State budget shortfall grows to $456 million
UPDATED THROUGHOUT AT 7:55 p.m.
FRANKFORT — After the state’s projected budget shortfall grew by more than half on Friday to $456.1 million, Gov. Steve Beshear warned that the blooming financial crisis may bring tax increases, layoffs and cuts to education and social services programs.
Beshear made his somber remarks shortly after a group of independent economists raised the state’s projected revenue shortfall for the state’s General Fund from $294 million to $456.1 million. That represents about a 5.1 percent decline in the $8.9 billion of revenue that was expected.
“This financial crisis is neither imagined nor exaggerated. It’s real and it must be addressed,” Beshear said. “Kentucky’s elected leaders, regardless of party or politics, must come together to confront this challenge. Make no mistake, only tough choices lie ahead.”
The Democratic governor said a special legislative session is likely in January to deal with the shortfall for this fiscal year, which ends June 30.
However, Republican Senate President David Williams of Burkesville said no special lawmaking session is needed and challenged Beshear’s authority to address the crisis.
State law appears to give a governor the power to reduce expenses only when a shortfall is 5 percent or less of expected revenue.
Beshear said he disagreed with Williams’ contention and hopes to have a plan by early December to address the shortfall.
The prior shortfall projection, made late last month by Beshear’s staff, was 3.3 percent of expected revenues.
The group of economists, known as the Consensus Forecasting Group, also projected a $104.7 million shortfall in the Road Fund on Friday. That is a decline of nearly 8 percent from expected revenue receipts.
Beshear, who asked the forecasting group for the projections, said he expected the gloomy news from the panel because of the worsening economy.
“Most economists predict our economy will remain deeply troubled for several months, if not a couple of years,” he said. “Next year, the budget shortfall may be even larger.”
Advocates for education and social services met the grim news with distaste.
University of Kentucky President Lee Todd said in a statement that an additional cut to UK “on top of the $20 million reduction we have already experienced over the last 11 months, would be devastating to our progress.”
The state’s universities were cut 3 percent in the current two-year budget, which reduced state spending overall by about $135 million over the prior two years.
Todd said he “will continue to strongly advocate that the best way for Kentucky to both move past this economic downturn and avoid subsequent situations is to invest in education.”
Sheila Schuster, a mental health advocate, said she is concerned that some programs that “already are dramatically underfunded will get cut even more.”
She recommended that legislators raise the state cigarette tax, saying the move would generate more money for the state’s coffers and boost the health of Kentuckians.
Williams has been reluctant to consider any tax increases to balance the budget, especially an increase in the cigarette tax, but told reporters Friday that he is willing to consider Beshear’s plan to increase the tax.
Beshear unsuccessfully proposed in this year’s law-making session raising the 30-cent-a-pack tax on cigarettes to $1 a pack. That would generate an extra $185 million a year for the state.
Williams said he hopes Beshear meets with legislative leaders instead of “running all over the state to tout a plan.”
Lawmakers will return to Frankfort for four days in early January for an organizational session to select their leaders and then return Feb. 3 for 26 days of making law.
Williams said the House and Senate budget committees could work in January on the budget and all lawmakers could consider their work in February, avoiding a costly special session.
Beshear said he is looking at a special session because only a majority of votes would be needed in each chamber to approve revenue measures in it, whereas, 60 percent of the votes in each chamber would be needed for such action in a 30-day regular session.
But Beshear said he would be willing to negotiate on the issue.
- Jack Brammer
About the Author: John Stamper is the accountability editor for the Lexington Herald-Leader. A native of Monticello, Ky., he has been with the Herald-Leader in a variety of roles since graduating from Western Kentucky University in 2000. Reach him at jstamper@herald-leader.com
alwinlex | Nov 21, 2008 | Reply
I know where you can find $20,000 of the budget shortfall — go see Ralph Coldiron.
SOSG | Nov 21, 2008 | Reply
Ralph is not the only one that can probably be let go. A lot of these non merit people could be let go with no loss of services to the citizens of the Commonwealth. I’m with a state agency that recently filled a non merit position, at probably $75,000 a year. The person they hired is totally unqualified and knows absolutely nothing about this agency and what we do. Before we start cutting services to the taxpayers these people need to be sent packing.
