Kentucky’s revenue shortfall has dominated the news about state government for the past several months and – like many other states – it has welcomed federal stimulus money as a means of plugging some sizeable budget holes. But Kentucky’s problem with revenue shortfalls existed long before the current downturn, and the situation will probably get even worse when the federal money is no longer available.
Arguably more troubling, however, is the fact that state spending in recent years shows Kentucky’s budget priorities shifting away from investing in education and toward providing more money for jails, public employee benefits and Medicaid.
That new reality is the most significant conclusion of research that the Kentucky Chamber of Commerce has undertaken in recent months.
The state shortfalls have led some people to conclude that Kentucky needs to modernize its tax system to address the situation. As a result, we took particular note of two major findings of research conducted by the University of Kentucky: 1.) The size of state government relative to the state’s economy has remained consistent over the years (about 6 percent of the gross state product) and 2.) state revenue has essentially been growing with the economy.
With those facts in mind, we took a closer look at the state budget and found that spending in corrections, Medicaid and public employee benefits is growing faster than both the state budget overall and the state economy. The result is that education’s share of the budget has declined, and education has the greatest potential to help us grow a stronger economy.
This level of spending clearly is unsustainable, and the state must act deliberately to institute management strategies that work. The chamber has offered the following ideas for consideration by the state’s policymakers.
Medicaid
• Expand Medicaid-managed care in the more populous areas of Kentucky and identify appropriate ways to incorporate managed care in other areas.
• Shift a larger portion of spending to promoting wellness, require higher co-pays from smokers, give incentives to providers to order preventive services, and provide a statewide smoking cessation program for recipients (Kentucky is one of only five states without such a program).
• Improve program administration to reduce overpayments to providers and increase the use of generic drugs.
Corrections
• Consider a stringent community supervision system to prevent parolees from returning to prison.
• Explore ways to address substance abuse among criminal offenders.
• Consider expanding the use of privately operated prison facilities.
Public Employee Health Benefits
• Require state employees to contribute a reasonable amount for their health insurance.
• Provide employees with a fixed amount of money that they can use to buy life/health insurance or other fringe benefits.
In tough economic times we have to establish spending priorities and fix the leaks that drain the money away from the priorities we have established to ensure progress for Kentucky.
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