Thoughts on Sen. Luke Kenley’s Pending Retirement

Earlier this summer, Sen. Luke Kenley (R-Noblesville) announced his plans to retire from the Indiana Senate on September 30 after a quarter century representing constituents in Hamilton County.

Kenley is the longtime chair of the powerful Senate Appropriations Committee, which is responsible for that chamber’s budget-writing proposal.

Governor Eric Holcomb said of the news: “Few understand the intricacies of Indiana’s finances like Luke Kenley. He has been an essential state-budget architect for years and years, and he is widely respected for both his expertise and his no-nonsense approach to lawmaking. Even though he is moving on to the next chapter in his life, many will continue to seek his counsel – including me. So, even though he won’t be in the Senate Chamber come January, and he’ll have a little more time to spend at his ranch in Texas, he will continue to contribute to our state’s success in countless ways.”

Indiana Chamber President Kevin Brinegar, himself a Noblesville resident and constituent of Kenley’s, offered these remarks:

“We were sorry to learn that Sen. Kenley has chosen not to serve his full term; it is undoubtedly a loss for Senate Republicans and the collective body. Senator Kenley brought his vast experience as a lawyer, judge and small business owner to his service and has been an outstanding and model public servant.

“He has been a strong conservative force on fiscal policy matters and that has served our state very well. Senator Kenley has also proven to be an attentive legislator and during his tenure was involved in virtually every important piece of policy and legislation to move Indiana forward and enhance our prosperity.

“It’s been my pleasure and honor to work with him over these many years. I’m proud to call Luke Kenley my friend and wish him the best in his retirement.”

On a related note, Sen. Ryan Mishler (R-Bremen) was appointed in mid-July to take over chairmanship of the Senate Appropriations Committee.

Senate Puts Its Mark on State Budget Bill

Senate Appropriations Chairman Luke Kenley (R- Noblesville), primary drafter of the Senate version of the budget, has now put his touches on the House-drafted version. After a concise explanation and short discussion in committee, HB 1001 was passed unanimously (although the Democrat leadership expressed mild discomfort with some particulars) and now goes to the full Senate.

A few highlights of the $32.14 billion budget package include:

  • a 1.7% increase each year in K-12 education funding – $348 million over the biennium
  • $4 billion to higher education
  • $5 million to the governor’s office for substance abuse prevention, treatment and enforcement
  • $500,000 for homeless veterans
  • a 24% salary increase for state police officers
  • $6 million to double-track the South Shore Line

The budget will maintain an 11%, or $1.8 billion, reserve. But there is a lot still to be determined about how the final negotiated budget will shape up. Unresolved at this point is the fate of the House’s desire to direct all the sales tax collected on gasoline to road funding and an increase to the cigarette tax – both of which could impact the budget. And finally, it must be recalled that the budget-makers will receive an updated revenue forecast in a couple weeks; that too could change the picture some. So, while the Senate has spoken, the last word is still a few weeks away.

A Step Closer to Sales Tax Collection for Online Purchases

The Indiana Chamber supports SB 545 (Sales Tax Collection by Remote Sellers).

This bill takes an important step toward the Legislature requiring online retailers who have no physical presence in Indiana to collect Indiana sales tax from their Indiana customers when they make online purchases. Ultimately, one of two things must happen for the requirement to go into full effect. Either the U.S. Supreme Court has to determine that states are allowed to impose this requirement based on their economic activity in the state (and the nominal burden associated with it), or Congress must pass legislation to authorize states to require the online sellers to collect a state’s sales tax.

The issue is pending before both bodies and several states are passing legislation to put pressure on one of the two entities to act and resolve the issue. Senate Bill 545 is modeled after a South Dakota law that is under review by the high court. It is designed to put Indiana in the position of making the requirement effective as soon as an Indiana court declares the collection valid under federal law. So this remains legally complicated, but SB 545 is a thoughtful and sound approach.

Senator Luke Kenley has pursued this issue diligently for many years – doing everything possible to address the problem of the sales and use tax on these transactions going uncollected. He is to be commended for his pursuit in the past and for formulating this legislation. In-state brick and mortar retailers are put in an unfair position when their online competitors are not required to collect and remit Indiana’s sales tax (as they are), effectively giving the “remote sellers” a 7% price advantage. Additionally, Indiana’s sales tax base is diminished each year as the online sales market continues to grow at rapid rates. What’s more, this is not a new tax since purchasers are already legally obligated to report their online purchases and pay the “use” tax when they file their income tax returns. But the reality is very few people comply with this law.

The Chamber supported the bill in committee this week and, in fact, has been working along with Sen. Kenley for years to achieve, by some means, state authorization for collecting these unpaid taxes. The objective is set forth in our Indiana Vision 2025 economic plan and we just might, after years of complications, be getting closer to obtaining this goal.

Will Everybody End Up Giving a Little on Budget?