Anonymous | Nov 21, 2008 | Reply
alwinlex is right on the money. The shortfall isn’t this bad, I’ve noticed that at least once a month since being in office they’ve updated this forecast, and Beshear does his thing for the cameras, etc. I hope all of you know what this is leading up to. It’s leading up to an ultimatum in the session in January…either we have to raise taxes, or we have to legalize casinos. Now personally, I don’t care if they legalize casinos because I don’t go to them because I know that Las Vegas wasn’t built on winners, it was built on loser’s backs, so any casinos here will get rich (and so will the state with it’s cut) off of pure losers. Hey, if it gets you to pay your tax burden to the state, then I’m all for it. I think we’d be better served with a 7% sales tax and no income tax instead.
Anonymous | Nov 21, 2008 | Reply
I agree with SOSG, I also work with a state agency which hired an executive director (non-merit) a few months ago for probably 75-85K per year, and other than smiling for pictures and attending conferences, it’s pretty much a worthless position. We didn’t have an Exec. Dir for a long time at the end of the Fletcher administration and the beginning of the Beshear administration, and our services to the citizens of the Commonwealth actually increased due to less red tape and BS. Now we have a morale problem because someone who has no clue what we do is trying to meddle in everything and causing everyone to transfer to other state agencies in order to be able to serve the citizens better, while the ED hires back buddies from way back into the vacant merit jobs that come open. Before this term is over, this really useful program that helps thousands of Kentuckians will be relegated to rubbish. So yeah, fire the non-merits and let the merits run the show and things will be fine and there will be a lot more money for the state to work with…but less political jobs to go around which means that candidates won’t be able to suck so much money out of their buddies with the promise of a good non-merit job after it’s over.
HUGOO | Nov 21, 2008 | Reply
No suggestions other than a cigarette tax?
The only way most legislators would go for
this is if it went for Health Care. What about the rest of the problems?
Time to work together | Nov 21, 2008 | Reply
Between this Coldiron guy and Bobby Sherman, I can think of $60,000 the state would have without them.
What happened to saving money after all the state employees retired?
Anybody know how many state employees have retired? I have heard it is a boatload.
SOSG | Nov 22, 2008 | Reply
They won’t know for sure how many state employees have actually retired until January 1, 2009. I think they overestimated how many would actually leave. I suspect that several who were going to retire in Frankfort have decided to stick around. Those people up there retire with the idea they will go back to work for state government. With the economy being what it is and the talk of a hiring freeze, many decided to stay with the fear they would not be able to find another job.
Bill Adkins | Nov 22, 2008 | Reply
Almost a half a billion shortfall and all Damon Thayer could do at the NKY Chamber on Friday was sing from the Republican Hymnal, “I’m against taxes.” Republicans are like the Wizard of Oz, “Pay no attention to that man behind the curtain.” Ernest Fletcher left the Commonwealth of Kentucky bankrupt and people like Damon Thayer and David Williams and the rest of the Republicans in the senate were complicit to it. Along with the criminals like Nighbert. At least Williams, as quoted here, seems open to a cigarette tax, a tax favored by a great majority of Kentuckians.
Jim Anderson Stivers | Nov 22, 2008 | Reply
This is a wedge issue for Steve Beshear, . .. . the lesser of political cost.
And, today the trend is SMOKERS. Why tax cigarettes when other social engineering, like drinking whiskey, beer, wine, whatever?
I just wonder what the tax on this group would add?
New revenue could be found by getting rid of the ridiculous tax exemptions in the sales tax.
No way for us to run the numbers on this, but I would anticipate an increase across the board on this group would produce a considerable amount of new revenue.
Anonymous | Nov 24, 2008 | Reply
If a business has a budget problem, they lay people off, cut raises, and cut benefits. Why should KY taxpayers, most who have no pension plan be subsidizing the pension plans of state workers and their slaraies which are above market rates. The first thing the state should do is give their employees a taste of what the rest of taxpayers get to eat. Eliminate the state pensions and give the workers the wonderful 403b’s. Give them raises determined by the average of what they give state university staff’s or the average raise out in the marketplace. Lay off the political apointees that do nothing, etc, etc,…. Give them the same health plan that the state university employees get, with no dental, no eyecare, etc. I see no reason why the taxpayers in KY who have lower saleries and far less benefits should be subsidizing the pensions, rich benefits, and raises of state employees.
