FRANKFORT, Ky. (Jan. 17, 2012) – Gov. Steve Beshear presented his biennial budget proposal to the General Assembly Tuesday night, 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 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, FY14. 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,” 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 Services
State 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 10 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 Healthcare
The 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.
Strategic Investments Protect the Vulnerable, Attack Persistent Problems
Despite the budget challenges, Beshear told legislators that Kentucky had to make investments in key areas, particularly in protecting vulnerable populations and attacking persistent problems that cripple our workforce.
• Reduce social worker caseloads: Gov. Beshear proposed investing $21 million over the biennium to reduce caseloads for Department of Community-Based Services employees. Caseloads for social workers have increased 8 percent since 2008 while staffing levels have dropped by 12 percent in the same time period. This investment will not only reduce above-average caseloads for these critical employees, but will also help ensure that Kentucky families in jeopardy will get the timely services and protections they need.
• Expand preschool for 4-year-olds: Kentucky currently provides funding for
4-year-olds in families whose income is at or below 150 percent of poverty level to attend preschool, and fully funds preschool for all 3- and 4-year-olds with certain disabilities. Gov. Beshear’s budget proposal recommends expanding preschool eligibility for 4-year-olds to 160 percent of poverty level in Fiscal Year 2014, and called for increasing it to 200 percent by the end of his term. The initial expansion to 150 percent would cost $15 million, allowing 4,430 more Kentucky children to participate in this critical program, a huge step that greatly improves their chances at a successful life. Expanding to 200 percent would add an additional 3,920 children, for a total of 8,350 more children.
• Fund an Adult Abuse Registry: Beshear urged the General Assembly to create an adult abuse registry that would record any incidents of abuse or neglect by caretakers hired to aid elderly Kentuckians, so employers can make sure potential hires don’t have prior problems with assisting the elderly. Approximately $2 million over the biennium is included in the budget to fund the registry.
• Provide Colon Cancer Screening for Uninsured Kentuckians: Gov. Beshear recommended investing $1 million for colon cancer screening, to be matched dollar-for-dollar by a new private foundation, for a total of $2 million to be spent over the biennium. Kentucky has the highest incidence rate of colon cancer in the nation, and the second highest death rate, though the disease is highly preventable with screening. This funding will provide screening for 4,000 uninsured Kentuckians, and save both lives and money.
• Enhance drug abuse prevention and treatment efforts: Gov. Beshear recommended adding $4 million to expand the use of the state’s prescription drug tracking program, KASPER, in order to better track and target illegal prescribing habits. He also recommended adding $8 million to expand substance abuse treatment in the Medicaid program for both adults and teens. The proposal would allow 5,800 Kentuckians to receive community-based drug treatment, such as intensive outpatient treatment, case management, and peer support.
New Revenue is Critical
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,” Beshear said. “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, 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.
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:
• Funds the Louisville Bridges Project.
• Completes the six-laning of I-65 between Bowling Green and Elizabethtown.
• Completes the final leg of the 25-year widening of the U.S. 68/Ky. 80 corridor between Bowling Green and Mayfield, including the bridges over Lake Barkley and Kentucky Lake.
• Advances the Interstate 69 project in West Kentucky by enabling the ultimate conversion of many more miles of parkway to interstate status.
• Provides about $80 million toward the four-laning of the Mountain Parkway between Campton and Salyersville.
• Widens a stretch of Ky. 15 in Perry County near Bonnyman to the Hazard bypass.
• Completes the construction of U.S. 460 in Pike County between U.S. 23 and the Virginia state line.
• Completes the construction of U.S. 119 in Letcher County between Partridge and Oven Fork.
• Completes the Newtown Pike Extension Project in downtown Lexington.
• Constructs new Interstate 75 interchanges and builds a new frontage road system between Richwood Road and Mount Zion Road in Boone County.
• Spends over $500 million to repair or replace more than 240 substandard bridges across the Commonwealth.
• And dedicates over $100 million a year to pavement repairs on primary roads.