At the midpoint of the 2022 General Assembly session, lawmakers are considering a range of issues, from marijuana use to public school history curricula.
But perhaps the biggest items on their agenda are passing a new state budget and proposing a new round of tax reforms for the commonwealth. The Senate now has possession of the budget the House of Representatives approved a month ago.
Senate Majority Floor Leader Damon Thayer of Georgetown praises House leadership for their speedy handling of the spending plan, and for leaving some $1 billion unappropriated. But he declines to say what the Senate may keep from the House budget and what they may change. He says Senate Republicans, like their lower-chamber counterparts, prefer a conservative approach to allocating the budget surplus and federal pandemic relief dollars. He says it’s important to build up the Budget Reserve Trust Fund (also known as the Rainy Day Fund), and to wait and see what happens with COVID.
“We also have been living off a lot of fake federal dollars and they’re not going to be here forever,” says Thayer. “We want to make sure on the other side of this when the economy settles out and hopefully inflation goes down, we are in a stable spending situation.”
Frankfort Democrats says that amounts to a missed opportunity, given that the commonwealth has $5 billion in federal infrastructure funding, $1.3 billion in unspent American Rescue Plan Act dollars, and a budget surplus that could reach $2 billion. Senate Minority Floor Leader Morgan McGarvey says the state could address some critical needs with that money, such as broadband internet expansion, funding full-day kindergarten, or giving state workers a meaningful pay raise.
“We should not spend all of the reserves,” says the Louisville Democrat, “but we do have an incredible opportunity to invest in Kentucky’s people and Kentucky’s future.”
As for pay raises for state employees, the House plan included a 6 percent increase across the board plus additional bumps for state police officers and social workers. Thayer says he and his Senate colleagues haven’t decided what they might propose.
“There’s nothing more than we would like to give state employee raises, but we have to consider it as part of the whole and consider the compounding effect that it will have on budgets down the line,” says Thayer.
McGarvey and House Speaker Pro Tem David Meade (R-Stanford) say the state must do more to be competitive with pay rates in the private sector. House Minority Whip Angie Hatton of Whitesburg says compensation for state workers should be a spending priority for lawmakers.
“No one wants bigger government but we do have to have a government,” says Hatton. “If we’re going to have an effective and efficient government, we have to pay our employees the type of wage that doesn’t cause them to be below the poverty line.”
Thayer says he expects the Senate to pass its version of the budget by early March. Then the spending plan will go to a conference committee to resolve the differences between the House and Senate versions.
Another reason Republicans want to hold moneys in reserve is to have enough fiscal cushion to pass an income tax cut and perhaps provide a tax refund or rebate to Kentuckians.
“You can’t do tax reform in a year that you need money,” says Meade. “You have to do it when you have a surplus like this.”
Meade says Republicans want to remove the state income tax in favor of a more broadly applied sales tax. But he says it’s more likely that GOP leaders will propose a reduction of the income tax. He says House Appropriations and Revenue Committee Chair Jason Petrie (R-Elkton) is finishing work on a tax overhaul plan, which should be released in the next couple of weeks.
But that’s not soon enough for some Democrats.
“Tax reform is major policy in Kentucky and here we are halfway through the session, we haven’t even seen a bill,” says McGarvey. “You need input from every party, you need input from every region to make sure that we’re really setting up a tax code that benefits all Kentuckians.”
Gov. Andy Beshear jumped into the tax debate last week when he proposed a one-year reduction in the state sales tax from 6 percent to 5 percent. He said that would provide Kentuckians $873 million in relief at a time of record inflation. Beshear also signed an executive order to halt an increase in vehicle property taxes that have jumped nearly 40 percent in the past year. He says that would save drivers $340 million.
Republicans argue that Beshear should have cut the vehicle tax sooner, and only did so after they passed a joint resolution requiring him to do it. Thayer says the proposed sales tax cut is bad idea and a “Hail Mary pass” by a governor looking ahead to a tough reelection campaign in 2023.
“Hastily proposing a 1 percent cut in the sales tax without explaining how he’s going to pay for it blows about $1 billion hole in his own budget proposal, which is unconstitutional,” says Thayer.
Meade says Beshear’s plan would deplete the budget reserve Republicans need to pass true tax reform, which he says would go farther to keep money in people’s pockets. Thayer contends the Republican plan is better because he says broadening the sales tax base allows people to decide how much taxes they will pay based on the purchases they choose to make.
Hatton is the sponsor of House Bill 508, which embodies the governor’s proposal. She says it won’t send the budget into a $1 billion deficit, and would be great for Kentuckians, especially if accompanied by a lower income tax rate that’s likely to be proposed by Republicans.
“The state can afford this cut right now that will affect the bottom line of every family in Kentucky,” says Hatton. “It would wonderful to cut some income tax as well when the state doesn’t need as much money, but raising sales taxes is not going to help the poorest Kentuckians.”
