Governor’s budget addresses future cuts

Gov. Steve Beshear presented his two year budget plan to lawmakers on Tuesday night, which included significant spending cuts to meet the expected shortfall of more than $300 million. Beshear’s biennium budget proposal did not include any tax increases, nor did it rely on any assumptions of income that could be generated from the passage of expanded gaming.

The budget calls for 8.4% across the board budget cuts to state government except for areas of education and law enforcement. Like most budgets, there is use of “one-time” revenue to help balance the budget. This includes a $28 million balance that is carried forward from the current budget, $116 million in agency fund transfers and $51 million from the state’s “rainy day fund” for a total of $191 million. Keeping in line with the Kentucky Chamber’s Spending Principals, the Governor held Kentucky’s debt limit within 6% of revenue, the structural deficit is reduced from $475 million in the current enacted budget to $191 million by the end of FY14 and some level of the state’s rainy day fund is maintained.

Highlights of Beshear’s budget

Medicaid –Kentucky’s Medicaid program funding is expected to decrease to $1.34 billion from $1.39 billion this year.  It will increase to $1.5 billion in FY 14 due to a reduction in the federal matching rate.  Money that is saved from HB 463, the Corrections Reform Bill passed last year, is added for substance abuse programs.

Education – Kentucky’s SEEK Formula is held constant at 2008 levels as are teacher salary and retirement contributions.  A bit of good news in the Governor’s budget is $15 million is added to the budget to provide preschool to 4,000 four year-olds in the state.  Kentucky’s state universities are cut however at 5.2% in FY13 then receive a mere .31% increase in FY 14. The Governor did include over $450 million for capital projects at universities funded by agency bonds.

Corrections – Total appropriations for corrections will decrease about $2 million over the biennium, despite a significant increase in funding for Probation and Parole ($5.6 million in FY13 and $2.6 million in FY14) to fund the 2011 corrections reforms.  Private prisons will also see a reduction as the proposed budget reduces the amount going to private prisons by $6 million in FY13 and another $3 million in FY14 and shifts this funding to county jails.

Public Employee Benefits – Spending on public employee health insurance increased an average of 15% per year from 2000 to 2010. The current budget for FY 2010-12 reduced the annual increase to 7.8% per year and the proposed budget continues this trend, holding the increase in public employee health insurance to just under 2% in each year of the biennium. Spending on public employee health insurance increased an average of 15% per year from 2000 to 2010.

Economic Development- One of the areas that suffer under the Governor’s plan is funding for economic development activities. Economic Development activities will suffer a significant reduction in General Fund appropriations over the biennium due to the expiration of a one-time “continuing appropriation” that was part of the restructuring of economic development incentives in 2009.  To replace these General Funds, the proposed budget includes $1.083 million in debt service for $20 million in new bonds for “High Tech Construction/investment Pools” created under KRS 154-12.278, giving the Economic Development Secretary the ability to use the funds in the Economic Development Bond Program.

The Governor’s proposals have been filed by House Appropriations and Revenue Chairman Rick Rand in the House.  HB 265 (Executive Budget), HB 266 (Transportation Budget), HB 268 (Legislative Budget) and HB 269 (Judicial Branch Budget), are expected to begin to be discussed as soon as the House and Senate complete redistricting.