2018 General Assembly RecapKAM
The most significant takeaway from this session could very likely be breaking the no-tax cycle and doing it with a Republican majority in both chambers and a Republican Governor. HB 487 makes changes in both corporate and individual income tax provisions, applies the sales tax to some services, and increases the cigarette tax. The bill was not a significant new revenue generator, but depending on what happens this election cycle, it will leave the door open for additional tax reforms. The Governor allowed HB 487 to become law without his signature.
Our wrap up starts with the three main subjects that drove debate throughout the session: pensions, tax reform, and the budget.
Pension Reforms—SB 151
Pensions got the most attention of the three. With all of the noise the last few weeks of the session, what ended up passing has minimal impact on existing employees in all three systems.
- The legislation did not limit sick leave service credit for purposes of service credit in SB 151. Current members cannot use sick leave service credit for purposes of retirement eligibility after 7/1/2023.
- There was no adjustment to employee contribution to fund retiree health benefits.
- The impact of sick leave payments on retirement benefits is limited to the amount accrued by 12/31/2018.
- Level-dollar funding is phased in by 2021. This provision is significant because it will require more upfront funding by the state starting in 2022.
- Teachers Retirement had the most changes, mainly due to being brought under the changes the GA authorized in 2013 for everyone else.
- Historically, Kentucky has permitted $41,110 per person of pension income to be excluded from taxable income. The bill reduces that exclusion to $31,110 per person. Social Security continues to be entirely exempt from Kentucky income tax.
Corporate Tax Changes—HB 487
- There were several changes to the state tax code as a part of what was billed as tax reform. The Governor had called for comprehensive tax reform, and while this fell short of that, it does address some issues worth mentioning.
- Both individual and corporate income tax were reduced to 5% with a stated goal of more reductions in the future.
- Single-factor apportionment was adopted, but also combined reporting of multi-state corporations. We will be following the latter very closely through the interim as regulations are promulgated.
- Two critical economic development incentive programs were repealed in the first bill that passed but were later re-enacted at the urging of manufacturers in the final days of the session.
Sales Tax Changes—HB 487
House Bill 487 applies the sales tax to some services, including labor and services associated with the repair, installation, and maintenance of taxable tangible personal property. The bill also includes an exemption for business to business transactions. This provision could be more clear, and we will be working to clarify as regulations are adopted.
State Budget—HB 200
The State biennial budget is usually the highest-profile issue of the even-numbered year session and this year was not much different. The Governor’s proposal was noted for 6.25% cuts in all agencies except SEEK, Health and Human Services, and Corrections.
The House was the first to consider the bill and restored most of the agency funds with the help of their tax changes as a part of HB 487. The Senate, on the other hand, went back to the cuts and balked at the tax changes.
After the conference committee of House and Senate leaders to resolve differences in the two versions, the final agreement was something between the Senate and Governor’s versions.
Workers Compensation reform—HB 2
The bill provides for the following, among other provisions:
- Clarifies that limitations on the reopening of claims will align with current Kentucky Law
- Sets appropriate limits for identifying claims filed years after the initial incident
- Establishes appropriate duration of payment of claims
- Encourages employers to bring workers back to work quicker
- Signed into law by the Governor.
Essential Skills Bill—HB 3
Provides for school districts to promote an essential workplace ethics program and to establish workplace ethics indicators. Signed into law by the Governor.
Critical Infrastructure/Drone—HB 324
The Kentucky Chemical Industry Council and Rusty Cress were instrumental in guiding this bill through both chambers with very few changes. The bill has been signed into law by the Governor.
Net Metering—HB 227
Provides that the rate of compensation for an eligible customer-generator for power be set at the most recently approved retail price by the PSC. The bill received a lot of debate and was on the Senate floor awaiting consideration. The bill died in the Senate during the final days of the session, but we anticipate it will be back in 2019.
Brownfields Update—HB 370
The bill simplifies regulatory procedures for developing a brownfields property. KAM was instrumental in passing the original brownfields legislation, and HB 370 should make it a much more straightforward statute to maneuver. The bill has been signed into law by the Governor.
Price Gouging—SB 160
The bill modernizes the 14-year-old statute prohibiting grossly excessive price increases by sellers of goods and services during a state of emergency. The bill adds clarity by drawing on other state laws proven to be effective. The bill also retains strong provisions in existing law and strictly prohibits grossly excessive price increases. The bill has been signed into law by the Governor.
Transportation Infrastructure Reform—HB 609
This bill would have raised the gas tax by 10 cents, generating $300 million annually. The measure also included various license and regulatory fees that would have raised another $150 million annually. The bill received a hearing in the House and plenty of discussion among leadership, but in the final days, they decided not to push this session. Expect this bill or something like it to be back in 2019.
Unemployment Insurance Reform bill—HB 252
The bill passed and was signed into law by the Governor, but it was water downed substantially. We expect this bill to be discussed during the interim and probably brought back up in 2019