
Rep. Palumbo asked if nonprofit brokers were privately owned. Mr. Hewlett stated that most of the nonprofits were not privately owned.
Rep. Palumbo asked if the broker in Region 9 was privately owned. Mr. Hewlett stated that the broker in Region 9 was privately owned. He noted that the broker and a cab company in the same area were both owned by the same parent firm, but the broker and the cab company were two separate legal entities.
Rep. Palumbo asked if the broker in Region 9 would be called “for profit”. Mr. Hewlett that would be correct.
Rep. Palumbo asked why the capitated rates for brokers varied. Mr. Hewlett stated that most of the capitated rates were set through actuarial analyses.
Rep. Palumbo asked why Region 6 (Jefferson County) had a capitated rate of $8.20. Mr. Hewlett stated that when the broker (CTG) for Region 6 filed for bankruptcy, it cancelled its contract with the state, and ceased providing services on November 30, 2002. He said that during the interim, the state issued two Requests for Proposals (RFP). The first RFP contained a capitated rate of $7, but received no responses. The second RFP increased the capitated rate to $8.25. The Department for Medicaid Services was able to renegotiate the capitated rate to $8.20.
Rep. Palumbo asked how often the capitated rates or contracts were renegotiated. Mr. Hewlett stated that contracts could be renewed after two years, at which time that contract would be renegotiated.
Rep. Palumbo asked what regions were authorizing off-site trips. Mr. Hewlett explained that several recipients with Supports for Community Living (SCL) and some Adult Day Care (ADC) recipients received off-site trips.
Rep. Pullin asked if General Fund money was being used to fund the program. Mr. Hewlett explained that most funding came from Medicaid. He said that the state’s Medicaid match rate formula required the state to pay 30 percent of the costs while the federal government provided the remaining 70 percent. The state’s share of the funding was provided from General Fund money.
Sen. McGaha asked if the brokers were unbonded. Mr. Hewlett stated that was correct.
Sen. McGaha asked why the brokers were not bonded. Mr. Hewlett stated that would be a question for Medicaid and Transportation.
Sen. McGaha asked if there was any documentation to back up the complaints by brokers or providers. Mr. Hewlett stated that brokers had been responsible for submitting information to the Transportation Cabinet, which may create a problem for getting accurate information. He stated that was why recommendations 2.1 and 3.2 were developed.
Sen. McGaha asked why there was such a difference in the 60 percent of transportation providers who were satisfied with the way trips were scheduled compared to the 40 percent who were dissatisfied with the way the brokers scheduled trips. Mr. Hewlett stated that the 88 percent of overall satisfaction was from recipients. The dissatisfaction with brokers scheduling trips was obtained from the providers, which varied by region. In regions with only a few providers, fewer people responded to the survey.
Sen. McGaha asked if a survey could be biased if there was only one provider in a large region. Mr. Hewlett stated that was correct. It would be important to obtain long-term data looking at change over time, and with client satisfaction and provider satisfaction data.
Sen. McGaha asked if 40 percent dissatisfaction was a high number considering the sources. Mr. Hewlett that it was a concern, especially when so many providers were dissatisfied with the way trips were allocated.
Sen. McGaha said that the dissatisfaction rate of providers could be even higher because some providers are the sole providers in their areas, so they cannot be dissatisfied with how trips are distributed.
Rep. Baugh asked if the brokers established the rates for the providers in their territories. Mr. Hewlett stated that the Transportation Cabinet sets the rate for each region. He stated that staff recommended that OTD examine the rates and make them more equal and simpler.
Rep. Baugh stated that the providers he talked to found it hard to believe that the Transportation Cabinet established the rates.
Rep. Baugh asked if it was correct to say that even though providers may drive 100 miles, they get the same rate. Mr. Hewlett stated that was true for the most part. He said that in some regions, they got paid to pick the client up in addition to receiving a certain amount per mile.
Rep. Baugh asked if it was correct that the pickup rate in Region 5 was $4.00 and the pick up rate in Region 6 was $12.50. Mr. Hewlett stated that was correct for some categories.
