(Editor’s note: This post was updated at 2:35 p.m. The original contained an incorrect spelling of Herald-Leader reporter Beth Musgrave’s name.)

Insiders are telling Insider Louisville they’re hearing from members of the General Assembly that Kentucky is about to have a budget meltdown.

State agencies are being told to prepare for 7 percent to 9 percent cuts this year – on top of a 2 percent cut they were told to prepare for, announced by the Beshear administration last month.

In the past two years, cuts have come several times during the year, so several insiders told Insider Louisville they are projecting cuts of as much as 10 to 15 percent during the next 12 months.

The reason: States have to replace billions in federal stimulus money that in many cases paid state employees and service agency salaries in 2011.

“Preliminary (cuts) have been requested for next year at 7 to 9 percent,” stated Kerri Richardson, Gov. Steve Beshear’s deputy communications director, in an email response to an Insider Louisville query.

Cumulative cuts over the past four years for many state agencies total 25 to 30 percent, Richardson stated.

The first hints of impending cuts came in a Dec. 21 Herald-Leader story by Beth Musgrave.

In the story, Musgrave quoted Mary Lassiter, Kentucky’s budget director, as saying while state officials project modest revenue growth, lawmakers can no longer use one-time tricks such as delaying debt payments to avoid cuts in education spending.

Warnings about impending budget cuts is spreading fast.

A source related a conversation about the budget with one state representative, “and he told us, ‘It’s going to be the toughest one, yet.’ ”

It remains to be seen how this will all play out. But sources are telling us that all 12 cabinets will feel the pain.

Republican operative David Adams, who follows Kentucky budget issues closely at  Kentucky Progress, noted Kentucky used about $3.2 billion in federal stimulus dollars to cover budget shortfalls while taking on about the same in new debt.

With the end of federal stimulus money, state finances “are in such a mess, I’d say they’re going to have to throw their hands up and say, ‘This has to happen.’ ” Adams said.

“It’s going to affect everything. I think the sacred cows are not going to be so sacred.”

 In the past, Medicaid and education have been spared cuts.

“This time around, I can’t believe that if we have those kinds of cuts, the governor will be able to spare those two areas,” said a source close to Beshear.

The federal government has paid about 80 percent of Kentucky’s Medicaid costs during the Recession, but that will return to the pre-Recession rate of 71 cents of every Medicaid dollar from the Feds, and 29 cents from the state.

The news is causing more than a little consternation, coming after Beshear had signaled smooth sailing for the state ecomony during his gubernatorial race against Sen. David Williams, state senate president.

“They talk about Kentucky surviving the recession better than other states, and that’s just total bunk,” Adams said

“Here’s what I don’t understand,” said Dr. Sheila Schuster, executive director of the Kentucky Mental Health Coalition. “(State tax) reciepts are up. (The state) has essentially frozen Medicaid costs with the (managed care) contracts. Corrections costs were addressed in House Bill 463, which is supposed to save $400 million.

“Where’s the problem?”

House Bill 463, an overhaul of Kentucky’s justice and prisons system, is projected to save the state $422 million during the next 10 years.

Schuster pointed out that Medicaid reimbursements for mental health services are frozen at 1999 levels. “Think about running a business on revenues on a 12-year old base,” she said.

General Fund dollars for state allocations to mental health centers have been frozen for 14 years, Schuster added.

“The thought we’d be cut once again at 7 to 9 percent … that would be the death of the safety net. The publicly funded safety net for mental health services at community health centers.

“It would be devastating.”

Kentucky Progress blogger/Republic operative Adams said he blames both Beshear and Williams.

Deficit spending “is part of the culture,” Adams said. “Both sides talk about fiscal responsibility, but at the end of a day, they form a circle around these very irresponsible policies. Then, they say, ‘We fought it out and came to compromise for you.’ ”

Kentucky’s 12 cabinets are:

Office of Technology

Education Cabinet

Transportation Cabinet

Cabinet for Health and Family Services

Department of Revenue

Cabinet for Economic Development

Labor Cabinet

Justice and Public Safety

Energy and Environment

Cabinet for Public Protection

Personnel Cabinet

Tourism, Arts and Heritage Cabinet

Finance and Administration

Here’s the most complete analysis of Kentucky’s state budget, which is from Sunshine Review, a Wiki page:

 

Kentucky state budget

Kentucky passed a $17.1 billion supplemental budget for FY2011.[1] Kentucky budgets for 2-year cycles on a biennium basis. The enacted FY 2011-13 budget is $17.1 billion. The 2008-2010 biennium budget originally passed in 2008 was $19.1 billion in General Funds, total funds $53.2 billion.[2]

