The Kentucky House sped to passage Friday morning an amended state revenue bill that could ease the path to hit triggers for tax cuts in future years, in line with the Republican supermajority’s long-term goal to eliminate the income tax.
The GOP-dominated chamber also cleared a late-amended bill to move a large grant program out of the Democratic governor’s administration and place it under a Republican-led agency.
Both pieces of legislation began as 11-page bills, but were amended with mostly new language in a House budget committee meeting Thursday.
The revenue bill, House Bill 8, became a wide-ranging 124-page bill, while House Bill 723 changing the state’s GRANT Program — set to soon distribute $450 million of funds — expanded to 63 pages. The amended versions of both bills were not publicly available on the Legislative Research Commission website until Thursday evening, roughly 12 hours before the House passed both Friday morning.
In addition to various changes to the state tax code, new language in HB 8 makes a change to Kentucky’s 2022 law that created a trigger mechanism to potentially lower the individual income tax rate by half a percent each year if the state’s revenue, spending and budget reserve trust fund reach a certain threshold.
Kentucky failed to hit one of the tax cut triggers last summer because its General Fund spending was $435 million too high in that fiscal year. The triggers were put in place to ensure that Kentucky did not decrease its tax rate too fast and jeopardize government services, which is what happened in Kansas a decade ago.
The trigger law already exempted spending to pay down the state’s public pension debt, but HB 8 would now exclude any appropriation from the budget reserve trust fund, so long as it is specifically identified in a spending bill as not being subject to the trigger law.
House Bill 1 that cleared the Senate last week would appropriate $3.5 billion from the budget reserve trust fund — often referred to as the state’s “rainy day fund.” Close to $1 billion of this spending is on already exempt pension payments, but the bill includes “notwithstanding” language to disregard the trigger law and say the rest of the appropriations do not count as General Fund spending under it.
Rep. Jason Petrie, the GOP chair of the House budget committee from Elkton, has said the use of such language and spending in HB 1 is not specifically designed to improve the odds of hitting triggers for future tax cuts. However, GOP Senate budget committee chair Chris McDaniel of Ryland Heights said last week the chamber’s budget bill cut $390 million of spending specifically to improve the odds of hitting the tax cut trigger.
This move of exempting certain spending has been criticized as “moving the goalposts” of the tax cut trigger mechanism by the Kentucky Center for Economic Policy, a progressive think tank.
Pam Thomas, a senior fellow of the nonprofit, says the new HB 8 language is another move to make the triggers easier to hit.
“Is the trigger really something that matters?” Thomas said. “Or every time it gets difficult are they going to move the goalposts again?”
On the House floor, Petrie said the original intent of the tax cut trigger law was to exempt one-time spending on projects, though that previous bill only specified pension payments.
Other changes to HB 8 include exempting bullion — such as silver and gold bars — from the state sales and use tax, eliminating the $60 annual registration fee by hybrid vehicles and exempting taxes on dozens of business services if their annual revenue is less than $12,000, which is double the current threshold.
The amended revenue bill would also create a broadband investment tax credit that is capped at $5 million per year, allowing companies installing networks to receive credit back for the sales taxes they paid on supplies for such installation.
Petrie said in committee this was an effort to “incentivize more players to come into Kentucky to help us get broadband deployment accomplished.”
The revenue bill also directs $200,000 of gambling revenue from the horse industry to the state’s problem gambling assistance account, while also directing the Horse Racing Commission to reserve $900,000 over the next three years for a track to host an unnamed international harness racing event.
The bill passed by a 73-11 vote on the House floor, with most Democrats voting against the bill. The bill now has to be approved by the Senate.
GRANT Program moved from governor to Department of Agriculture
The new language passed in HB 723 changes the administrative oversight agency for a new program that is set to distribute at least $450 million of state funds in the coming years.
Instead of being administered by the Department for Local Government under the administration of Gov. Andy Beshear, the bill would create a new GRANT Commission housed in the Kentucky Department of Agriculture. That agency is run by Agriculture Commissioner Jonathan Shell, a Republican who was elected to the office last fall.
The GRANT Program was created by legislation in 2023 to provide matching funds for local government and nonprofits seeking federal grants under a new program created by the Biden administration and Congress in 2021 to aid poorer regions dealing with a transition in the energy sector, such as struggling coal communities in Appalachia.
The new commission approving grant applications is made up of seven members. Two of the seats are appointed by the governor, while the others are the five Republican constitutional officers or their designees.
Asked by Democratic Rep. Cherlynn Stevenson of Lexington in committee why the program was being moved out of the governor’s administration, Petrie said the state agency didn’t have enough staff to take on the project and has had trouble processing the few applications it handled last year.
“(The Department of Agriculture) have enough staff to lend support to this very quickly, as well as the ability to contract up,” Petrie said. “But also they think they have in line additional personnel that can come on fairly fast to administer the program.”
Spokespersons for Beshear’s office did not respond to a request for comment on the change in the bill.
On the House floor, Democratic Rep. Chad Aull of Lexington criticized the legislation as one of a long line of bills taking power away from the governor’s administration, saying it is the wrong thing to do “no matter who is holding those offices.”
“We're moving them or creating them into an agency that has not had the resources, the expertise, the history, the knowledge of how to administer those programs and work directly with the stakeholders and the key people in both local state and federal government agencies,” Aull said.
The initial legislation directed $2 million to the program, which was to help attract federal funding for “projects that are in the public interest and for a public purpose” in 41 counties in east and west Kentucky.
While not yet passed into law, both the House and Senate have passed the aforementioned HB 1, which includes $450 million for the GRANT Program.
The new language of HB 723 also changes what counties and types of projects are eligible to receive the funding.
Whereas only 41 counties were previously eligible, the bill would open this up to all 120 counties. Additionally, eligible projects would be able to include those with “a derivative private benefit,” so long as it is deemed by the agency to enhance the quality of life or services in a community or region.
While there are still federal rules attached to the funding, Thomas of KCEP says the language about “derivative private benefit” could significantly change what type of projects receive the funding.
“I think the wording is vague,” Thomas said. “And I think it provides a lot of leeway for projects that probably aren't going to qualify under the current program.”
Democratic Rep. Ashley Tackett Laferty of Martin said she strongly supports the GRANT Program and its additional funding, but voted against the bill because its late amendments moved so quickly and she hadn’t had time to review their implications.
“I think this is a wonderful program,” Tackett Laferty said. “It just went so quickly through the substitute that we added in order for me to review all of the changes that are made.”
She expressed particular concern about its eligibility now expanding to all counties, as she represents two eastern Kentucky counties included in the original bill.
The House passed HB 723 Friday by a party-line 71-17 vote, with no Democrats supporting the bill. The bill now has to be approved by the Senate.