Rep. Baugh asked if there was any requirement that a broker be nonprofit. Mr. Hewlett stated that there was no such requirement.
Rep. Baugh stated that he thought that services in the program would increase if the program could be for-profit and taken away from the state.
Mr. Hewlett stated that staff did not look at the cost effectiveness of a for-profit versus a nonprofit, since that would be a policy decision.
Rep. Hoffman asked if the provider in Region 6 cited reasons for its bankruptcy. Mr. Hewlett stated that the provider in Region 6 said that the cap rate of $5.43 per member was set too low. Mr. Hewlett said that there was a variety of reasons why CTG failed.
Rep. Hoffman asked if the new provider was doing better. Mr. Hewlett stated that since LogisticCare came into the program, the number of complaints had dropped from 24 in May to 2 in October. When CTG was operating in the region, it received more than 100 complaints a month from recipients.
Sen. Stine introduced Mike Robinson, Commissioner, Department for Medicaid Services, Cabinet for Health Services. Mr. Robinson, in his response to the report, stated that the system was much better now than the previous voucher system. He stated that the Department, for the most part, agreed with the report’s recommendations. He said that the Department agreed with recommendations 2.1 and 2.2, and agreed with the direction of recommendations relating to brokers. Mr. Robinson stated that the Department was pleased to know that the surveys indicated an 88 percent satisfaction rate with the system.
Vickie Bourne, Executive Director, Office of Transportation Delivery (OTD), stated that OTD planned to meet with the Government Services Center to ask for assistance with redesigning surveys. She also said that the development of the nonemergency medical transportation encounter database was 80 percent complete. She stated that OTD believed in the program and wanted to continue to improve its quality by implementing the recommendations contained in the report.
Sen. Seum asked if the program was mandated by Medicaid.
Commissioner Robinson stated that transportation was an optional service. He stated that there were some requirements through the Centers for Medicare and Medicaid Services and federal legislation to provide necessary medical services.
Sen. Stine stated that the Committee would vote on the Human Service Transportation Delivery report at the next Program Review meeting.
Rusty Cress, Associated Industries of Kentucky; Dean Stork, Lexmark; and Chris Fitzpatrick, General Electric responded to a previous report: The Costs, Benefits and Monitoring of Kentucky’s Enterprise Zones. Mr. Cress stated that the coalition of Associated Industries of Kentucky was very interested in seeing the survival of the enterprise zone program. He stated that the program had helped businesses remain in Kentucky by providing manufacturers and businesses with economic benefits such as opportunities to build and expand. He said that if the program was discontinued, then Kentucky would lose one of its most vital tools for encouraging business investment.
Mr. Cress provided an overview of a report that was prepared by Deloitte and Touche on improving the enterprise zone program. He stated that the report recommended that the focus of the program should be on manufacturing and other businesses as the core drivers of Kentucky’s economy. He said that the report cited the enterprise zone program as a key component of Kentucky’s business retention efforts. The report concluded by stating that most business entities were not in an economic position to lose the sales and use tax exemptions for building materials and machinery and equipment purchases that enabled them to compete in a global economy. The report suggested that it would be poor economic policy for Kentucky to remove the tax benefits when companies need them the most.
Sen. Guthrie asked what criteria were used to define an enterprise zone area as a success, and what criteria would lead to discontinuing an enterprise zone.
Mr. Cress stated that even though the initial intent of the enterprise zone program had changed, the program is still an effective economic development tool.
Sen. Guthrie asked if Mr. Cress felt that the enterprise zone program should become a statewide program.
Mr. Cress stated that it would be great if the program could be expanded to cover the state, but the current program was working well in the ten areas.
Sen. Guthrie asked if it was the position of the coalition that the enterprise zone program was no longer needed since it was all about tax incentives for businesses to locate in Kentucky regardless of where they were.
Mr. Cress stated that it would be good to extend the incentives statewide.
Sen. Guthrie asked if there was still an argument for maintaining enterprise zone programs in depressed areas of the state.
Mr. Cress stated that there was still a need for the enterprise zones.