Kentucky has a total state debt of approximately $63,268,507,000, when calculated by adding the total of outstanding official debt, pension and other post-employment benefits (OPEB) liabilities, Unemployment Trust Fund loans, and the budget gap. [3]

See also: The Kentucky State Budget on State Budget Solutions
2011 State spending & deficit in billions[4]
Total spendingPensionHealth careEducationWelfareProtectionTransportDebtBudget gap
$25.1$3.4$9.1$5.4$2.9$1.2$1.9$16$0.4
2011 Local spending & deficit in billions[4]
Total spendingPensionHealth careEducationWelfareProtectionTransportDebt
$16.5$0$1.1$6.1$0.2$1.2$0.8$34.2

[edit] Fiscal Years 2013-14 Budget

Gov. Beshear will present his 2012-14 budget based on a state revenue forecast made in late December by the Consensus Forecasting Group to the General Assembly in January 2012.[5]

Chairman of the legislative budget committee State Sen. Bob Leeper said that the state general fund is facing a deficit of at least $337 million in FY2013.[5]

[edit] Fiscal Years 2011-12 Budget

The FY2012 Operating Budget can be found here. The FY2012 Capital Budget can be found here.

Kentucky concluded FY2011 with a surplus of $156.8 million. Approximately $35 million of those funds went to pay for emergencies and other expenses that were not included in the two-year budget. The remaining money — about $121.8 million — will be deposited in to the state’s budget reserve trust fund, or “rainy day” fund.[6] The state’s General Fund receipts for FY2011 were up about 6.5 percent over the prior year. Total receipts were $8.7 billion in fiscal year 2011.[6]

Based on the strong end of FY2011, the Governor’s Office of Economic Analysis predicted in August 2011 that the state’s general fund will end FY2012 with $192 million more than originally anticipated.[7] That changed quickly, though, and in November 2011 the governor’s administration announced that agencies would be cut 2 percent to fill a $190 million shortfall for FY2012. The cuts will save $29 million, because Medicaid and education funding are exempted. An anticipated revenue surplus for FY2012 is expected to help fill the remainder of the hole in the budget.[8]

On July 7, 2011, the governor announced a plan to balance the Medicaid budget with new contracts with managed care organizations. The governor said that the move to more managed care will save taxpayers $375 million in General Funds and $1.3 billion in all funds over the course of the new, three-year contracts. It also would create 550 new jobs.[9] The program costs the state $6 billion per year and serves 815,000, or 20 percent of, Kentucky residents.[10][11]

Almost all government agencies saw funding cut less than 1 percent for FY2011 and 2.26 percent in FY2012, the second year of the state’s two-year spending plan.[12]

The Senate’s proposal for FY2012 would cut $148.5 million from non-Medicaid areas of the budget, with 81 percent of the cuts coming from education, health care and public safety. Gov. Beshear says the Senate’s proposed budget cuts would affect funding in the following ways[12]:

  • K-12 Education: $47.4, including $38.4 million from SEEK, the basic funding for formula for classroom teaching
  • Higher Education: $28 million, including $22 million from institutions’ base budgets and $4.3 million from student financial aid.
  • Health and Family Services (non-Medicaid): $19 million, including social workers, public health departments and Meals on Wheels services.
  • Justice and Public Safety: $17.4 million, including state troopers, local jail support and juvenile justice programs, as well as $12.1 million from the Department of Corrections
  • Judicial Branch: $8.5 million
  • Other: $28.2 million from the rest of state government, including job-creation programs, state parks, environmental and worker safety programs and veterans assistance programs.

[edit] Education

Sixty-three school districts sued the state in November 2010 claiming that the state budget cuts to education spending violate the Kansas Constitution.[13] The suit contends that despite lawmaker’s prior promises to increase funding, they cut more than $303 million from schools since the beginning of the recession.[13]

[edit] Federal Stimulus Funds

The state will receive $137 million for Medicaid and $135 million for education from the August 2010 federal stimulus package.[11] Lawmakers planned to receive about $238 million in federal funds and so raided the state’s Medicaid budget and used it to fill gaps elsewhere.[14] By receiving only 58% of what it expected to get from the federal government, the state faces a $111 million hole and because funding for Medicaid is matched by the federal government on a roughly 4-to-1 basis, the gap represents a $470 million total program shortfall.[11] Beshear said that the issue would be addressed in next year’s legislative session.

