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There is good news and bad news for Kentucky as your General Assembly drafts a new biennial budget during this year’s legislative session. Let’s start with the good news: revenues are up.
For the current fiscal year (FY12) revenue to the state from all general fund sources is up over $137 million from what we budgeted. The forecasting group also projects a modest increase in tax revenue over the next two-year budget period, assuming the tax structure remains as it is today. Let’s hope they’re right – on both counts.
In presenting his budget suggestions this week, Governor Beshear made clear he wants no tax increases. The House leadership will not want that either, especially this election year. And, of course, the Senate doesn’t want to increase taxes.
So much for the good news.
Now, even though we have reduced the budget over the last four years, our spending has increased. Mary Lassiter, the governor’s budget director, told us that spending in the last year was actually higher than in the previous. This, despite the fact that the General Assembly cut spending in virtually all areas except: primary/secondary schools, corrections/public safety, and health and family services.
How can this be? Understand that, when we talk of our general fund, we are speaking of all Kentucky tax dollars. When we talk, however, about total spending, we add in the (roughly) 400 percent federal match for every dollar we spend in Medicaid; and we spend a lot of money on Medicaid. This is true every year in every state.
But in FY 2012 we accepted federal stimulus money (hundreds of millions of your federal tax dollars), most of which were used to pay for increased Medicaid services. Medicaid, you will remember, is health care for people who are “poor.” Medicaid enrollment in Kentucky has increased by 1,931 people every month for the last five years; FY 2011 ended with over 815,000 people receiving benefits.
The bad news for our budget is that federal stimulus money will not be there any more. Therefore, says Mary Lassiter, we have a very challenging budget to write. Some estimate that we will be $500 million short.
The obvious answer, if you agree with the governor that taxes should not be increased, is to cut spending. But where to make the cuts? Remember those areas I mentioned that had no cuts – primary/secondary schools, corrections/public safety, and health and family services? Together, they cover about 89 percent of annual Kentucky tax dollar spending. All the cuts before now have come from the other 11 percent.
So we have a problem. We’ll hear no end of grief if we cut in any of these three areas. Schools already complain that they are underfunded; in fact, they’ve had more students in class than anticipated and state funding fell behind about $57 million in FY12. Corrections funding can be lowered if we cut the explosive growth in prison population, but law enforcement people don’t even like what we’ve already been doing. And if Medicaid funding is cut, thousands will descend on Frankfort and call us heartless.
Then there is funding for the state’s various pension systems, an obligation that we cannot – and will not – dodge. More on that in another column.
Looks like it will be a long session.
Hearing from you is the best part of my job. Call me at home, or leave a message in Frankfort at 1-800-372-7181. This weekend’s Saturday Coffee with Dave is in Boston at the Food Mart. We start at 10, and the coffee’s on me. Hope to see you there!