Beshear says stimulus funds won’t offset cost of new tax breaks

FRANKFORT — State officials are still trying to determine how much the state must cut from its budget because lawmakers approved a host of tax breaks included in a bill that was signed into law on Friday by Gov. Steve Beshear.

Gov. Steve Beshear

The measure includes tax breaks for active-duty military personnel, those who buy new cars and for people who buy newly built homes. Beshear signed the bill, which also included an overhaul of the state’s economic incentive programs that Beshear pushed, despite misgivings about the the impact the tax breaks added by lawmakers will have on the state’s shaky finances.

The tax breaks added by lawmakers are likely to cost the state about $23 million in the fiscal year that begins July 1, Beshear’s office has said. In the following year, the cost of those programs and several others pushed by Beshear and approved by the General Assembly is expected to balloon to $84 million.

Beshear also signed a bill on Friday that would help balance a projected $996 million shortfall for the fiscal year that begins July 1. To balance the state’s books, the plan calls for spending $741 million in federal stimulus dollars and gives Beshear broad authority to make other necessary cuts.

Beshear had been planning on trimming 2.6 percent from most state agencies, excluding Medicaid, higher education, the per-pupil spending formula for K-12 education and a handful of other programs. Now, most state agencies will take much larger cuts to offset the cost of the three new incentive programs, which take effect in the next few months.

House Speaker Greg Stumbo, D-Prestonsburg, suggested on Wednesday that Beshear could use more federal stimulus money to offset the cost of the incentive programs, but Beshear has no such plans, said spokesman Jay Blanton.

“We have no intention to dip further into the stimulus funds — the 45 percent set aside for the next fiscal year — to make up additional cuts,” Blanton said.

The state still has at least $293 million left in federal stimulus dollars, but budget projections for the next fiscal year are bleak and Beshear has said the state will still need the federal dollars to balance its books.

The income tax exemption for active-duty military is projected to cost the state about $18 million a year. The tax breaks for new car owners and for those who buy newly built homes, which last only one year, have a combined cap of $50 million. But even supporters of the bill say it is unlikely that those caps will be reached.

The General Assembly also deleted a provision that would have saved $10 million by reducing the number of paid holidays for state workers. Beshear must also find a way to make up for that $10 million.

Blanton said Friday that Beshear’s office is still trying to determine how deep those additional cuts to state government will be.

“We are just now doing the analysis,” Blanton said. The governor’s office is meeting with department officials to “make specific determinations on the size and scope of the additional cuts,” he said.

– Beth Musgrave