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Gov. Beshear: Deep, painful cuts required to balance budget
Says most agencies will see cuts of 8.4 percent in 1st year of biennium. Education and public safety spared deepest cuts. Little for infrastructure investments. New revenue sources needed, Governor says, and again calls for vote on putting gaming measure on ballot.
By Kerri Richardson and Terry Sebastian
FRANKFORT, KY - Governor Steve Beshear presented his biennial budget proposal to the General Assembly tonight, a budget he termed "inadequate for the needs of our people." The Governor pointed to slow-to-recover revenues and loss of one-time funds, combined with the lingering effects of a devastating recession, as the culprits for the dismal budget outlook.
"We should be making substantial investments in our physical and intellectual infrastructure to bring transformational change to our state. This budget does not allow us to do enough of that," said Gov. Beshear. "Instead, it requires painful cuts that may well force us to retreat on some core services, and that risk jeopardizing progress we've made over decades in education."
Most state agencies will see cuts of 8.4 percent in the first year of the biennium, Fiscal Year 2013, and then straight-lined budgets in the second year, Fiscal Year 2014. These reductions are in addition to cumulative cuts of 30 percent or more made to many agencies over the last four years. While some services are protected from the deepest cuts, including education and public safety, very few programs are fully exempted from reductions.
However, declaring that he refused "to simply accept the status quo," Gov. Beshear recommended several critical investments designed to better protect vulnerable populations and to attack persistent, generational problems that continue to hold Kentucky back.
Finally, he reminded lawmakers that in order for Kentuckians to thrive, the state must have more revenue, and the best ways to grow revenue are through expanded gaming and vigorous tax reform.
Cuts to Agencies and ServicesState revenues are growing, but not quickly enough to keep pace with the increasing cost of mandatory expenses such as Medicaid, state employee health insurance, retirement benefits and debt service.
Most state agencies will receive 8.4 percent cuts, including the Governor's Office and all other constitutional officers, the Cabinets of Economic Development, Energy and Environment, Finance, Labor, Public Protection and Tourism and many other areas. (Please see attached charts for the full list of agencies receiving 8.4 percent cuts.)
Gov. Beshear warned that the easy cuts to state agencies were made long ago, and the proposed reductions will have real impact not only for state employees but also for Kentuckians who utilize those services. While there will be no furloughs of state employees, the cuts will likely lead to delays in service, loss of federal funds, possible facility closures, unfilled positions, and possible layoffs.
The cuts will not be made across the board. Some areas, including classroom funding, corrections, the Department for Community Based Services, veterans' affairs, and behavioral health, are exempt from reductions. (Please see attached charts for the full list of exempted areas.)
SEEK, the main funding formula for classrooms, will be maintained at the same funding level as 2012 for the upcoming biennium. SEEK has been protected through ten prior rounds of budget cuts. Base funding for higher education will be cut by 6.4 percent in the first year and straight-lined in FY 2014, which is a smaller cut than most other agencies will experience. While corrections budgets are exempted from cuts, the remainder of public safety services will be cut at a rate of 2.2 percent in the first year, then straight-lined in the second year. Again, that's a smaller cut than the 8.4 percent most agencies will experience.
The proposed budget would authorize $778 million in bonds for new projects, including those supported by the General Fund and agency bonds. This is the smallest capital program since 1996.
Sustained Investments for Jobs, Public Protection, and Efficient Health CareThe proposed budget also includes support for several major initiatives designed to create jobs, provide better services, and save money.
Gov. Beshear's top priority throughout his administration has been attracting and maintaining jobs in Kentucky. This budget helps our economy by reinvesting in programs that retain and create jobs, including $20 million in bonds for the high-tech grant and loan program. This nurtures our cutting-edge companies, especially small companies, which create many new jobs.
HB 463, the landmark penal code and corrections legislation passed last year, will continue to decrease the state's prison population, reduce incarceration costs, reduce crime and increase public safety. The savings resulting from the lower prison population will be reinvested into expanded treatment programs, parole services, pre-trial release, and other approved programs.
In November, 560,000 Kentucky Medicaid recipients transitioned to a managed care program, which is projected to save $1.3 billion in taxpayer funds through Fiscal Year 2014. While total Medicaid costs are increasing due to increasing enrollment and increasing cost of health care, those increases are significantly blunted by the savings provided through managed care. The savings realized this biennium through managed care total $294 million in state funds.
Gov. Beshear reminded lawmakers that increasing revenues, not just continued deep cuts, is the only way to ensure Kentucky will prosper in the future.
"We're at the point where drastic cuts will do more damage to Kentucky's long-term future than realized savings will help," said Gov. Beshear. "There are those who continue to insist that Kentucky can cut its way to prosperity. If that were the case, we'd all be wealthy."
In order to bring more revenue to the state and help balance the budget, Gov. Beshear proposed a tax amnesty and enhanced compliance program, the first in Kentucky in a decade. To encourage taxpayers - both individuals and businesses - to make payments on back taxes, the state will waive penalties and one-half of the interest owed. Additional penalties and enforcement efforts will be imposed after the amnesty period. Forty states have held similar amnesties. The program is expected to net $61 million over the biennium.
The real answers to Kentucky's revenue woes, Gov. Beshear said, are tax reform and expanded gaming.
Gov. Beshear recently announced the formation of a Blue Ribbon Commission on Tax Reform. That group will study ways to better align our state's tax system with the principles of fairness, business competiveness and adequacy. Recommendations are expected to be finalized toward the end of this year.
In addition, legislators will have the opportunity in this session to allow Kentuckians to vote on expanding gaming.
"Kentuckians have made it clear that they want to vote on this issue," Gov. Beshear said. "The only question is whether we listen to them, or we ignore them."
The Governor noted that Kentucky's neighboring states are enhancing their budgets with hundreds of millions of dollars they rake in by taxing Kentuckians who visit casinos in their states.
According to a just-released economic study, Kentuckians spent $451 million in casinos in surrounding states in 2010. This study's scenario predicted Kentucky would receive $266 million in one-time license fees and $377 million in annual tax revenues if gaming were expanded here.
Road Fund Continues to Grow
The Transportation Cabinet is funded through a separate budget from the rest of the executive branch, and is supported largely by the Road Fund. For the fourth and fifth years in a row, the Road Fund is expected to show growth in revenues. In year one of the biennium, state revenues are expected to increase 6.1 percent; in year two, 4.6 percent.
This growth will allow the state to increase revenue sharing with local governments, as well as to fund projects in the Six-Year Highway Plan that aggressively invest in Kentucky's primary road system.
The six-year plan:
This story was posted on 2012-01-18 02:34:03
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