Whatever tax plan the GOP eventually proposes, McGarvey says it must benefit all Kentuckians, not just the wealthiest individuals and corporations, which he contends the 2018 tax bill did.
Separate from the income tax debate, lawmakers are again considering a proposed constitutional amendment that would enable cities and counties to explore local taxing options they don’t currently have.
Meade says local governments will need more revenue if overall tax reform ends up reducing the funds that those jurisdictions get from state government. But Thayer says he sees little interest in the proposal among his fellow senators.
McGarvey and Hatton say local communities should have more taxing options, but Hatton says she also fears that it could result in greater disparities between poorer and richer municipalities.
Medical and Recreational Marijuana
Last week Democrats unveiled legislation to legalize recreational marijuana sales to adults over 21 and institute a medicinal marijuana program in the commonwealth.
“It’s a great opportunity to create industry, it’s a great opportunity to create jobs, and it’s a way to get additional revenue into Kentucky’s coffers,” says McGarvey, a co-sponsor of Senate Bill 186.
The legislation would also enable individuals to request an expungement of previous marijuana misdemeanor convictions, and allow localities to charge additional taxes on recreational marijuana sales beyond what the state does. (Medicinal marijuana would not be taxed under the proposal.) McGarvey says the plan would generate $100 million a year in recurring revenue for the state.
Meade says he doubts the proceeds would reach even $50 million. He says he’s undecided about legislation for medical use that’s sponsored by Rap Jason Nemes (R-Louisville). But he says he’s also heard from some farmers that say hemp could be processed in such a way as to result in medicinal grade THC. If that’s the case, Meade says the state already has growers, processors, and a regulatory system in place that would allow that to happen.
Polling indicates that 90 percent of Kentuckians back medical use, and 60 percent support full legalization, according to Hatton. Yet bipartisan bills for medical marijuana like Nemes’ have failed to gain traction in the Senate. Thayer says he continues to oppose legalizing both medical and recreational use.
“I think it’s a bad idea,” says Thayer. “If there are enough Republicans who want to pass it, I’m not going to stand in the way. I’ll just vote no.”
McGarvey says it’s fine for senators to oppose the marijuana bills, he just wants leadership to bring them a floor vote so Kentuckians can see where each lawmaker stands.
Senate Bill 138 is one of several measures that seek to regulate how subjects like history, civics, and social studies are taught in Kentucky’s public schools. Among its provisions, SB 138 would require students to study 24 speeches and documents from American history, ranging from the Mayflower Compact to Ronald Reagan’s 1964 speech “A Time for Choosing.”
Thayer says the legislation is a response to parents who are concerned about what their children are learning in school. He says lawmakers who allocate billions for public education are allowed to also enact guardrails for what happens in local districts.
“It’s a little bit disingenuous when education advocates come to Frankfort and ask us to give them all the money possible, but then get very upset and offended when we give a broad description of the things that we would like to see taught,” says Thayer.
But Hatton says there are principals, superintendents, and local site-based decision-making councils who are better positioned than lawmakers in Frankfort to oversee curricula and address any teachers who might “go rogue.”
“Every district in this state is different and the one-size-fits-all approach I’m not sure is the right way to go,” says Hatton. “I just think that we love local control until we don’t.”
McGarvey says this is an “unprecedented” move by Republicans.
“Frankfort has always weighed in on educational standards,” says McGarvey. “We have never weighed in on curriculum, and that’s what this bill is seeking to do.”
Meade says the House bill on the issue has not been a priority for his chamber, but he says he understands the concerns that prompted the legislation.
“For most of us, what we’re looking for is to make sure that the curriculum is taught accurately and appropriately, and it’s not taught in a divisive way,” says Meade.
The House and Senate are also considering bills to ban transgender boys from playing in girls’ sports. McGarvey calls Senate Bill 83, which passed the Senate last week, “political pandering in an election year.” He says the Kentucky High School Athletics Association rules already ban trans athletes.
Thayer says colleges and universities have faced this issue, and lawmakers want to get out in front of the problem before it occurs in public schools here. He says parents want to know there’s a law, and not just a KHSAA rule, to keep boys who identify as girls from competing against biological females.
Republican lawmakers are also moving a bill to prevent schools from issuing mask mandates, and give parents an opt-out for their children if there is a mandate in their district. This comes after a special session of the General Assembly last fall voted to allow school districts to decide on their own masking requirements.
Meade and Thayer contend that scientific studies show masks other than N95 coverings do little to stop the spread of COVID, and that long-term mask wearing by children is detrimental to their mental health and learning.
Hatton says the proposed ban makes no sense. She says local district officials know best about COVID incidence rates in their communities, and about the number of handicapped students or older school employees who would might need the protection provided by masks.