[edit] Supplemental Budget for FY2011

The supplemental FY2011 budget trims the appropriations for state universities by 1.4 percent in 2010-11 and by 1 percent in 2011-12. The state will fund only 176 days on the 177-day school calendar, leaving individual local school districts to pay for the final day.[15] The budget also provides that, if a school district with dilapidated buildings has made an effort to raise its property tax rate by $0.05 for the purpose of replacing those building, the district can get state matching funds to replace them.[15]

Gov. Steve Beshear brokered a compromise between the House and Senate in May, 2010, which passed a $17.1 billion supplemental budget for FY2011.[1] The Senate approved the budget 35-0 and the House approved it by a vote of 86-7.[15] The budget cuts spending for many state agencies by 3.5 percent in 2010-11 and another 1 percent in 2011-12.[15] The budget does not raise taxes.[15]

The budget leaves some decisions in the hands of the governor. He must find $300 million in savings over the life of the budget by cutting state contracts, the number of political appointees and other expenses. The bill gives the governor the authority to furlough state workers if necessary.[15]

To save costs, the state shuts some state parks two days each week and also hopes to generate more revenue by selling alcohol at four parks starting next year.[16]

Education

The supplemental budget trims the appropriations for state universities by 1.4 percent in 2010-11 and by 1 percent in 2011-12. The state will fund only 176 days on the 177-day school calendar, leaving individual local school districts to pay for the final day.[15] The budget also provides that, if a school district with dilapidated buildings has made an effort to raise its property tax rate by 5 cents for the purpose of replacing those building, the district can get state matching funds to replace them.[15]

[edit] Budget Negotiations

The Kentucky legislature failed to pass a budget during its regular term and the General Assembly adjourned on April 15, 2010, with no agreement and no budget.[17]It was the third time in ten years that the legislative session had ended without a budget.[17]

As of June 30, 2009, Kentucky had $6.875 billion in outstanding debt, requiring 6.43% of the state’s revenue to pay interest on those bonds. By passing the budget, which provides for payments on bond debt, the state avoided having to pay $113 million by refinancing debt.[17]

The governor called a special session later in May, costing taxpayers $64,000 a day.[17] He explained that a budget was needed by June 1 and if not, that would give his staff one month to prepare for a state government shut down.[18] Per a Kentucky Supreme Court ruling, if the state does not pass a budget by July 1, only services required to be funded by the state Constitution or a federal mandate, including but not limited to include elementary and secondary schools, prisons, mining regulation and environmental protection, will continue. The governor lacks “emergency powers” to appropriate money on his own for “essential services,” including the Kentucky State Police, state universities, parks and highway construction.[17] Passage of the budget during the special session avoided a state government shutdown.

With the special session lasting six days, the overall cost to taxpayers was more than $300,000.[1] Two lawmakers of the 138 lawmakers returned their salaries from the session.[1] Rep. Jim Wayne returned $623.70 to cover his salary and Rep. Melvin Henley returned $1,956.83 to cover his salary and expenses.[1]

Senate President David Williams said that any final budget must contain four items[18]:

  • it must be a traditional two-year budget
  • no tax increase on businesses
  • it cannot rely on an excessive amount of non-recurring revenue
  • the budget cannot create “a huge increase” in the state’s debt

[edit] Transparency

Kentucky’s comprehensive spending transparency website, called “Kentucky’s Open Door,”[19] continues to be updated with new state spending information. Information about state employee salaries, contracts, and grants is now available online.

The site was implemented at the recommendation of a task force[20] created thanks to the executive order[21] of Kentucky’s Governor Steven Beshear.

Sign up for Show Me The Spending‘s weekly transparency e-updates. As transparency news about Kentucky becomes available, it will be sent out by email and posted on this page.

[edit] Government tools

See also: Evaluation of Kentucky state website

Check It Out Kentucky! provides a searchable database of the Secretary of State’s financial information, organized by categories such as expenditures and vendors. In addition, the Office of the Treasurer has developed a site, V.I.E.W. (Vendor Income and Expense Watch), that posts information on contract amounts, contractors, and the government agency issuing the fund. Currently, V.I.E.W. contains financial information for only a handful of state agencies, including the Auditor of Public Accounts, the Department of Highways, the Kentucky State Treasury (State Treasurer), and the Office of the Controller.[22] Data from other agencies will be placed online as that data is approved for release. See the official V.I.E.W. website for more details.

Kentucky’s Open Door provides spending information including state expenditures on grants, contracts, and public employee salaries. Click here to visit the site.

The following table is helpful in evaluating the level of transparency provided by Check It Out Kentucky!, V.I.E.W., and Kentucky’s Open Door:

 

 

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Terry Boyd
Terry Boyd has seven years experience as a business/finance journalist, and eight years a military reporter with European Stars and Stripes. As a banking and finance reporter at Business First, Boyd dealt directly with the most influential executives and financiers in Louisville.

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