2018-2020 Executive Budget Presentation to House and Senate A & - PowerPoint PPT Presentation

2018-2020 Executive Budget Presentation to House and Senate A & R Date: January 23, 2018 Presented By: John E. Chilton, State Budget Director Andrew McNeill, Deputy State and Policy Director Kevin Cardwell, Deputy State Budget Director Janice Tomes, Deputy State Budget Director Greg Harkenrider, Deputy Executive Director, Governor’s Office of Economic Analysis 1

The Budget in Context • The budget has been reduced multiple times in recent years • FY 2017 revenue shortfall was $138.5 million • FY 2018 revenue shortfall of $158 million was addressed in the Budget Reduction Order • Projections indicate revenue growth in FY 2019 and FY 2020 will be modest — growth of 2.7% ($287.5 million) and 2.6%, ($284.1 million) respectively. • Need to fully fund pensions which are still severely underfunded 2

The Budget in Context • Growth in prison population • Growth in Medicaid population • Additional needs in social services, Commonwealth and County Attorneys, Public Advocates • Proper budgeting for recurring expenditures (NGE’s) • New borrowing must be limited • No changes to pensions or tax structures • Limited resources require difficult choices! 3

Official General Fund Estimates ($ millions) FY18 FY19 FY20 Official Estimate FY17 Actual %Chg Estimate %Chg Estimate %Chg Estimate %Chg 4,393.9 2.6 4,509.0 2.6 4,649.5 3.1 4,793.2 3.1 Individual Income 0.7 3,485.2 3,611.9 3.6 3,699.4 2.4 3,791.7 2.5 Sales and Use 602.1 4.3 607.9 1.0 620.7 2.1 635.1 2.3 Property 497.5 -5.5 558.6 12.3 600.6 7.5 632.3 5.3 Corporation Income 245.6 21.0 186.2 -24.2 200.2 7.5 210.8 5.3 LLET 100.5 -16.7 88.5 -11.9 77.9 -12.0 65.1 -16.4 Coal Severance 221.4 -1.3 214.3 -3.2 207.9 -3.0 202.0 -2.8 Cigarette 241.6 -0.1 243.0 0.6 249.0 2.5 256.0 2.8 Lottery 690.1 -2.6 699.0 1.3 700.7 0.2 703.8 0.4 Other 10,477.8 1.7 10,718.4 2.3 11,005.9 2.7 11,290.0 2.6 Total General Fund 4 Per Consensus Forecasting Group

Official Road Fund Estimates ($ millions) Official Forecast FY17 FY18 FY19 FY20 Actual %Chg Estimat e %Chg Estimate %Chg Estimate %Chg 760.5 1.4 761.2 0.1 759.2 -0.3 761.2 0.3 Motor Fuels 499.8 3.2 493.9 -1.2 494.0 0.0 492.6 -0.3 Motor Vehicle Usage 111.9 -1.0 113.4 1.3 115.2 1.6 116.3 1.0 Motor Vehicle License Motor Vehicle 16.1 -1.3 16.6 3.0 16.7 0.6 16.8 0.6 Operators 82.9 1.9 81.4 -1.8 82.1 0.9 83.2 1.3 Weight Distance 1.6 -35.9 2.0 26.5 3.1 55.0 3.3 6.5 Investment Other 35.1 0.7 34.8 -0.9 35.0 0.6 35.1 0.3 5 1,508.0 1.7 1,503.3 -0.3 1,505.3 0.1 1,508.5 0.2 Total Road Fund Per Consensus Forecasting Group

Official MSA Tobacco Fund Estimates ($ millions) Fiscal Year 2018 $ 114.6 Million Fiscal Year 2019 $ 119.5 Million Fiscal Year 2020 $ 118.1 Million 6 Per Consensus Forecasting Group

Governor’s Priorities 1. Put Our Financial House in Order 2. Fully Fund Pensions 3. Focus on K-12 Classroom Instruction 4. Workforce Development & Economic Development 5. Safeguarding Kentucky’s Most Vulnerable 6. Public Safety 7. Building & Maintaining Infrastructure 7

1. Put Our Financial House in Order Necessary Government Expense (NGE) items included in Base (millions $) FY 2019 FY 2020 Corrections - Budget to Consensus Forecast $ 49.3 $ 54.0 ANOC-Guardian Ad Litem 9.5 9.5 Military Affairs - Disasters and Planned Events 4.5 4.5 County Costs - Courthouse Security and Public Defender 4.0 4.0 Fire Suppression 2.3 2.3 8 TOTAL $ 69.6 $ 74.3

1. Put Our Financial House in Order Rainy Day Fund Budget Reserve Trust Fund (millions of $) FY 18 Beginning Balance $150.5 FY 18 Appropriated Use (56.7) FY 18 Projected NGE (85.7) FY 18 Projected Balance $8.1 FY 19 Direct Appropriation 62.4 FY 20 Direct Appropriation 183.4 FY 20 Projected Balance $253.8 9

1. Put Our Financial House in Order Setting Priorities • Program Eliminations • Funding for 70 programs not included in Governor’s Recommended Budget • $85 million General Fund savings each fiscal year • Spending Reductions • 6.25% reductions with annual General Fund savings over $300 million each fiscal year • Compared to past budgets, there are limited exemptions from spending reductions 10

