State Budget Director says current executive budget proposal necessary to combat "budget squeeze"

02/22/2016 04:05 PM

FRANKFORT – State Budget director John Chilton defended Gov. Matt Bevin’s 2016-2018 Executive Budget saying that it’s the only way to combat the “budget squeeze,” and strengthen Kentucky’s financial foundation.

Chilton explained that the “budget squeeze” refers to the growing number of dollars of the total budget that goes to pensions and Medicaid costs, leaving less money for everything else.

Members of the Public Pension Oversight Board on Monday were told that the governor’s call to spend 81 percent of an additional $827 million for pensions and Medicaid, and 83 percent of an additional $1 billion in spending in FY 2018 will help sure up the unfunded liability in the Kentucky Employee Retirement System (KERS) and the Kentucky Teachers Retirement System (KTRS).

Chilton pointed out that currently; the two retirement plans are over $30 billion in unfunded liabilities – more than three times the commonwealth’s entire annual General Fund budget.

“The unfunded pension liabilities adversely affect state government and hundreds of other organizations,” Chilton said.

In an effort to better fund the struggling pension systems, Bevin called for across the board cuts for a number of state agencies with a cut of 4.5 percent in FY 2016, and 9 percent cuts in FY 2017 and FY 2018.

In addition, Bevin committed to apply contingent appropriations to pensions as well as a rainy day fund, with $64.1 million going to KERS and KTRS in FY 2017 and $71.6 million going to pensions in FY 2018.

Sen. Gerald Neal, D-Louisville, questioned Chilton about the potential devastating consequences of the cuts this fiscal year and in the next biennium.

“So when universities alerted us that these cuts could be devastating to their operations and what they have to do, then they should not be alarmed or should they be alarmed?” Neal asked.

“I suppose they should be alarmed and take action to adjust their expense configuration to accommodate that lower amount that coming from the state,” Chilton answered. “The answers to most of these questions is $30 billion of liability that needs to be reckoned with.”

Rep. Brian Linder, R-Dry Ridge, applauded the budget proposal saying that taking action now could potentially keep even larger cuts from happening down the road.

“The 9 percent over the next two years may actually help offset a huge cut in the future years if we go back to paying benefits out of the general fund,” Linder said. “You’re talking about a lot more than 9 percent.”


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