First Lady, Lieutenant Governor Pence, President Williams and Speaker Richards, Legislators, Constitutional Officers, Justices and my fellow Kentuckians, it is a time-honored tradition that brings me here tonight to reflect upon our great Commonwealth.
I want to first recognize Representative Bruce as the longest serving member. He could not be here.
We are thankful he is now home from the hospital and watching us tonight.
The people of Kentucky vest in us the responsibility of determining the character of state government. Only those who have served in this chamber know the sense of that responsibility.
Every challenge we are willing to confront in a humble, bipartisan manner is an opportunity for progress -- a moment that can make us stronger, healthier, more prosperous and more united.
Let me congratulate and welcome the new members of the General Assembly and Justice Scott. Your service is an esteemed duty you have well earned.
Candor acknowledges that partisanship inflamed by election year politics characterized this past year.
We did have a record turnout on Election Day, as Secretary of State Trey Grayson will attest. Participation was so high in fact, that 39 Senators showed up for work in January.
On a more serious note let me welcome Senator Julian Carroll our 52nd Governor and former Speaker of the House back to these chambers.
This is a new year and we have a new opportunity. We are all Kentuckians and we all want Kentucky to flourish and prosper.
We are especially proud of Kentucky’s National Guard and the other armed services. We currently have 1,532 National Guard soldiers serving overseas whose dedication allowed historic elections in Iraq this past weekend.
With honor and bravery, these sons and daughters fight for our safety by helping spread the God-given right of freedom. In the gallery tonight are Captain Adrian Wheeler, Master Sergeant Jonathan Rosa and Staff Sergeant Kelly Reeves. All have returned from Iraq where they served valiantly.
Please join me in saluting them and all our troops.
Let me also recognize Bill Hintze for his decades of service in the state budget director’s office. He will be retiring soon. Bill, thanks for your devotion and service.
A year ago, I reported that the state of the Commonwealth was “as challenging as it has ever been in the modern age."
Yet, in many ways we have had a good year.
Our economy is recovering. The unemployment rate is lower at 4.5 percent.
The test scores of our students continue to improve.
We established the Office of Drug Control Policy - and let me recognize Lieutenant Governor Pence for his outstanding work along with Attorney General Stumbo.
We launched Recovery Kentucky, a program to establish ten rehabilitation centers across our state to combat the addiction crisis.
We saved over 74 million dollars in the transportation cabinet alone.
We reduced the number of cabinets from fourteen to nine, and with your help, passing the appropriate reorganization bills, we will complete that effort.
We cancelled over 2000 state credit cards and lowered the annual credit limit by 285 million dollars.
We implemented many other cost-saving ideas, some of which came from state employees themselves, to save millions of dollars and to fulfill our promise to operate government more efficiently.
And the people have chosen a new brand for our state, "Unbridled Spirit".
As we enter a new year, we are at a crossroad.
One way is the timid status quo, with a budget that bridles our future.
The other way is a courageous course that unbridles opportunity and prosperity. But to forge that path we must pass tax modernization.
There is another choice – doing nothing – but that is not an option.
As we all learned in high school civics, a Governor doesn't have a vote when it comes to passing a budget. And Judge Crittenden recently opined that a Governor doesn't have the authority to spend money the General Assembly hasn't appropriated.
Although I disagree and believe that the inaction of one branch of government should not prevent another from fulfilling its responsibilities, we will respect the orders of the judiciary.
To that end, I have asked my administration to begin reviewing the steps which may be necessary to comply with the Courts' order.
I sincerely hope that a government shutdown will not be required, but that’s in your hands.
Tonight, I present to you two options.
The budget I present is based on our current tax code, a system rooted in an economy nearly 100 years old.
This is not the path I prefer, but if you cannot summon the will to reform our taxes then it is the path we are destined to take.
This budget only provides for the immediate needs for Medicaid and healthcare for our teachers and employees.
This budget allocates 57 percent of new anticipated revenue to education, 30 percent to Medicaid, 2 percent to Corrections and 11 percent to cover state workers and retirees under House Bill 1.
