Wednesday, May 5, 2004

Politicians may budge on budget

$100M in N.Ky. projects might not survive cuts

By Patrick Crowley
The Cincinnati Enquirer
and The Associated Press

FRANKFORT - Kentucky's state budget impasse appeared to inch toward resolution Tuesday during a closed-door meeting between Gov. Ernie Fletcher and House Democratic leaders.

But even if an agreement is reached by July 1, the start of Kentucky's new fiscal year, more than $100 million in projects for Northern Kentucky could be sliced from the budget.

"I'm concerned about the projects," said House Majority Caucus Chairman Jim Callahan, D-Wilder. "To a number of people, the most important thing is getting a budget. But to us in Northern Kentucky, the projects are very important ... and we're going to do what we can to keep them funded.

"There is a much better shot at getting the budget than getting the projects," Callahan said after emerging from the early afternoon meeting. "The governor is wanting to get a budget in the worst way, and I can't say I blame him."

The budget included more than $100 million in local projects, including a new arena, student union and parking garage for Northern Kentucky University and a new nursing school for Gateway Community and Technical College's Edgewood campus. It also included funding for sewer and water projects for Boone, Kenton and Campbell counties.

Callahan described the meeting as productive and a much-needed "ice-breaker."

"We had a good dialogue," he said. "There was no final answer by any stretch of the imagination, but it's a beginning."

Fletcher indicated he was willing to bend on provisions of the new state tax code he has proposed. The governor's tax overhaul plan - a major tenet of his 2003 gubernatorial campaign - has been the major sticking point among budget negotiators.

Fletcher said that, while he would continue to push for the new tax code, he would negotiate his proposal for income tax rates to be automatically cut as state revenues increase to prescribed levels.

Some Democrats are leery of such a "trigger" provision.

Callahan said during the meeting that House Speaker Jody Richards, D-Bowling Green, agreed to call Senate President David Williams, R-Burkesville, "to try and set up a meeting to discuss where there might be some room to compromise."

Fletcher also agreed to be involved in the negotiations, if necessary.

"The governor seemed to be willing to do what he can to bring this to closure," Callahan said.

The Republican-controlled Senate passed the tax plan, but Democrats who hold the House refused. The General Assembly then, for the second time in three years, adjourned April 13 without passing a budget.

Fletcher has said he will call a special legislative session to pass a budget only if House Democrats and Senate Republicans can agree on its specifics and work out their differences.

According to Fletcher's administration and Senate Republicans, the plan is "revenue neutral," meaning it raises as much revenue as its cuts. That gives proponents of tax increases political cover to support the package even though it increases as many as eight taxes.

But Callahan said many Democratic House members, and even some Republicans, are concerned that political opponents will use their votes for the tax plan as ammunition for campaign attacks.

"A lot of members have races coming up in November, and they don't want to be portrayed as voting for a tax increase," he said.

Though Fletcher has talked about overhauling the tax code for more than a year, he did not unveil his plan to lawmakers until March 11 and did not file it as a bill until March 16. That gave legislators just 11 days to pass the most comprehensive tax reform package in decades.

Many lawmakers, including Democratic leaders, complained that the budget bill died because there simply wasn't time to digest and debate its many complexities.

Fletcher's tax plan calls for:

• Raising the state's 3-cents-a-pack cigarette tax to 29 cents.

• Increasing alcoholic beverage taxes.

• Closing business tax loopholes.

• Replacing existing state and local telecommunications taxes with a uniform 7.62 percent tax.

Revenue from the cuts would be replaced by:

• Lowering the top individual income tax rate from 6 percent to 5.7 percent.

• Raising the low-income tax credit to cut 125,000 families off the state tax rolls.

• Eliminating the corporation license tax.

• Lowering the top corporate tax rate from 8.25 percent to 6 percent.


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