FRANKFORT, Ky. (AP) — Republican lawmakers in Kentucky have agreed to reduce revenue by $105 million a year so they can give a tax break to some locally owned banks and exempt nonprofits from some sales taxes.
The agreement, approved Wednesday by legislative leaders from both chambers in the GOP-dominated General Assembly, does not include a proposal that would have indirectly supported some private schools with tax credits. That's a victory for teachers in Kentucky's largest school district, who shut down schools for the fifth time in two weeks Wednesday so hundreds of educators could keep an eye on lawmakers as the proposal moves through the final stage of the legislative process.
House Bill 354 will likely be approved by both the state House and Senate this week with bipartisan support and sent to Republican Gov. Matt Bevin's desk. Bevin has not said if he will sign it. If he vetoes it, lawmakers could override him when they return for the final day of the legislative session on March 28.
Most of the changes won't take effect until the 2021 budget cycle, giving lawmakers another year to figure out how to make up the difference. Lawmakers have already promised to spend millions of dollars during the next budget cycle to put police officers in every public school after a fatal shooting at a western Kentucky high school last year. And lawmakers are dealing with multibillion-dollar shortfalls in its public pension system.
"You cannot look at any given item in the absence of the whole," Republican Senate budget chairman Chris McDaniel said. "It's an ongoing balancing act between taxation, attracting and retaining good businesses and also being able to deliver the services that the citizens of the commonwealth have come to expect, and we continue to strive to strike that balance."
The proposal would let banks with a Kentucky charter pay corporate income taxes instead of a "bank franchise tax ," a complex formula that is based on how much capital a bank has. The banking industry, whose political action committee donated more than $100,000 to more than half of the state House members elected in 2018, has been asking for the change for years.
McDaniel said that proposal would cost the state $56 million a year beginning in 2021. It would not affect big banks headquartered out of state, he said, but only those that maintain a Kentucky charter. Lawmakers and industry advocates say they hope the change will stop the trend of local banks selling to out-of-state buyers, who then move the capital to other states to avoid the tax.
Since 2000, Kentucky has lost at least 56 state-chartered banks, leaving 124 still operating, according to the Kentucky Department of Financial Institutions' annual reports.
"It's more appropriate to think about this as a Kentucky community bank equity act," said Morgan McGarvey, the Senate's Democratic leader. "This does not apply to the big banks as I understand it."
The bill makes several other changes, including exempting nonprofits from some sales taxes. Because of a combination of court rulings and new laws, nonprofits have had to collect sales taxes on admissions and other items for the past year, including basketball tickets for the University of Kentucky and University of Louisville programs. The bill fixes that.
Other changes include giving a tax credit to a small group of lower-income earners who ended up paying more in state income taxes when the state legislature consolidated the tax brackets. Democrats and others had criticized the Republican majority last year for passing a bill that cut taxes for everyone except the poor.
"We're going to make sure no one saw a tax increase as a result of last year's bill," McDaniel said.