Let me now introduce the First Lady Glenna.
Within this budget, I have again included Read to Achieve, an effort led by the First Lady along with Senators Kelly and Westwood.
It also begins my effort to make our teacher's pay competitive by providing 26 million dollars in addition to the two percent raise for all state workers. This money will fund a flexible compensation plan aimed at retaining and recruiting quality teachers.
This is a priority of the Prichard Committee and I share this worthwhile goal.
I’m pleased to have Elaine Farris, Superintendent of Shelby County Schools, Kentucky’s first African-American Superintendent and Jo Biehle, a nationally certified, Miliken award winning teacher with us here tonight.
Please join me in recognizing them.
This budget provides for a 20 percent increase for state and teacher health insurance, keeping the current benefits of HB1 intact for an additional 6 months under a self insured structure.
We will work with your Blue Ribbon Commission to address the rising, unsustainable costs.
Additionally, by expanding the use of coal severance tax to education and infrastructure, we can better serve the future of those families in some of our poorest counties.
I propose a three year pilot program where we will invest a portion of the economic development severance money in the 24 lowest performing school districts in coal counties – recognizing that education is an essential element for economic development.
We will help secure a solid foundation for life-long learning by utilizing early childhood health and readiness assessments, technology, targeted intervention, longitudinal student tracking and end of course assessments for students and professional development for educators.
To ensure efficiency and public safety, I will fund those projects that update our neglected information technology and early warning systems.
I have also included 350 million dollars of road bonds and 150 million dollars of federal Garvey bonds to help meet our six year road plan needs.
The budget also calls for almost 2 million dollars annually for state trooper training stipends, because they deserve it.
I am pleased to have Trooper Rick Conn in the gallery tonight. Though he would deny it, Trooper Conn is a true hero who proved himself by helping to save a mother and her child from a burning house after he himself had already been severely burned by the fiery explosion.
Please join me in saluting Trooper Conn and all our law enforcement personnel.
I’ve expanded Kentucky’s newborn screening process to include testing for 29 different illnesses, bringing Kentucky in line with the March of Dimes’ national standard.
But, the budget based upon our current tax system does not contain the general fund career building projects at our universities that you and I want and that were contained in last year’s budget.
Last year, in the House budget projects were included without debt service funding.
We cannot issue bonds or begin projects without appropriated debt service and we cannot afford future debt without modernizing our tax system.
Some will say that I could have included other projects that would not require general fund money. They are right and I hope we can agree to build those projects.
But I am cautious about our bond rating because our reserves are only seven-tenths of 1 percent under this budget.
This budget will allow us to continue government services, but it is not the vibrant vision we share for Kentucky.
Currently, too many of our best and brightest college graduates leave Kentucky every year. We raise, train and educate them only to benefit employers in other states.
My vision for Kentucky is a Commonwealth where there is so much economic opportunity, and our quality of life is so high, that people who are born here can stay here, and people who aren't fortunate enough to be born in Kentucky, can look forward to locating here.
I believe the only responsible way to build a brighter future is to bring our outdated tax system into the 21st Century.
Why? Because our existing tax code doesn't attract or keep our young talent in Kentucky.
It is unreliable, unfair, and in some parts unconstitutional.
It is a tax system that has brought us to a point where the number of Medicaid recipients exceeds the number of students in our public schools.
And it is holding us back to the point where our per capita income is 20 percent below the national average.
Think of what a disaster that spells for the future and what burden that will place on the next generation.
Our current tax system will not provide tomorrow's support for education and healthcare.
It will not substantially reduce the poverty level.
The current telecom tax structure was designed in the era of the crank phone and Alexander Graham Bell. That was even before Rep Bruce was first elected.
Our corporate license tax was established in 1906 - eleven years before the Soviet Union was established. Superpowers may come and go, but Kentucky's tax code is apparently forever.
Let me outline some of the specifics of our JOBS for Kentucky Plan.
First, support of this plan is consistent with the tax pledge many have taken.
