A week after Gov. Andy Beshear publicly presented his two-year state budget proposal, key executive branch officials presented the Beshear budget in further detail to legislative committees Tuesday, where House and Senate Appropriations and Revenue Committee members asked questions about pension contributions, the higher education funding model, and more.
State Budget Director John Hicks presented the Beshear plan, reiterating key points made by Gov. Beshear that the proposal makes no cuts and provides modest revenue-raising measures based on expected new revenues from sports wagering and increases to tobacco and e-cigarette taxes.
Chief among legislator concerns were the funding mechanism for pensions, as representatives from the Kentucky Retirement System (KRS) publicly accused Beshear’s budget of not fully funding the actuarial required contribution (ARC), because of how it deals with quasi-governmental agencies.
The budget proposal asks those “quasi agencies,” including rape crisis centers, health departments, some of the state universities, and others, to pay more toward their employer contributions. Currently, the employer contribution rate for those entities is frozen at 49 percent as the rising pension costs has threatened to bankrupt many of them.
Under the Beshear budget, $50 million would be allocated in each year of the budget to “meet the quasis halfway” and the individual agencies would have to come up with the rest of the money to meet a new 84.14 percent contribution rate. All other government agencies are currently paying 93 percent, seemingly creating a funding gap, which was a concern for legislators.
Hicks admitted that the administration’s approach would result in a $23 million deficit, but argued other areas of the governor’s budget – including a proposed one percent raise for all state workers and the addition of 350 new social workers – would result in increased contributions to the pension system.
Another main area of conversation was the governor’s proposed freeze of the state’s performance-based funding model for higher education. The performance-based funding model, passed by the General Assembly in the 2017 session, bases a portion of a public university’s funding allocation on its performance in 11 key metrics, including degrees produced, earned credit hours, student progression, and more.
While the governor is proposing a one percent increase to higher education funding, totaling $8.6 million, it would not be dedicated to the performance-based model. Many legislators argued the benefits of the model, claiming universities have been graduating more individuals with degrees in high-demand areas since this legislation passed in 2017.
As for where the money is coming from for the spending increases in the Beshear budget proposal, Hicks laid out the following:
- $39.4 million over two years from a 10-cent increase in the cigarette tax
- $37.2 million over two years from taxing other tobacco products at the same rate as cigarettes
- $17.6 million over two years from taxing e-cigarettes and vaping products at $0.10 per fluid milliliters
- $37.1 million over two years from passage of sports wagering legislation (the bill currently working its way through the General Assembly would allocate funding to the administration of the wagering, pension systems, and addiction services but the Beshear administration is advocating the money just come straight to the General Fund to be spent elsewhere)
- $16.4 million over two years from raising the minimum LLET tax
- Anticipated growth in General Fund revenue of $841 million over three years (this would use the surplus expected from this current budget to go toward his budget proposal)
- $288.8 million in fund transfers over two years
- $256.3 million from “maximizing resources” over a three-year period
The budget subcommittees and House and Senate Appropriations and Revenue Committees will continue to meet over the coming weeks and craft their own legislative budget proposals. The House will be the first to propose a budget before sending it to the Senate to make their changes. Stay tuned to The Bottom Line for more details about the budget process.