Kentucky House budget would ax cost-of-living increases for state retirees

bmusgrave@herald-leader.comMarch 5, 2012 

FRANKFORT — The state House's proposed budget would nix cost-of-living increases for state retirees and would not give additional money to the Kentucky Horse Park in the upcoming two-year budget.

The budget also would not fully fund an expansion of the state's preschool programs and would not allow the state's public universities to issue more than $450 million in debt.

Rep. Rick Rand, D-Bedford, said the House budget committee will vote Tuesdasy on the proposed budget. The full House is expected to vote Wednesday on the $19.5 billion two-year budget.

The House budget subcommittee chairman presented reports Monday that outline some of the House's proposed changes to Gov. Steve Beshear's budget, which was unveiled in January. Beshear had proposed 8.4 percent cuts to many state agencies and less-drastic cuts to other areas of government. Beshear had proposed no cuts to the main funding formula for schools. The House kept most of those recommendations — including no additional cuts to the main funding formula for schools.

Beshear also had proposed about $800 million in additional spending — much of that money earmarked for increases in retirement and health insurance costs.

And Beshear had proposed an additional $3.5 million for the current fiscal year for the Kentucky Horse Park, which has struggled financially over the past several years and is now at a $3.6 million deficit. Beshear had proposed an additional $3.2 million for each of the next two years for the park. The park typically receives $3.5 million each year from the general fund.

Rand said Monday that the House would like to see the Kentucky Horse Park's business plan before agreeing to additional funding for the next two fiscal years. The Horse Park would receive $3.5 million for this fiscal year and would not receive a cut to its funding in the next two years.

John Nicholson, director of the Horse Park, said Monday that he was thankful that the House would provide additional money this fiscal year.

House Speaker Greg Stumbo, D-Prestonsburg, said the House thinks the additional $3.5 million will help erase the $3.6 million deficit caused by a downturn in the economy and increased utility costs for new buildings.

In another aspect of the House's budget, Kentucky's public universities would not be able to borrow money using agency funds. The University of Kentucky had proposed $200 million in agency funds, or funds that do not come from the state general fund. A new project to build dorms using a private company would not be effected by the House plan.

Commonwealth Stadium expansion?

One of UK's proposed projects for agency funds was $100 million for renovation and expansion of Commonwealth Stadium. Legislative staff told the House Appropriations and Revenue Committee on Monday that if the House approved all the university's bond requests, the state's ratio of debt to revenue would inch past 7 percent. That means it would be one of the highest debt ratios in the country.

Jay Blanton, a spokesman for UK, said the university hopes that some of those agency bond funds will be restored in the budget by the Senate.

"We are still very much in the early stages of the budget process," Blanton said. "So our hope is to work with policy-makers as this process moves forward to, ultimately, commit to agency bond authorization."

The House budget proposal also would eliminate a 1.5 percent cost-of-living increase for state retirees over the next two years. The proposal would help decrease the growing unfunded liability in the state's pension system by about $200 million, Rand said.

State retirees have received the 1.5 percent bump every year. State employees have not received any salary increases over the past four years.

David Smith, president of the Kentucky Association of State Employees, said the state has not put in its required contribution to the state pension system over the years. That's why there is an unfunded liability in the system. Smith said it's wrong to ask state retirees to suffer because the state has not fully funded the system.

"If they truly don't have any money, then why is the legislative retirement fund fully funded?" Smith said. The legislature has its own retirement pension fund, separate from state employees. That fund does not have an unfunded liability.

Smith said the average state pension is about $28,000 a year. Smith said there could be as many 200,000 state retirees. Retired teachers would not see a decrease in their cost-of-living increase.

A cornerstone of Beshear's budget was a proposal to increase the number of children in the state's preschool program. Beshear had proposed using $15 million to expand preschool eligibility to more poor students. The House proposed only $7.5 million for preschool expansion.

Rep. Derrick Graham, D-Frankfort, and chairman of the primary and secondary education subcommittee, said the subcommittee decided to use the remaining $7.5 million to restore funding to other key areas of education. The House restored $2.6 million in each year of the budget to the Family Resource and Youth Services Centers.

Beth Musgrave: (859) 231-3205. Twitter: @BGPolitics. Blog: Bluegrasspolitics.bloginky.com.

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