It is tax neutral over the period required for full implementation. That means that tax increases are offset by tax reductions.
Within that period there is positive revenue for this budget cycle due to the timing of the closing of loopholes and implementation of the cigarette tax.
All the while, the burden on small Kentucky businesses is reduced and loopholes for larger out-of-state businesses are closed.
That early boost will help us bridge the challenges we currently face.
My plan will cut income tax rates on virtually all working Kentuckians, attract high-quality businesses and bring more stability to the budgeting process.
Most importantly, my plan will BRING JOBS TO KENTUCKY - more than 10,000 additional jobs by its first full year of implementation.
That’s 3000 more jobs than last year’s plan because we reduce the income tax levels.
This plan will lower the individual income tax rate by 9 percent, and 99 percent of working Kentuckians will have more take home pay.
The need for lower income tax rates became obvious during the 17 forums we held across the state.
From our Hopkinsville forum, Senator Pendleton and Rep. Carr will tell you that when you leave Fort Campbell, you turn right to Tennessee or left to Kentucky.
Unfortunately, over eighty percent of the soldiers turn right and choose Tennessee instead of Kentucky as their home.
Why? It isn’t for the barbecue.
Tennessee doesn’t have an income tax.
We will attract more people to Kentucky by lowering our income tax rate.
In fact, lowering the income tax rate is the single most important thing we can do to create opportunity.
If you don’t believe me, just ask the soldiers who go home to Tennessee
My plan removes 211,000 filers, representing 485,000 Kentucky family members from the tax rolls altogether.
We tax the poor more than any state. It is time to stop.
Our current system encourages out of state companies doing business here to move their profits, operations, and most importantly, jobs, out of state to avoid paying Kentucky taxes.
In 1994 you passed a good law for small businesses that allowed the formation of limited liability companies. The law never anticipated that large out of state companies would use that structure as a way of avoiding corporate tax.
These loopholes are neither fair nor responsible.
By requiring out-of-state companies to pay their fair share, the tax burden for Kentuckians is reduced.
Other portions of the current tax code have been declared unconstitutional. We fix those problems.
I propose a fair, simple and uniform tax on all communications services, holding local governments and school districts harmless.
We will continue to work with you to ensure that a level playing field exists for companies providing these like services.
Raising the cigarette tax is also a matter of fairness and sound public policy. A tax on cigarettes is purely voluntary. If you don't buy cigarettes, you don't pay the tax.
Kentucky has the highest incidence of smoking in the country. Nationally we rank first in deaths from cancer and fourth from heart disease.
And it's undeniable that smoking contributes to increased health insurance and Medicaid costs.
Raising the cigarette tax will send a healthier message to our children.
Frankly, the support for a cigarette tax at our forums surprised me. There was overwhelming support for greater than a 50 cent increase.
My plan starts at 34 cents a pack and establishes a formula that will allow it to increase at a competitive rate with surrounding states.
I also propose to extend the sales tax to packaged alcohol. When you buy a glass of wine in a restaurant you pay sales tax, but when you buy a bottle of wine at the store you do not. We are simply harmonizing that sales tax.
The tax plan I offer tonight includes incentives to help promote education and economic growth.
I‘m proposing a tuition tax credit of up to 500 dollars for each student going to Kentucky colleges and universities. This will help working families cope with the rising cost of tuition.
It includes Rep. Damron's "Back to School Sales Tax Holiday".
I’ve included deductions to help small businesses take advantage of federal health savings accounts.
Additionally, several other incentives are included: a Kentucky enterprise initiative to give tax credits for hard construction and research and development costs, an equine breeder incentive development program to grow our equine industry and keep Kentucky the Horse Capital of the World.
I’ve also proposed Brownfield credits, clean coal technology credits, environmental stewardship credits and alternative fuel credits. This plan promotes economic development while being environmentally responsible.
This plan also allows for historic preservation credits to help us keep our heritage.
I have now outlined a budget without tax modernization as well as most of the details of my tax plan.
My preference is that you pass a budget with the bridge supplied by tax modernization.