1. Put Our Financial House in Order Exemptions from Spending Reductions – FY 2019 and FY 2020 • The SEEK Formula – per pupil classroom funding • Retirement Systems • Student Financial Aid • Heroin Bill Funding - SB 192 • Dedicated Coal Severance Programs (LGEDF & LGEAF) • Justice - Corrections • Department for Community Based Services • Commonwealth Attorneys, County Attorneys, Public Defenders • Economic Development • Debt Service • Board of Elections • Registry of Election Finance • Executive Branch Ethics Commission 11 • Necessary Government Expenses

1. Put Our Financial House in Order Additional General Fund Spending Compared to FY 2018 FY 2019 Additional $317.4 FY 2020 Additional $457.3 (millions $) Top Five FY 2019 FY 2020 Pensions $161.3 $150.3 Medicaid 0.0 143.7 Corrections 78.1 97.2 Community Based Services 55.0 54.2 Other Criminal Justice 23.0 11.9 12

1. Put Our Financial House in Order (Pensions and Medicaid a growing share of General Fund spending) Pensions Medicaid Rest of General Fund 81.8% 100.0% 68.5% 80.0% 68.1% 60.0% 40.0% 16.7% 12.7% 17.6% 20.0% Rest of General Fund 14.8% 5.4% 14.3% Medicaid 0.0% Pensions FY08 FY19 FY20 13

2. Fully Fund Pensions Governor's Proposed Budget 2018-2020 All funds in State Government - Millions General Fund KERS KERS FY 2019 FY 2020 Total FY 2019 FY 2020 Total Contribution base - FY 2018 864.6 864.6 1,729.2 361.2 361.2 722.4 Increase in funding 366.5 408.0 774.5 138.3 158.7 297.0 Total budgeted funding 1,231.1 1,272.6 2,503.7 499.5 1,019.4 519.9 - - KTRS KTRS Contribution base - FY 2018 1,142.3 1,142.3 2,284.6 1,142.6 1,142.3 ,284.9 Increase in funding 23.0 (8.4) 14.6 23.0 (8.4) 14.6 Total budgeted funding 1,165.3 1,133.9 2,299.2 1,165.6 1,133.9 2,299.5 KERS and KTRS Combined KERS and KTRS Combined Total pension funding 2,396.4 2,406.5 4,802.9 1,665.1 1,653.8 3,318.9 Contribution base - FY 2018 2,006.9 2,006.9 4,013.8 1,503.8 1,503.5 3,007.3 Increase in funding 389.5 399.6 789.1 161.3 150.3 311.6 14 Total pension funding 2,396.4 2,406.5 4,802.9 1,665.1 1,653.8 3,318.9

2. Fully Fund Pensions KERS Employer Contribution Rates - Pension and Medical Combined (in % terms) Annual Plan Employer Rate Change Non-Hazardous 25.3% FY 2016-17 Full ARC – 6.75% 48.59 FY 2017-18 Full ARC – 6.75% 1.8% 49.47 FY 2018-19 Full ARC – 5.25% 68.6% 83.43 FY 2019-20 Full ARC – 5.25% 0.0% 83.43 Hazardous Duty FY 2016-17 Full ARC – 7.50% - 9.6% 23.82 FY 2017-18 Full ARC – 7.50% - 0.5% 23.70 FY 2018-19 Full ARC – 6.25% 55.5% 36.85 FY 2019-20 Full ARC – 6.25% 0.0% 36.85 State Police FY 2016-17 Full ARC – 6.75% 17.8% 89.21 15 FY 2017-18 Full ARC – 6.75% 2.3% 91.24 FY 2018-19 Full ARC – 5.25% 60.3% 146.28 FY 2019-20 Full ARC – 5.25% 0.0% 146.28

3. Focus on K-12 Classroom Instruction Funding for K-12 education • The budget fully funds the SEEK “Per Pupil” allocation at $3,981 — the same as in FY 2017 and FY 2018 – the highest it has ever been in Kentucky history. • The state will fund a smaller amount of school district transportation costs. • A portion of school district health insurance will be shifted to the local school districts. • To help address the increased financial burden: • school districts will be required to reduce administrative and support costs by 12% in FY 2019. Those costs will reduced by an additional 12% in FY 2020 unless those costs are less than 15% of instruction (classroom) costs. • school districts will be allowed to use part of their financial 16 reserves.

4. Workforce Development & Economic Development • Investments in Kentucky’s manufacturing & information technology workforce: A $100 million bond pool for the Education and Workforce Development Cabinet – to meet job growth demand for high ‐ skill jobs such as advanced manufacturing and information technology jobs. • 100% of lottery funds will continue to go to scholarships 17

5. Safeguard Kentucky’s Most Vulnerable • Social Workers and Clinicians – These public servants are on the front lines protecting citizens from abuse and neglect. • Additional $68 million over the biennium • Over 340 additional staff • Increase salary for over 1,300 staff • Guardianship – These public servants take responsibility for care of people who do not have the capacity to make their own health and financial decisions due to mental or physical issues. • Additional $3.2 million over the biennium into caseload management • Kinship Care – funding for financial support for relatives caring for children • Additional $1.8 million in FY 19 and $3.3 million in FY 20 • Financial support for placement of 3,000 children • Adoption and Foster Care Supports 18 • $10.8 million over biennium from Tobacco Settlement Funds

6. Public Safety Additional Funding to State Police • Capital Budget: • Two-Way Radio System: $35.1m to replace statewide emergency radio communication network Phase I • Lab Equipment: $2.8m for Microscopes, Gas Chromatograph/Mass Spectrometers, and various laboratory equipment • Vehicles: $8.4m to purchase 200 new vehicles 19