At the very end of the legislative session, the General Assembly appropriated nearly $1.4 billion in funds Kentucky is set to receive from the American Rescue Plan. Unfortunately, the biggest appropriated amount of $575 million will go to the state’s unemployment fund — which just has the effect of eventually lowering business taxes across the board — rather than a priority of direct relief to Kentuckians struggling the most right now. Also passed were $338 million more in General Fund appropriations, including one year of funding for all-day kindergarten. These bills now go to the governor.
Focus of American Rescue Plan appropriations is a tax reduction for businesses, putting money in infrastructure
Through a flurry of bills on the final days of the 2021 session, the legislature appropriated $1.4 billion of the $2.63 billion the state received directly in American Rescue Plan funds. The largest amount was $575 million to pay back the loan the state owes to the federal government for unemployment benefits plus pay any interest owed (the state currently owes $506 million).
This move is being made to prevent very small, automatic state and federal increases to a business tax, yet that tax was already lower than it had ever been in the history of the program going back to 1938. Since the tax applies to all businesses based on their payroll size, this assistance is not targeted solely to those small businesses that have been hard hit. The major beneficiaries will be large corporations like Amazon, now one of the state’s biggest employers as their profits have soared in this crisis.
Infrastructure is also a significant, and much better, new use of the funds: $300 million for broadband internet investments to address the need for last mile coverage, and $250 million for water and sewer projects. The plan also includes $127 million to replace outdated schools and $58 million to renovate the state Capitol and Annex.
The General Assembly did not use any of the monies it appropriated to provide direct relief to low-income Kentuckians facing the most hardship in this crisis. The Governor had proposed $475 million to be used for $500 payments to individuals who make less than $25,000 a year and couples that make less than $50,000 a year. If the governor signs the new legislation, that would leave approximately $1.27 billion in American Rescue Plan funds left to spend. The governor should prioritize getting that money out as soon as possible with a focus on low-income Kentuckians and their families and communities.
Additional General Fund dollars spent for all-day kindergarten and other items
On the last day of session, the legislature also appropriated additional state General Fund dollars on top of what was included in the budget. The biggest item in this category is $140 million to provide one year of full-day kindergarten. The General Assembly did not at the same time permanently change the Support Education Excellence in Kentucky (SEEK) formula for future years to support ongoing funding of full-day kindergarten, instead only putting the dollars in for one year. The next biggest new General Fund appropriation is $75 million for vocational education center renovations.