Beshear’s budget proposal relies on $780 million from expanded gambling

COMPLETE COVERAGE

READ BESHEAR’S PREPARED REMARKS

By Beth Musgrave – bmusgrave@herald-leader.com

FRANKFORT — Ignoring the advice of many leading lawmakers, Gov. Steve Beshear unveiled a two-year budget proposal on Tuesday that depends on $780 million in revenue from expanded gambling at racetracks.

The Democratic governor’s proposal was immediately stiff-armed in the House, where Speaker Greg Stumbo wants to use proceeds from slot machines at racetracks to replace outdated schools across the state.

“We obviously feel like the governor has his work cut out for him,” said Stumbo, D-Prestonsburg. “He’s built his budget on legislation that I assume he has been working on passing. And we wish him the best of luck in doing that.”

Stumbo, who has ordered a proposal to generate revenue by retooling the state’s tax code, said Beshear has not spoken to him or other House leaders about his gambling bill.

Beshear proposed no new taxes, relying instead on gambling revenue, two percent cuts to some agencies and large amounts of “alternative financing” to erase a more than $1.5 billion shortfall over the next two years.

Beshear would spare agencies that account for 80 percent of state spending from cuts, including: the state’s main funding formula for schools, State Police, Medicaid, mental health and mental retardation services, prosecutors, public defenders, mine permitting and a variety of other programs.

Some of those agencies would get significant spending boosts. For example, a projected $782 million jump in the cost of Medicaid — the government-run health insurance program for the poor and disabled — would gobble up all of the state’s portion of revenues from expanded gambling.

All other agencies would be cut by two percent in the first year of the biennium and would receive the same amount the following year, Beshear said. Without gambling revenue, Beshear warned that those agencies could face cuts of 14 percent in the first year and 34 percent in the final year of the biennium.

“Cuts of this magnitude would undoubtedly lead to mass layoffs and would inflict devastating damage on literally hundreds of critical services to communities and individuals around the Commonwealth, such as prenatal care, water permits, air quality inspections, social workers and fire inspections of public facilities like day-care centers and schools,” Beshear told a joint session of the General Assembly Tuesday evening.

If lawmakers reject gambling and choose to apply an across-the-board cut to all state agencies, they would have to cut 2.3 percent in the first year and 7.3 percent in the second year of the biennium, said State Budget Director Mary Lassiter.

Beshear’s plan met resistance from state lawmakers who said there is little sentiment in either chamber to pass a gambling bill that has no earmarks for education.

House Minority Leader Jeff Hoover, R-Jamestown, who opposes gambling, said in a written statement that he was disappointed that Beshear had proposed “a budget based on revenue he knows simply does not exist. Fully acknowledging our budget shortfall, I expected better and am sincerely disappointed he chose to go this course.”

Still, Beshear insisted that relying on gambling revenue “is the only practical option to begin funding long-term priorities with recurring revenue.”

Senate Minority Leader Ed Worley, D-Richmond, filed Beshear’s gambling legislation in the Senate late Tuesday.
Worley said his bill is not a revenue-generating bill — which can only be filed in the House — and would simply amend state lottery laws to allow slots at tracks. So far, Worley’s bill has nine Democratic co-sponsors — just over half the 17 Democratic members in the Senate.

Worley said he hadn’t asked all of the Democrats to co-sign it yet and has heard from Republicans who privately say they could support it, although he declined to name any.

“Until something’s brought to the floor of the Senate we really don’t know what can pass there,” he said. “We have said for a long, long time that if you bring the statutory amendment to the floor of the Senate, we believe the votes are there to pass it.”

But both Senate Republicans and Democrats said they doubted that the bill would pass.

Sen. Robin Webb, D-Grayson, said she hadn’t co-signed the bill because she said “there’s several things about the bill that trouble me,” including that Beshear’s plan wouldn’t designate money for school reconstruction, which she said her district needs.

“Without a shift in sentiment and enough public outcry over potential cuts without this revenue, I don’t foresee the issue moving in the Senate,” she said. “I’m a realist.”

Senate President David Williams, R-Burkesville, called Worleys’ bill a “sham.”

State and Local Government Chairman Damon Thayer, R-Georgetown, said he hopes Worley’s bill will be assigned to his committee “where it will sit in quiet repose forever and forever.”

House members will get the first crack at revising Beshear’s budget. House budget chairman Rick Rand, D-Bedford, said he expects to see a plan soon that includes preliminary numbers for a revamp of the state’s tax code.

He also said there is good chance that the state could get more federal stimulus dollars for fiscal year 2012.
Some Republicans said Tuesday that there is growing sentiment in the Senate to look at reforming the state’s tax structure. But many of the details of that plan have not been worked out.

In his speech, Beshear said he did not want to increase any broad-based taxes. It was a deep recession, not the state’s tax system, that created the state’s current fiscal crisis, he said.

“Regardless of what tax system a state has, every state is in trouble — many of them in worse shape than we are,” Beshear said.

Still, he stopped short of saying that he would veto any legislation that includes tax increases.
Beshear’s proposal calls for spending $8.9 billion in fiscal year 2011, which begins July 1, and $9.7 billion in 2012.

It relies on more than $600 million in one-time funding — a mix of “alternative financing,” debt restructuring and fund transfers — money the state takes from other pots of money in state government.

Beshear’s proposal includes $1.8 billion in new capitol projects for such things as roads and buildings at the state’s universities.

Beshear also recommended $2.6 million for the 2010 Alltech FEI World Equestrian Games, mostly to help security efforts both inside and outside the Kentucky Horse Park between Sept. 25 and Oct. 10. He allocated $1.3 million for the Kentucky State Police, and $650,000 to the Kentucky National Guard.

The governor’s proposal also calls for increasing the state’s debt by restructuring some of its previous loans and using bonds to pay for such things as student financial aid and to repay money it has borrowed from the Kentucky Teachers’ Retirement Fund.

Beshear’s plan also banks on $33 million in savings generated by selling state assets, such as unneeded airplanes and consolidating some contracts. It also includes $587 million in new spending for programs other than Medicaid — mostly increased payments for the state’s retirement system, new debt service, operating new courthouses and paying for increases in the state’s prison population.

Filed Under: David Williams • Ed Worley • Greg Stumbo • KY General Assembly • State Budget • State Government • Steve Beshear