Recovery in western Kentucky, budgeting, increased transportation funds and more discussed by state leaders

The 2022 Kentucky Legislative Preview Conference, a one-day gathering of the most prominent and influential policy-makers in Kentucky, featured expert analysis and prediction on what to expect in the upcoming 2022 session. The following story is a wrap-up of the many panels and keynote speeches throughout the day.

Lt. Governor Jacqueline Coleman

Kentucky’s Lt. Governor Jacqueline Coleman provided the closing remarks on Friday at the 2022 Legislative Preview Conference. Coleman largely focused on the devastating impacts of the tornadoes that tore through western Kentucky last weekend and the impact it has had on the state.

Coleman said the only thing that rivals the devastation seen in western Kentucky has been the overwhelming response of Kentuckians and those across the country coming together to help those who were impacted. She noted that in only six days, the Team Kentucky Western Kentucky Relief Fund launched by the Beshear administration has raised more than $18 million. She said every penny in the fund will go to rebuilding these communities.

She said the Beshear administration’s legislative priorities are building a better Kentucky for the everyday heroes including the small businesses owners starting over, the families who have lost everything, and all Kentuckians who are looking to recover.

Budget and Revenue

The 2022 session will largely revolve around crafting the state’s next two-year budget and allocating the funds Kentucky has received from the federal government. Senate Appropriations and Revenue Chair Chris McDaniel and House Majority Floor Leader Steven Rudy talked about those upcoming decisions with moderator Jennifer Barber, vice office member-in-charge at Frost Brown Todd.

Economic volatility, changing consumer behaviors, labor shortages, inflation, and more continue to impact the economic outlook of the Commonwealth. Rudy said revenues currently look really good, but cautioned that the numbers are inflated, adding he expects the legislature to budget in a more conservative way and work to continue to shore up the “rainy day fund.”

McDaniel agreed, saying the state did not see a huge hit to the areas of income tax and sales tax throughout the pandemic because the federal government was flooding the market with funds. “There will come a day when there will be a decline, once the federal funds slow or stop,” McDaniel said. “And the state must be prepared for that, which is why we need a healthy rainy-day fund.”

McDaniel has long stressed the importance of that rainy day fund, which is essentially the state’s savings account, suggesting the legislature set a goal of $1 billion, which is 30 days of operating expenses.

They do expect Kentucky to see a surplus of around $2 billion by the end of the year, but Rudy said there are more like $10 billion worth of asks. They said they expect to be focused on targeted investments in areas of need and savings.

As for potentially tackling tax reform in 2022 to adjust where revenues are collected in the state and potentially bring in more funds, Rudy and McDaniel stated there are conversations happening around tax reform.

The panelists also pointed to the Kentucky Chamber’s partnership with the Tax Foundation to provide options, suggesting that policies where more money in ends up in the pockets of businesses and individuals would be considered. Lowering the personal and corporate income taxes and increasing the amount of money in the Road Fund were among other considerations discussed.

Transportation and Broadband Infrastructure Investment

The recent passage of the federal infrastructure package months has state governments across the country prioritizing infrastructure projects eligible for federal funding.

The federal package dedicates $65 billion in federal funding for broadband, $100 million of which is coming into Kentucky. Rep. Phillip Pratt said the state put $300 million toward broadband in the last year, adding it would be critical in 2022 to map out where the needs are across the state to leverage it and ensure every household in the state of Kentucky has broadband access.

Kentucky Transportation Secretary Jim Gray said all of Kentucky’s infrastructure investments should be focused on growth and economic development. He added Kentucky is set to receive an additional $1 billion over five years in federal funds for highway and bridge transportation projects, but the state has to come up with a 20-percent match, which will require significant additional funding from the state. He stated Kentucky has typically been coming up with $100 million a year, which means we have to look at how we produce the revenues needed to ensure we don’t lose out on the money coming in, as it could go to other states.

House Transportation Committee Chair Sal Santoro echoed the secretary’s comments that the state must ensure it has the money for the match. As the sponsor of the legislation each year to increase infrastructure investment, Santoro said he believes there is some appetite in the House to potentially tackle the issue, stating it has to be done at some point. 

Senate Transportation Committee Chair Jimmy Higdon emphasized the gas tax was 29.5 cents a gallon in 2011 and now, in 2022, its 26 cents a gallon, which means the state’s formula that keeps up with inflation needs to be redone. He added additional revenue on the state end is needed as there are many demands with limited resources. 

Energy and Environment

Nick Rowe of Kentucky American Water talked with House Natural Resources and Energy Committee Chair Jim Gooch, Senate Agriculture Committee Chair Paul Hornback, and Rep. Norma Kirk McCormick about energy and environment issues impacting businesses.

The panel discussed federal policy and how it impacts the agriculture sector, permitting, and demand for coal and natural gas. The panelists also discussed water and wastewater resources and federal funds available to improve these resources. Rep. Kirk-McCormick discussed the challenges in her region in Martin and Pike Counties. Chairman Gooch shared his experience as co-chair of the water and wastewater taskforce and how so many systems aren’t ensuring that rates cover routine maintenance which allows systems to fall into major disrepair.

Also discussed was solar energy and Sen. Hornback’s concerns with decommissioning panels. The panel also touched on abandoned oil and gas wells and federal dollars being used to cap those wells. Sen. Hornback indicated tax dollars shouldn’t be used to decommission panels in the future and that the companies should be responsible.

Panelists also took questions from the audience including discussion of permit backlogs and how Kentucky can’t be a business-friendly state if there are permit backlogs that stymie development.