Seeking to “shore up” the financial foundation of Kentucky, Gov. Matt Bevin’s first budget proposal cuts most state agencies by 9 percent, with most savings being directed toward paying down the large unfunded liabilities of the state’s public pension plans.
Calling his budget “austere,” Bevin said his administration would no longer pass along debt to future generations, though his budget cuts would exempt certain areas of state government that he felt could not afford them.
The budget proposal — presented to the General Assembly Tuesday night — called for an immediate 4.5 percent cut to most agencies in the current fiscal year ending in June, with a 9 percent cut to come in the following two-year budget. Several areas would be exempt from such cuts, such as the SEEK formula for public K-12 schools, Medicaid, the troubled Kentucky Teachers’ Retirement System and Kentucky Employees Retirement System, the Department of Veterans Affairs, public safety employees and social workers. Factoring in those exemptions, Bevin said the total cuts to the budget over the next two and a half years would amount to $650 million, or 2.5 percent.
Those cuts freed up a significant increase in funds for the KERS and KTRS public pension plans, which are among the worst-funded in the country and have over $30 billion in unfunded liabilities due to Frankfort neglecting to pay the full actuarially required contribution (ARC) to these plans for over a decade. KERS would receive $130 million more to meet the full ARC payment, along with an extra $89 million over those two years. While KTRS would receive $591 million in new spending, that remains just over half of what the teachers’ plan had requested. House Democrats have proposed a bill in which KTRS would receive a $3.3 billion bond to shore up their funds in the short-term, but Bevin rejected that idea as borrowing against the state’s future.
Bevin called for contractors to thoroughly audit each of the state’s pension plans, as well as a permanent fund to be directed toward KERS and KTRS if future revenues exceed expectations or the state receives a windfall from litigation.
In addition to pension, Bevin’s budget proposal outlined several other areas that will see an increase in funding. In order to decrease turnover and case workload, $4.8 million will go toward salary increases for entry-level social workers; $12.4 million will be devoted to salary increases for the Kentucky State Police; and $4.5 million will provide raises for correctional workers at state prisons. Additionally, $6.3 million would be used to hire 44 more public defenders.
Following last year’s state audit that found thousands of untested rape kits currently stored by state and local law enforcement, Bevin’s budget allocates $4.5 million to reduce this backlog, coming close to what former Auditor Adam Edelen had recommended.
While the per-pupil SEEK formula for K-12 public schools will be frozen at the current level, total funding will increase slightly by $39 million. There will be no mandated raises for public school teachers, and the Learning and Results Services budget covering pre-school, after-school programs and family resource centers will not be exempt from the 9 percent cut.
For many years, millions of dollars in Kentucky Lottery funds have been diverted away from college student aid and scholarships, but Bevin said this money would now be fully devoted those programs.
However, public universities are not exempt from Bevin’s proposed 9 percent cuts, continuing the past decade’s trend of massive cuts to higher education. Cuts in state appropriations to universities and community colleges will amount to roughly $144 million in the next two years, and such funding will amount to well over $200 million less than it was a decade ago. These cuts would likely lead to corresponding increases in tuition and student loan debt that have accompanied the decrease in state appropriations to higher education.
Bevin added that his proposal for $100 million in bonds for workforce development projects could be directed toward universities — including the Kentucky Community and Technical College System — to offset some of those cuts, though their specific details have not been finalized. Also not finalized is Bevin’s proposal to move higher education funding to an “outcome-based” system, in which the amount of appropriations each university receives would be tied to student outcomes. In a briefing for reporters before his budget address, Bevin said “there will be more incentives for electrical engineers than French literature majors.”
Other government agencies dealing with areas ranging from environmental protection to the Attorney General’s office will not be spared from the 9 percent cuts, though Bevin said he would leave the details of how those cuts are implemented to each cabinet secretary, saying he doesn’t want to “micro-manage” them. Though rumors flared in the past week that the Kentucky Arts Council would be eliminated, such a move was absent in the budget, and the Tourism Cabinet that houses the council will determine how the 9 percent cuts play out. Bevin opened his budget briefing with reporters by referring to their stories on the Kentucky Arts Council as “idiocy,” saying his administration “will never comment on rumors.”
Bevin said that Kynect — Kentucky’s health insurance exchange made possible by the Affordable Care Act — was “done,” calling it a waste of money and a redundancy that will be replaced by the federal exchange for consumers. A consulting firm tapped during the Beshear administration suggested it would cost $23 million to dismantle Kynect, a number Bevin called a fraud, saying the actual cost would only be a fraction of that number. While campaigning on repealing Beshear’s expansion of Medicaid to those whose income was up to 138 percent of the federal poverty level, Bevin said he included the state’s costs of covering those individuals “as a contingency,” in case he was not able to do so. He has begun the process of appealing to the U.S. Department of Health and Human Services for a waiver on how Kentucky administers Medicaid to the expanded population, adding that he’s had “good faith talks” with those officials.
When discussing infrastructure spending, Bevin said the aging Brent Spence Bridge in northern Kentucky would get a new coat of paint — adding that “it’s not falling down” — as would the Kennedy Bridge in Louisville.
Referring to his campaign promises last year to cut taxes, Bevin noted that his budget contained none, but told those who voted for him to be patient, as “we can’t afford them right now.” Bevin also warned the General Assembly members present that he would not budge very much on his budget proposal and would not sign it if significant changes were made in the legislature.
“It is not my intention to have a whole lot of debate about getting off in the weeds on this,” said Bevin. “And I will not sign a bill that looks tremendously different than that which we’re going to put out. I just won’t.”