2026 Regular Session - Day 34 - HB 500 | Rep. Jason Petrie

Thank you, Mr. Speaker. If you will ask the clerk to report House Committee Substitute 1 to House Bill 500. Mr. Clerk, please report. House Committee Substitute 1 to House Bill 500. Gentleman from Todd. Move for adoption. Question for the body is on adoption of House Committee Substitute 1. Is there any discussion? Seeing none, all those in favor, please signify by saying aye. Aye. All opposed, nay. Motion carries. House Committee Substitute 1 is adopted. Gentleman from Todd. Thank you, Mr. Speaker. House Bill 500 is the executive branch budget bill. A good first draft of this bill, as indicated in my four remarks back on January the 27th when we first introduced the bill, that was used to begin conversations. And there were people, some, some agencies that availed themselves of that opportunity. Not included in that version, we had capital projects that were omitted. Agency requests were not approved and included. Medicaid was not addressed. Primary and secondary education not addressed. Post-secondary and many other issues, again, to start those conversations. It was not and could not be a proposal, especially without those items. We announced that this was very different from prior years where we would prepackage the budget bill and introduce and push it along in the process. This was designed very, very differently. The process that we used has resulted in greater transparency. I've received several comments inside the chamber as well as outside thanking for the process and the most they had seen in a decade or better in their experience. And I appreciate those communications to us. And I will have to say, unprecedented work because of this process with our budget review subcommittee chairs. We won't be taking up transportation today, and I don't mean to exclude, but on the House Bill 500, the other seven have done great work in their committees, vetting issues, fielding questions and comments from members as well as interested stakeholders. And they have in an unprecedented way dealt with issues and helped us gather that input and work our way through when we tried to bring the full package together with the committee sub. As always, this is a budget process. I call this the good first draft. This is our good first draft that will come out of the House. But as you know, there will be a second draft. And although the Senate will mess it up, it will come back to us and we will work out our differences in the conference committees. House Bill 500 is structured as follows. First, again, we separate out operational considerations from long-term investments. We focus on the operational investments over a two-year period. That's the most immediate needs that we have rather than long-term where we go for capital infrastructure projects and other longer-term needs. We did this in the 2024 session by bifurcating with different bills. At that time, we had House Bill 1 for one-time appropriations and then a regular bill for operational. We've continued with that theme this time. Operational budget, we focused, again, on the near-term needs for the next two years. In our stress, we focused on needs, not wants. Speaking of wants, not funding those with taxpayer money, we did not feed the appetite of $10 billion of additional funding from the executive branch's requests. And we focused on those needs, and ultimately we ended up at about a restrained growth of spending in each year of a little less than 2%. So we have restrained that spending growth. Two percent is a good benchmark for that, and I think we're at 1.9, right in that 2% target that we had set for ourselves. We achieved this in part by adopting the executive branch base reductions. Basically, that was a 1% that occurred for the FY26. We rolled that into 27, resulting in a 4. We added 3 on and then a 3% reduction that would be in FY28. But the base reductions did not apply everywhere. We exempted out several budget units. Those include Veterans Affairs, SEEK, Learning and Results, School Facility, County Costs, Medicaid Benefits, Behavioral Health, Family Resource Centers and Youth Services Centers, Juvenile Justice, Department of Corrections Community Services and Local Facilities, Department of Corrections Adult Correctional Institutions, Department of Corrections Local Jail Support, and the Post-Secondary Performance Fund. Still, while we exempted those things and applied the base reductions elsewhere, we were able to continue what this General Assembly has been doing at least since 21 and 22 is regaining focus on increments for state workers in the executive branch. And as we have done before, we have not withstood and gotten rid of a CPI adjustment for constitutional officers and elected officials, governor, those type things in the executive branch. And everyone, elected and unelected, are on an increment. And this is set as a 2% in the first year and another 2% in the second year. Likewise, it goes right along with that salary increment. We have a 2% in the first year and a 2% in the second year. Regarding CLEP incentives and similarly situated incentives, we also have been able to address, I hope in large part but not fully, the salary compression issue. Right along with increments, we've been done with salary classification studies, which were finally completed and have now been implemented. And then compression is the last issue, and I think this goes a long way toward that. For longer-term investments, not operational, we again plan to use the Budget Reserve Trust Fund. As in 2024, we'll use a one-time appropriations bill for those longer-term investments. Accordingly, as we try to even plan for the next budget cycle, House Bill 500 budgets to deposit approximately 2% of our projected revenues over the next two years into the Budget Reserve Trust Fund, or approximately $614 million over the biennium. That would be about 2% of revenues projected at this point. From the Budget Reserve Trust Fund, we'll statewide intend to improve statewide improvements such as the grant program. I think last, in 2024, we placed $200 million into that plan to help counties and cities and nonprofits and anyone that would partner up with them for things like infrastructure, workforce, sidewalks, roads, bridges, wastewater, water, and that program continues on, but it is funded from the one-time investments much longer. Likewise, the Product Development Initiative, statutory framework around it so that we can encourage economic development throughout the Commonwealth, funded from one-time funds. The W. Waters Program for distressed water districts for emergency needs as well as long-term infrastructure, again, that same one-time funding. Specific regional infrastructure projects, water, wastewater, all kinds of infrastructure as we've done before. And then similar smaller district projects which otherwise likely would just fall through the cracks and not be addressed but do have a quality of life effect on constituents of ours. So overall, you look at the numbers, revenues expected to be about $5.9 billion in 2027, about $16.2 billion in 2028 fiscal year, so about $32 billion over the biennium. After appropriations, we should have approximately $614 million left over. Restrain the growth in spending to 2% or less, and then take 2% as we all should be doing in our households and business. We'll take part of our operational money, put it in a savings account or an investment account. We'll draw interest off of it and be ready for the next round of investment funding of long-term projects and long-term returns to Kentuckians. Mr. Speaker, to dig into the details of the budget itself and what's contained in House Bill 500, I'd like to rely on who I've been relying on during this session in much greater part than in years prior, the Budget Review Subcommittee Chairs. Mr. Speaker, if I may, I would like to yield to the lady from Kenton 63 regarding primary and secondary ed and workforce development. Mr. Speaker, and with that, that's the last of our summaries, but I will do a little foreshadowing of whenever we take up the judicial budget, the lady from Kenton 65 does such a good job on House Bill 500 that she will be our exclusive and sole source of information about the details of the 504 budget for judiciary. Again, thank you to everyone that has helped on this. And in summary, I'll go back to revenues, approximately $15.9 billion in the first year, $16.2 billion in the second, as projected with appropriations growth in those not exceeding 2% in each year with deposits into the Budget Reserve Trust Fund over the biennium of approximately $614 million, which would result in about 2% of our revenues being deposited into the Trust Fund in order to address longer-term needs of Kentucky. With that, Mr. Speaker, I move for final passage of House Bill 500 as amended by House Committee Substitute 1.