FRANKFORT — Legislative leaders declared dead on Friday any bills to allow expanded gambling and said it would be "difficult" to approve a tax code overhaul, fueling uncertainty about how lawmakers will approach the $1.5 billion two-year budget deficit.
One possible solution could be to delay the most painful budget decisions — raising taxes, voting on expanded gambling or making massive cuts — until next January, well after lawmakers face re-election in November.
In the meantime, lawmakers could cobble together a budget that largely preserves funding for the next fiscal year, which begins July 1, but includes placeholder numbers for the following year that rely on iffy federal stimulus money or some other windfall of revenue, said Rep. Harry Moberly, D-Richmond, who is a former House budget chairman.
"Something like that might be a possibility," Moberly said. "That would postpone the most difficult decision until next January."
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The political winds could change by then, potentially giving gambling measures or a tax overhaul new life.
For now, House Speaker Greg Stumbo, D-Prestonsburg, and Senate President David Williams, R-Burkesville, said in their weekly joint news conference that there is no political will to pass a gambling bill in the 2010 General Assembly.
The declaration quashes Gov. Steve Beshear's proposal to allow slot machines at racetracks to generate $780 million in new revenue over the biennium. Beshear predicated his $18.4 billion budget proposal on having that extra money, which enabled him to call for only slight cuts to state programs and agencies.
"It's dead," Stumbo said of Beshear's proposal.
"I concur," added Williams.
Several other gambling measures have been floated this session, including a constitutional amendment to allow slot machines, which would require approval of voters.
That bill's sponsor, Republican state Sen. Damon Thayer of Georgetown, said it's too early to count his proposal out.
"I don't think anybody's closed the door on a constitutional amendment to let the people decide," Thayer said. He said he still plans to bring the bill up in his state and local government committee, where he said he has the votes to pass it.
Williams, however, said there is no sentiment in his chamber to pass expanded gambling. The House, last year, approved a bill to allow video lottery terminals at the tracks, but the measure died in the Senate budget committee.
"I really don't see a scenario where those bills will become an issue in this session," Stumbo said. "Nothing has changed in the Senate, so why would the House want to act again?"
Representatives from the horse industry, including Churchill Downs and Keeneland, issued statements Friday saying they're not giving up hope.
"No amount of political rhetoric is going to change the facts. Kentucky's signature industry faces significant threats and challenges," said Jay Blanton, Keeneland's spokesman. "Our state does as well. Those challenges aren't going away. We aren't, either."
Sensing the slim chances for revenue from slot machines, several key lawmakers turned their attention this month to crafting a major reshuffling of the tax code.
Those three lawmakers — Moberly, Republican Bill Farmer of Lexington and Democrat Jim Wayne of Louisville — say they hope to present a plan to their colleagues next week.
But Stumbo and House budget committee Chairman Rick Rand, D-Bedford, both said Friday that passing a tax overhaul this session would be "difficult."
Farmer said he also doesn't expect a tax plan to pass this session. In fact, he said it would be better for the General Assembly to approve the budget first and potentially come back in a special session or next January to deal with a tax bill.
While Farmer said he would prefer a tax bill that doesn't raise some taxes more than it cuts others, Wayne and Moberly said they want the bill to generate new revenue to help fill the budget hole, at least for fiscal year 2012.
One major component of the proposal would generate $572 million by applying the 6 percent sales tax to services that currently aren't taxed, such as real estate agents, accountants, photographers, business call centers and repair services. It would yield another $383.5 million by repealing some sales tax breaks, such as exemptions for buying historical sites or machinery for new businesses.
However, the new revenue would be at least partly offset by cutting the income tax on businesses and middle-class residents, as well as eliminating income taxes for the working poor, Wayne said.
"We have a very regressive system, so we're trying to make it more progressive and we're trying to make it more elastic, which means that as the economy grows ... we want our tax system to reflect that," he said.
While that proposal might provide long-term help for the state's coffers, legislators still face tough decisions as they recraft the state budget for fiscal years 2011 and 2012.
House budget committee leaders will begin presenting the remaining limited options to rank-and-file members next week, Rand said.
"The governor chose not to make any tough choices, in my opinion, in his budget proposal" by assuming $780 million in gambling revenue, Rand said. "The things he didn't put on the table were the cuts that have to be made and what adjustments must be made there. He's forcing us to make those choices."
Rand also expressed skepticism about Beshear's suggestion to free up $412 million in lottery proceeds to use for state programs instead of scholarships. The scholarships and financial aid would be covered by selling 20-year state bonds as part of Beshear's "alternative financing" recommendation.
"I'm not too excited about that," he said. "It's not good business to bond for two years scholarships that we have to pay for over 20 years."
Beshear issued a statement saying that legislators "have every right to create a different budget than the one I presented."
But he said they've chosen to limit themselves to balancing the budget with undesirable choices: "making draconian cuts that will cripple our state's services and lead to massive layoffs, significantly raising taxes on businesses and working families, or wishing and hoping for a new federal stimulus package."