Cuts 'likely' to some state agencies even as revenue is up 2.4 percent, budget director says

12/09/2013 05:34 PM

Cuts to some state agencies are likely for the third consecutive biennial budget, the Kentucky’s budget director told business leaders Monday.

Jane Driskell, who working on her first state budget since being appointed to the position, said it’s still too early to determine which departments or programs could be on the chopping block for the next budget. But she said spending needs clearly are outstripping expected revenue. Gov. Steve Beshear must propose his budget draft in January, and lawmakers have until April 15 to approve a two-year spending plan.

Driskell told business leaders during the Kentucky Chamber of Commerce’s legislative preview meeting in Lexington that the results of two previous budget cycles of cuts and a slow bounce-back of revenue means still more tough decisions to come.

She did offer a bit of good news. The latest figures, which will be released publicly on Tuesday, show that revenue is up 2.4 percent over this time in the last fiscal year. That includes a 2.3 percent uptick in sales tax, which had been on a downward spiral the last two years.

Keeping that pace would give Kentucky an extra $230 million for the next two-year budget of nearly $20 billion dollars.

But because about $100 million of that already has been committed to make the state’s full payment into the public employee pension system, only about $130 million would be left to cover other programs.

Rising costs for Medicaid of between $100 million and $150 million alone would wipe that out. Then there’s $11.5 million more for health care payments for retired teachers, $29 million for just a 1 percent increase in K-12 school funding and $57.2 to restore education cuts including the funding for new textbooks that has been slashed to zero for five years.

Other needs include $52.7 million in restoring cuts for childcare stipends for low income families and $9.4 million to increase funding for higher education by 1 percent. Raises for teachers would cost $29 million for every 1 percent and raises for state employees, who have gone four years without one, would cost $15 million.

“Cuts are likely. If you just look at that scenario, in order to do additional items or just cover critical items, somebody is going to face a reduction,” she said.

Driskell outlined to business leaders the cuts the state has made over the last five years as revenue dropped sharply.

While the recession accounted for a big part of that, Driskell showed slides illustrating how taxes as a percent of income in Kentucky has fallen back to the same levels “as the early 1970s,” Driskell said.

She said that underscored the need for revamping the tax code so that Kentucky’s tax collection would do a better job of growing with the economy. And she said tax reform remains “a priority of” the governor’s. But she told Pure Politics after her speech that the budget office isn’t working on a tax reform proposal.

Lawmakers have said tax reform is all but dead without Beshear taking a lead on it.

Driskell also offered some scope of what the state spends its funds on.

For instance, of the $19.3 billion in state revenue over two years (mostly from sales and income taxes), 43.8 percent goes to K-12 education. Medicaid spending takes up about 14.8 percent of spending.

When federal funds are factored in, the state has spent $62.3 billion over the last two years. But Medicaid has surpassed schools accounting for 19.6 percent of those funds compared to 16.1 percent for K-12 education.

Meanwhile, Medicaid is eating up a bigger chunk of the state’s pie.

In 1998, the program accounted for 11 percent of state spending. It’s now up to 16 percent. K-12 education has slipped from 45 percent of spending 15 years ago to 44 percent. Public colleges and universities have taken the biggest hit, falling from 15 percent in 1998 to 12 percent in the most recent budget.


Subscribe to email updates.

Subscribe and get the latest political intelligence delivered to your inbox.