On the face of it, today’s series of second reading budget amendments in the Senate appeared to be another partisan exercise. Eight Republican amendments (mostly minor in nature) passed; Democrat offerings elicited strong debate before going down to party-line defeat, with 33-17 becoming the vote count of the day.

Dig a little deeper, though, and the stage may have been set somewhat for conference committee negotiations. Among the developments:

  • Senate Appropriations Committee Chairman Luke Kenley (R-Noblesville) adjusting the hastily compiled budget, making adjustments to the school funding formula to try and decrease the dollar discrepancies between growing schools and those continually seeing declining enrollments (closer to the House Democrat model).
  • An amendment from John Broden (D-South Bend), ranking minority member of the appropriations panel, that called for spending $132 million more on education. Although defeated, the debate was spirited and Kenley appeared to remain open to further consideration. House Speaker Pat Bauer (D-South Bend) undoubtedly liked some of the things he heard from Broden and his fellow senators and views some as tools for the end game.
  • A successful Mike Young (R-Indianapolis) amendment (on a voice vote) that introduced publicly a new solution to the Capitol Improvement Board (CIB) mess. It is more of a stopgap measure, allowing the CIB to borrow money from the state treasurer for up to a three-year period to meet its financial obligations. It would eliminate several of the tax increases that have been primary components of the discussion thus far.

 The Senate returns at 11 a.m. Tuesday to pass its version of the budget. The House may be back to officially dissent, and conference committee negotiations round two will begin. Senate Republicans are seemingly in the "compromise" mood; will House Democrats reciprocate?

Governor to Legislators: A Billion is a Billion (in Reserves)

Governor Mitch Daniels presented his revised budget proposal to a special legislative committee this afternoon. He closed with announcing that the special session will begin on June 11 (1 p.m.). Among his key earlier points:

  • The special session is "not something to be regretted, but something to be grateful for."  He made it clear that he would have vetoed the proposed budget (defeated in the House in the last minutes of the regular session) due to the unrealistic revenue forecast that was in place at the time
  • He hopes legislators give serious consideration to an education trigger. If revenues do exceed projections at some point in the next two years, half of the excess would go toward education and the other half to the state’s rainy day fund
  • He indicated flexibility within his parameters to legislative wishes with the following exceptions: no gimmicks, no dipping into pension funds and only using one-time federal stimulus money for one-time purposes. "A billion means a billion (for reserves). It’s not a starting point."

Sen. Luke Kenley (R-Noblesville) offered a preview of things to come for the committee:

  • State Budget Director Chris Ruhl answering more legislative questions on Thursday. A recommendation from the administration on the CIB funding crisis for Indianapolis sports and convention facilities is expected later that day
  • Testimony Thursday and Friday from proponents for K-12, higher education, Medicaid/social services and economic development/worker training
  • Legislative caucus presentations on Tuesday, June 9, with a focus, according to Kenley, on "major points you would like to see in the budget, not bringing in the additional bills you would like to see addessed in the special session"

Text of the governor’s address to the public on Monday and slides used in his presentation are available here

Budget Forecast is New — and Different

At today’s State Budget Committee meeting, a new revenue forecast for fiscal years 2009-2011 showed a nearly $1.1 billion decline from the forecast offered less than six weeks ago.

No, as committee chair Luke Kenley (R-Noblesville) pointed out, that doesn’t mean a $1.1 actual loss but a decline from a projected increase that many had doubted when it was delivered.

The forecasters went back to the drawing board to try and figure out why the April projections were so far off of the actual April collection. An expanded group of technical advisors decided to revise their sales tax collection model and added variables to the income tax model to adjust each of the three fiscal years.

The projected decreases (from April’s outlook): $444 million in fiscal 2009, followed by $331 million in 2010 and $316 million in 2011. While the projected revenue decline of 7.5% from 2008 to 2009 is unprecedented in state history, forecasters noted that it is a smaller decline than nearly all other states (including Michigan at an astounding 20%).

Kenley offered that more attention should be paid to the actual revenue numbers — $12.9 billion, $13.1 billion and $13.6 billion for the 2009-2011 period, respectively. That compares to a state that operated in 2008 on a budget of less than $13 billion after state agency budget cuts were ordered and enacted. His conclusion, including the addition of the federal stimulus funds: "If we can flat fund or come close to it over the next three years, we will be OK."

Bill Crawford (D-Indianapolis), chair of the House Ways & Means Committee, isn’t ready to buy into that approach. He said during the meeting that he and House Speaker Pat Bauer (D-South Bend), "want to make sure if we adopt the hunker down, man the barricades mentality, that we don’t allow the education infrastructure to decline unnecessarily." It appeared that others on the committee, through their reactions, were questioning whether flat-lining would be enough. In other words, this battle is far from over.

Crawford expressed "discomfort" with the fact that a dramatically different budget forecast was presented today as compared to April 17. He noted that while part one of his AAA philosophy (acquire information) is complete, it is time for analysis before deciding how to act.

Next up: a budget proposal from Gov. Mitch Daniels, likely next Monday, June 1.