Sen. Stine introduced Steve Stevens, Senior Vice President, Public Affairs, Northern Kentucky Chamber of Commerce, to respond to Sen. Guthrie’s questions. Mr. Stevens stated that the economic development competition now was fiercer than it was 20 years ago when the enterprise zone program was created. He said that the program was still a valuable tool for his area since Northern Kentucky had to compete with Cincinnati in attracting businesses.
Sen. Stine stated that the enterprise zone program had helped areas like Newport.
Chris Fitzpatrick, Tax Director for Consumer Products, General Electric Company, Louisville, Kentucky, stated that the enterprise zone program had been critical to controlling costs. He stated that General Electric would like to see the enterprise zone program continued. He stated that GE had 7,600 total employees with an annual payroll of $225 million. Mr. Fitzpatrick explained that GE became certified as a qualified business in the Louisville Enterprise Zone program in January 2000, resulting from a $200 million investment program in Appliance Park. A copy of Mr. Fitzpatrick’s presentation can be found in the LRC Library file.
Sen. Seum asked if the enterprise zone had been expanded in 2000 to include GE in the program.
Mr. Fitzpatrick stated that GE had always been in the zone geographically, but there were other criteria that had to be met before GE could become qualified to participate.
Sen. Seum stated that until recently, the business community in Louisville had appeared to be uninterested in retaining the enterprise zone program. He said that in order for the program to be successful, the business community needed to become actively involved.
Rep. Hoffman asked if Mr. Cress, Mr. Fitzpatrick, or Mr. Stork had any issues with the recommendations contained in staff’s report.
Mr. Cress stated that Mr. Stork would address those issues.
Rep. Palumbo stated that a lot of work had been done to understand the importance of the enterprise zone program and that the time had come to make a decision on continuing the program.
Dean Stork, Lexmark International Inc., Lexington, Kentucky, stated that he was speaking in support of the enterprise zone program for the Lexington area.
Sen. McGaha asked if the business community had any recommendations for correcting the inconsistencies that were pointed out in the report.
Mr. Cress stated that the Deloitte and Touche report suggested redefining eligible businesses, limiting zone expansions, limiting certifications for new businesses in the enterprise zones, dealing with the motor vehicle issue, revising the hiring requirements, and imposing training to upgrade skills. He said that the coalition was not opposed to the Deloitte and Touche suggestions and would be working through the session to find ways to deal with them.
Mr. Stork explained that a sales tax exemption of $10.7 million in 1999 for building materials meant that $178 million was invested in building materials. An exemption of $11.8 million indicated that $197 million was spent on machinery and equipment. The construction materials would have been used for construction contracts, for which costs are traditionally half labor and half materials. This means that the $178 million for materials would have also generated $178 million in spending for labor. The figures for exemptions for 2002 were $25.7 million for construction and $20.9 million for machinery and equipment. This corresponds to $348 million of investment in machinery and equipment, $428 million for construction materials, and another $428 million for construction labor.
Mr. Stork said that a report finding that there were few benefits from enterprise zones was inconsistent with these numbers and the new facilities found in enterprise zones. He said the staff report used U.S. Census Bureau data to look at how unemployment decreased in the zone, then extrapolated from that to determine how much business investment had been made. He said that one of the theories of the report was that the investments made were what companies would have done anyway. He disagreed, saying that a baseball stadium and a new airport hub were not normal investment. Mr. Stork said that another theory in the report was that only a 6 percent break was reinvested in the zones. He said that this ignores the higher threshold requirements in the statute itself and the actual investment spending of companies such as Lexmark. He explained that Lexmark would not have located its research and development facility in Lexington without the enterprise zone incentives.
Mr. Stork cited a survey done by the Kentucky Chamber of Commerce, which contained a question on whether a site outside Kentucky was considered for each company’s project. He said that each respondent with a project worth more than $1 million answered yes.
Mr. Stork said that the report’s finding that the income of zone residents has not increased could mean that as people got jobs in enterprise zone companies, they moved out of the enterprise zone. It is likely that a poor person would buy the house the person moving would be selling. This would not be reflected in the Census Bureau data used for the report. He said that another weakness of Census data is that it did not measure business activity. He added that a report done by the Kentucky Economic Development Cabinet should have been used to indicate this. He also stated that an analysis of property valuation records for businesses should have been included in the staff report.