It is a better path that allows us to invest more for today and build more for tomorrow.
With the passage of the JOBS for Kentucky Plan you will have more revenue for the budget you are charged to enact.
I propose that we invest the extra money to grow opportunity, build careers and strengthen education. I prefer and I believe Kentuckians will prefer this unbridled path.
This requires you to pass the tax modernization plan. The JOBS for Kentucky Plan provides more revenue for the current budget cycle without raising taxes and provides for dynamic growth as our economy grows in the years to come.
Let me be specific how I would like the extra money to be spent:
- 35 million dollars to primary and secondary education.
- 10 million dollars additional to our flexible teacher pay program for a total of almost 36 million dollars.
- An additional 10 million dollars for a total of 22 million dollars to post-secondary education to help restore the funding cuts they’ve suffered over the last few years.
- 26 million to our reserve fund along with additional funding of debt service, which allows us to maintain our bond rating while building pharmacy and research buildings at UK and U of L as well as 500 million dollars worth of other projects that will build careers and create opportunity all across this Commonwealth.
It is embarrassing that graduates from Northern Kentucky University receive their diploma in Ohio. We need an adequate place for NKU to host their special events. It will better serve those students and be an important tool for economic development.
Additionally as we move into advanced agriculture and natural product technology, I would like to encourage you to protect Phase I tobacco money for those purposes as we pay our farmers the Phase II money they are relying on. Our tax plan assumes this will happen.
I also propose 6.8 million dollars to increase the per diem by 3 dollars for our county jails. It is neither fair nor sustainable for us to ask our counties to keep our prisoners at below their cost.
The budget we can have under a more stable, modern tax system meets more needs.
Let me now thank Representative Jimmy Lee and Senator Julie Denton for their refreshing bipartisan work on one of our most daunting challenges for the years to come-our Medicaid program.
With their help we have begun the work to address the Medicaid crisis.
The pharmacy benefit alone will consume 820 million dollars of the 4.6 billion dollars we will spend on Medicaid this year.
We had 33,000 Medicaid recipients on twenty or more medications in a six month period. One individual received 108 separate medications per month.
As this demonstrates, we have a problem called “polypharmacy”.
We're doing something about it.
In December, we modernized the processing of prescriptions to ensure that dangerous drug combinations were identified. The result is a safer, more cost effective Medicaid program.
We joined eight other states to form the National Medicaid Pooling Initiative saving over 38 million dollars a year.
We’ve asked pharmacists to do their part.
Now, I also call upon my fellow physicians, who treat Medicaid patients, to review the medications they are prescribing and resist the pressure to over prescribe. We cannot overcome this problem without your help.
Another major danger to Kentucky's health care system is medical lawsuit abuse. The rising cost of medical liability insurance forces many talented doctors to leave Kentucky, jeopardizing quality of care.
We must have comprehensive reform to include independent boards for evaluating claims, tougher insurance oversight and a constitutional amendment that will allow reasonable caps.
Let me thank President Williams for his leadership on this issue.
Again, I ask you to pass the constitutional amendment that will allow voters to choose to keep their doctors in Kentucky.
Tonight I have presented two options to you, as I see them.
One is to continue to do what we‘ve always done, knowing we‘ll get what we‘ve always gotten.
Though the overwhelming need for a budget compels me to offer it, I do not prefer the type of budget that we must adopt without tax modernization.
History is filled with epic moments where a state is faced with enormous obstacles or daunting challenges.
This is such a moment.
Allow me to say this again, every challenge we are willing to confront in a humble, bipartisan manner is an opportunity for progress -- a moment that can make us stronger, healthier, more prosperous and more united.
In the remaining 25 days of this session, I challenge you to take the plans I have presented here, debate them, improve them if you will and present to me a budget and JOBS for Kentucky plan so our Commonwealth may be stronger.
I am optimistic about our future because I know our people are good, our hope is unwavering, our faith is unshakable and our spirit is unbridled.
Thank you and God bless and may God Bless Kentucky.