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Kentucky lawmakers work on budget, tax legislation

The proposed two-year state budget would pump money into renovations at state parks and increase spending for K-12 schools.

FRANKFORT, Ky. — Kentucky lawmakers revealed a state spending plan Tuesday calling for big pay raises for state employees and advanced a measure aimed at phasing out individual income taxes as they raced the clock to wrap up work on priority bills.

The proposed two-year state budget would pump money into renovations at state parks and increase spending for K-12 schools. House and Senate leaders negotiated the revised spending plan, setting the stage for final votes by Wednesday to send the measure to Gov. Andy Beshear.

“It is certainly the best budget that I will have voted for since being in the legislature,” Republican House Speaker David Osborne said.

In related action, the Senate passed its version of a sweeping proposal that could fundamentally change Kentucky’s tax code over time. Legislative leaders left about $1 billion unspent in the budget to cover changes in the tax code. The result was tax legislation aimed at gradually phasing out individual income taxes while extending the state sales tax to more services.

RELATED: Kentucky lawmakers OK bill to lock in unemployment insurance tax rate

The Senate version revised the conditions to be met to trigger incremental drops in the state's personal income tax rate, which is now at 5%. The tax rate could drop by a half-percentage point at a time if the formula's targets were achieved. The first rate cut could come as soon as Jan. 1, 2023, said Senate Appropriations and Revenue Committee Chairman Chris McDaniel.

“We do firmly believe in lowering the income tax rate in this state," McDaniel said. "But it has to be done responsibly. And this is a very gradual way to accomplish that safely.”

The tax bill cleared the Senate soon after emerging from committee. It heads back to the House for further action before being sent to the Democratic governor. 

Lawmakers are scheduled to be in session through Wednesday before taking an extended break to give Beshear time to decide whether to sign or veto measures sent to his desk. Lawmakers will reconvene for wrap-up work in mid-April and could take up override votes of any vetoes of bills sent to the governor this week. Republicans have supermajorities in both legislative chambers.

Meanwhile, the proposed two-year state budget — the state's preeminent policy document — emerged once legislative leaders ironed out differences between House and Senate versions.

Under the plan, state employees would receive a pay raise of at least 8% in the first year of the biennium. State police troopers and social workers would be among the state employees in line for even bigger raises. 

The measure sets aside enough money for a 12% salary boost in the second year, though specific raises for the state's workforce would be based on a Personnel Cabinet study.

The budget negotiators agreed to increase per-pupil funding under SEEK, the state’s main funding formula for K-12 schools. The amount would go to $4,100 in the first fiscal year and $4,200 in the second year. The current amount is $4,000.

The measure calls for the state to cover the cost of full-day kindergarten.

The plan also would allocate $150 million in the second year of the budget cycle for a statewide overhaul of the state parks system.

"One of our greatest and best assets is the natural beauty of this state,” Senate President Robert Stivers said. “And we made some serious investments to bring people back to this state from a perspective of tourism and enjoying our state. And I think that will go a long way of maintaining and growing our economy.”

The spending measure would allocate $200 million to overhaul the state fairgrounds in Louisville.

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