Jim Anderson Stivers | Nov 24, 2008 | Reply
Anon:
You are far too rational for government.
Yes, you are correct. I think the state auditor, CL, ought to run a time study test, for each non merit position.
Then see how much throw away time the non merits have when they are really not doing anything. Or having someone who knows what they are doing, teach them how the Division runs. Now we are paying for two employees to do the same job.
I could be they have more time for “politics” than they do . . . with VISIONS for our future.
Anonymous is Foolish | Nov 24, 2008 | Reply
Anonymous:
You sound very critical of state government, which probably means you either can’t get a state job or got fired from one. Or you could be one of Fletcher’s appointees who is still unemployed.
First, guess what, state employees’ insurance does not include dental or vision and never has. So get your facts straight.
Second, if state employees got the cost of living raise, it would be about 3.5%. State employees only got 1% this year and 1% next year. Local and county governments got more. So your plan wouldn’t help anything.
Third, state employees’ salaries are not above marketplace. I am sure most state employees might be willing to give something up if their salary was commensurate with the private sector. The trade off has always been work for peanuts and get a nice retirement. Working for peanuts does not put gas in the truck or food on the table, which is why a lot of state employees have to work 2nd and 3rd jobs.
Fourth, benefits have been cut, for all new hires. They can’t cut benefits to existing and retired employees because it is a legal contract which the state can’t get out of – believe me they would if they could.
But, you are correct about the political appointees – some of them could go. But do you think that will happen?
virgilk | Dec 22, 2008 | Reply
There is no justification for raising taxes on Smokers. 99% of the information about the harmful effects of Tobacco comes from the EPA study, which has been proven fraudulent, the ACS and Big-Pharma spread lies for the sole purpose of
profit for Big-Pharma. All large studies agree that there is no connection of Second Hand Smoke to lung cancer or heart disease.
Taxing only smokers is not only unjust and prejudiced but is also a tax that will never be able to fully fund revenue shortfalls. Smoking has decreased to less than 24% of our population while every disease supposedly caused by Tobacco is on the increase. Clearly, Tobacco is not the problem, but is the only supposed cause that returns the tremendous profits to Big-Pharma and our Alphabet agencies funded by Big-Pharma.
President Reagan and President Bush have said:
“The taxing power…must not be used to regulate the economy or bring about social change.”
Ronald Reagan – 1981
“The role of government is not to create wealth.
The role of government is to create an environment
in which the entrepreneur or small business or
dreamer can flourish. And that starts with rule of law,
respect of private property, less regulatory burdens on the
entrepreneur, open banking laws so that all people
have access to capital, and good tax policy.”
The only fair way to fund anything is a tax on all, which does not single out any particular segment of our society. A increase in sales tax is more reliable and doesn’t discriminate.
virgilk | Dec 22, 2008 | Reply
Cigarette smoking is concentrated among low-income groups. Consequently, cigarette taxes are considered regressive.
Other problems.
Job loss, Tax loss from smokers who quit, black-market sales, business loses of convenience stores, wholesalers, distributors, other goods bought at time of cigarette sales, internet sales, unemployment insurance, smuggling, tobacco tax evaded by businesses and out of state sales to name a few.
One of the reasons economists have come to dominate public policy in recent decades is their relentless focus on consequences, rather than intentions.
http://www.cnht.org/calendar/viewtopic.php?t=79 The end result will be pressure for higher sales and property taxes to make up for the losses. Quitting smoking may be an admirable aim, but driving honest businesses and local governments into financial ruin is an unacceptable method of achieving it.
Taxing a minority group like smokers will never be funds you can count on. Depending on diminishing returns is not a good idea. Think about it.
Bill Adkins | Dec 23, 2008 | Reply
Cigarette smoking is concentrated among cigarette smokers – taxes won’t discourage them anymore than cancer has.
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