The 2019 legislative session of the Kentucky General Assembly is officially in the books. Yesterday marked day 30 of the 30-day short session. In the days ahead, GLI will be working to take full stock of the 2019 session from the perspective of the Greater Louisville business community and will produce a final report next month. In the meantime, see below to relive some of the highlights of the 2019 session and to start thinking about next year’s 60-day budget session.

Key Wins for Greater Louisville Businesses in 2019

• Senate Bill 7 (Senate President Robert Stivers) clarifies in state law the ability of employers to condition employment on an agreement to arbitrate disputes. Senate Bill 7 fixes a major problem caused by a Supreme Court ruling last year and protects Kentucky’s business competitiveness.
• Senate Bill 18 (Senator Alice Forgy Kerr) clarifies in state statute employers’ obligations when it comes to providing reasonable accommodations for pregnant workers. With one of the lowest female workforce participation rates in the nation, this legislation can help support working women while also providing valuable guidance for employers.
• Senate Bill 57 (Senator Jimmy Higdon) significantly expands access to Class D felony expungement in Kentucky by increasing eligibility and lowering application costs. Since passage of House Bill 40 in 2016, which first allowed for Class D felony expungement in the Commonwealth, more than 3,000 Kentuckians have had their records expunged and are now in positions to join the workforce. Senate Bill 57 builds on that legislation and will empower many more Kentuckians to be able to contribute to and participate in economic growth in our region.
• Senate Bill 100 (Senator Brandon Smith) will help keep Kentucky energy prices affordable and competitive by providing for a much-needed modernization of Kentucky’s net-metering laws. This legislation will give the Public Service Commission the ability to determine a fair compensation rate and cost-sharing mechanism for net-metered customers.
• Senate Bill 250 (Senate Majority Caucus Chair Julie Raque Adams) represents a meaningful first step in empowering JCPS leadership with the flexibility they need to fully deliver for students in Jefferson County. Changes to state statute, such as giving the superintendent more authority to hire principals and more control over central office staff, will allow JCPS leaders to more effectively govern the largest school district in Kentucky.
• House Bill 354 & House Bill 458 (Representative Steven Rudy) are two tax reform measures that work together to phase out the Bank Franchise Tax and replace it with the corporate income tax and provide tax relief for nonprofits. These measures will help grow our economy.

Biggest Missed Opportunities

• Tort Reform: Senate Bill 11 (Senator Ralph Alvarado) and House Bill 225 (Representative Kim Moser) offered legislators two different approaches to improving Kentucky’s legal liability climate, which studies have determined to be one of the worst in the nation.
• Anti-Smoking Measures: Though passage of smoke-free schools legislation (House Bill 11)  marked an important step in the right direction in 2019, lawmakers had several other opportunities to enact policies aimed at lowering smoking rates, including Senate Bill 33 (Senator John Schickel) and Senate Bill 249 (Senator Stephen Meredith).
• Sports Wagering: Many states will be authorizing sports wagering in 2019 but Kentucky will not be one of them. House Bill 175 (Representative Adam Koenig) would have authorized sports wagering and dedicated revenues to pensions.
• Re-Employment Assistance: Initiatives like Senate Bill 171 (Senator Robby Mills) and House Bill 317 (Representative Russell Webber) could have ushered in much-needed changes to state unemployment insurance law to help workers find re-employment opportunities.
• Bail Reform: House Bill 94 (Representative John Blanton) proposed major reforms to Kentucky’s monetary bail system in an effort to lower incarceration rates and keep more Kentuckians in the workforce.
• Infrastructure Funding: House Bill 517 (Representative Sal Santoro) would have provided close to $500 million in new revenues to address the Commonwealth’s growing backlog of road projects and infrastructure needs.
• Administrative Relief for Contractors & Nonprofits: Senate Bill 147 (Senator Chris McDaniel) would have reduced an administrative burden for contractors and nonprofits by allowing contractors to use their customers’ tax-exempt certificates to purchase materials for construction projects.
• Tuition Tax Credits: House Bill 205 (House Majority Floor Leader Bam Carney) would have increased the educational options for students across Kentucky regardless of their family’s financial means by creating a tuition tax credit program.

Three Questions as we look ahead to 2020

Will the legislature address pension reform in 2020?

Following attempts to address Kentucky’s pension crisis in the 2018 session and in a special session late last year, legislative leadership signaled that reforms could come in 2019 but were unlikely. One of the most significant obstacles to pension reform this year was the number of new legislators. Altogether, the General Assembly welcomed more than 30 new members. Given the complexity of a topic like pension reform, many new members have needed more time to familiarize themselves with the issue. In addition, time is needed to build consensus around the right approach.

To help facilitate this process, House and Senate leadership established the public pensions working group at the start of session to begin exploring a way a forward. That group met periodically in the first few months of session. Our hope is that the group will resume meetings in the interim and begin developing concrete legislative proposals.

With the working group formed and a full session behind new members, GLI encourages the General Assembly to make 2020 the year when Kentucky confronts its pension crisis head-on.

What does the future hold for state tax reform?

The legislature has been taking an iterative approach to tax reform. 2018 saw passage of House Bill 366 and House Bill 487, which—while not comprehensive reform—took a giant leap forward to improve Kentucky’s tax code. This year saw passage of House Bill 354, a “clean-up” bill which addressed shortcomings of last year’s tax bills but added a welcome new addition by repealing the Bank Franchise Tax, and House Bill 458, which was effectively a “clean-up” of the original “clean-up” bill.

In conjunction with setting the 2020-2022 budget, another tax reform package in 2020 is probable. But whether it will lean more in the direction of comprehensive reform or more in the direction of a clean-up package like this year remains to be determined.

GLI remains focused on comprehensive reform. The reforms of 2018 took Kentucky’s business tax climate rankings from 33rd in the nation to 23rd, as determined by the nonpartisan Tax Foundation. We want to continue moving up that list and will be particularly focused in 2020 on shifting Kentucky’s tax system from production taxes to consumption taxes, local government tax reform, and improving unemployment insurance taxes. GLI will also continue pursuing new tax revenues and economic growth through expanded gaming and sports wagering.

How might statewide elections in 2019 impact the 2020 session?

Now that session is over, attention will shift to Kentucky’s statewide elections. Up for election this year are Governor and Lt. Governor, Attorney General, Agriculture Commissioner, State Auditor, and State Treasurer. Republicans currently hold all of these offices with the exception of Attorney General.

The results of these races could have wide-ranging implications for the future of the state, but it will be important to remember that their impact on the legislative process will be minimal in the short term. Republicans hold supermajorities in both chambers of the General Assembly and that will remain the case for the 2020 session.

GLI does not endorse candidates for elected office but we strongly encourage our investors to be engaged in the electoral process. Throughout the 2019 election season, we intend to work hard to ensure members of the Greater Louisville business community are well-educated on key business issues and candidate stances.