Rep. Hoffman asked if the Deloitte and Touche report had been prepared in response to the committee’s report.
Mr. Cress stated that the Deloitte and Touche report had been done for the Appropriations and Revenue Committee during the summer for informational hearings.
Rep. Hoffman requested that the business community present the Program Review Committee with a detailed response to the recommendations contained in the Program Review staff report.
Sen. Stine agreed that she would like to see the business community present a more specific response to staff’s report.
Mike Clark, Ph.D., LRC Chief Economist, presented a review of past studies related to the tax burden in Kentucky. He stated that when comparing tax burdens with other states, it was important to keep in mind that that there are various types of taxes available to state policymakers. He stated that it was also important to recognize that states make different choices when it comes to state and local taxes, about the level of services provided, and the level of tax revenue. He stated that another important issue was understanding how tax rates versus effective tax rates are applied.
Dr. Clark stated that in 2001, the LRC staff economists performed an analysis of Kentucky’s tax burden for families, which were grouped into five different categories based on income. He stated that staff performed a similar analysis for each state to see how Kentucky compared. He stated that there were 38 states that had lower state income taxes for low-income families, and 47 states that had lower local occupational taxes or no local occupational tax, but that each of these taxes accounted for 4 percent of the total taxes paid by low-income families. He stated that the sales tax was the largest tax that lower-income families had to pay. Dr. Clark stated that the sales tax accounted for approximately 42 percent of the taxes paid, and that there were 29 other states that had a lower sales tax burden. He explained that other large taxes for the lower-income families included property taxes and motor vehicle taxes, which accounted for about 25 percent and 14 percent respectively. He stated that the lower-income families paid about 13 percent of their incomes in state and local taxes.
Dr. Clark stated that Kentucky ranked 11th in the total tax burden on low-income families, meaning that there were 10 states with lower state and local tax burden than Kentucky for low-income families.
Dr. Clark explained that the state income tax for lower-income tax families made up a small portion of the taxes they were required to pay, and the higher-income families were required to pay larger amounts. He stated that the sales tax was actually a larger tax for lower-income families as a share of income than for higher-income families, because lower-income families tended to spend a larger percentage of their incomes on taxable items.
Dr. Clark presented data on state and local business income and license taxes from the U.S. Census Bureau. He stated that data was not available on sales tax paid by businesses because the Bureau could not make the distinction if the sales tax came from individuals or businesses. He also stated that the analysis did not include all the types of taxes that staff would like. He stated that staff looked at the total revenues that state and local governments received, and how much came from business income taxes and license taxes. He stated that from the late 1970s until around 2000, Kentucky had been consistently above the national average. He stated that the business share of tax revenues in Kentucky has been downward, and had been decreasing at a faster rate than the national average.
Dr. Clark explained that the Barents Group did a comparative analysis of Kentucky’s tax structure in December 1999, based on 15 surrounding states. He stated that Kentucky had a 10.62 percent effective tax rate on businesses, and only five states had lower effective tax rates than Kentucky. He explained that the effective tax rates represented an average across all industries, and the regional average across all industries was about 11.57 percent. The study also noted that the effective tax rate differed by type of industry. He said the report found that Kentucky tended to be relatively more competitive than the rest of the region in terms of the following industries: electronic components, agriculture, printing, metal working, and manufacturing. Kentucky tended to be less competitive in terms of wholesale, coal mining, and service-type industries.
Rep. Arnold asked if information was available comparing overall taxation, since Tennessee and Florida did not have income taxes. Dr. Clark stated that he would provide Rep. Arnold with a memo detailing that information.
Rep. Palumbo stated that she would like to have copies of previous reports that staff had been able to obtain. She stated that perhaps Kentucky needed to focus on the less competitive areas of research and development and computer services.
Sen. Stine asked if any committee member had a comment on the study proposals.
Sen. Stine stated that the next meeting of Program Review would be when a meeting could be scheduled during session. She said that the study of uncollected revenues and improper payments would be a priority.
Meeting adjourned at 3:45 p.m.