FRANKFORT — Gov. Steve Beshear will recall lawmakers to the Capitol on June 15 to deal with a $996 million shortfall in the state's General Fund for the new fiscal year that begins July 1.
The nearly $1 billion shortfall is the largest in modern Kentucky history and will likely result in more spending cuts since leaders of both political parties say tax increases are not an option.
An effort to generate revenue by adding slots at horse racetracks also appears unlikely to succeed.
Although Beshear and leaders of the Democrat-controlled House support the move, House Speaker Greg Stumbo acknowledged Friday that the governor's leadership will be needed to gather enough votes. Even if Stumbo and Beshear succeed in the House, Senate President David Williams has repeatedly said there is no sentiment to approve the proposal in the Republican-controlled Senate.
Beshear announced his intention to call a special legislative session minutes after an independent group of economists sized up the state's budget woes.
Since the shortfall is greater than 5 percent of the state's $9.3 billion budget for next fiscal year, Beshear said he is required by law to recall lawmakers.
The Democratic governor said he will issue an official call for a special session and announce his budget proposal "in the next few days."
In the meantime, a battle may be brewing over the severity of the budget crunch.
Williams, R-Burkesville, said Friday that he didn't believe there was a need to call a special session at a cost of $60,000 a day. Williams said the projected revenues are only 1.5 percent below the amended budget for the current fiscal year.
In February, the legislature patched a $456 million shortfall with a blend of spending cuts and increases on tobacco and liquor taxes. The revised budget for the current fiscal year, which ends June 30, is $8.4 billion, or roughly $129 million more than the $8.3 billion in revenue projected for the new fiscal year.
Beshear can use federal stimulus dollars or make additional cuts to close the $129 million difference, Williams said. In addition, he said the state's federal stimulus dollars would cover about $220 million in extra expenses — such as payments to the state's retirement system — that must be made next year.
Up to $651 million in federal stimulus dollars can be used to plug some holes in the budget, but about 80 percent of that money has to be used for schools — both college and K-12.
"We are in a very manageable situation," Williams said. "There is no crisis. We don't need to come up here on the 15th of June because the governor already has the authority to cut expenditures."
Beshear's office dismissed Williams' argument, saying language in the budget bill enacted earlier this year is clear — the state is required to compare the revised revenue estimate for 2010, which was issued Friday, with the enacted $9.3 billion budget for 2010.
Williams is mixing numbers from two different fiscal years, the office said.
"It would be irresponsible, in our judgment, to ignore the economic reality confronting us or the law, which clearly calls on the legislature to act with us to balance the budget," said Jay Blanton, a spokesman for Beshear. "We are hopeful that the legislature will continue working with us in a cooperative fashion and spirit of bipartisanship to do just that."
Revenue options limited
Beshear and House leaders said little Friday about what actions they might take to make the state's books balance.
Both Stumbo and Beshear said new taxes won't be considered, but pledged to do all they can to maintain spending on essential education, health care and public safety programs.
"As I have said before, now is not the time to raise taxes on Kentucky's working families; just as they have had to tighten their belts, so will we as a state," Stumbo said.
Neither Beshear nor Stumbo mentioned in their statements the possibility of generating new state revenue by allowing slot machines at the state's horse racetracks.
Williams said he talked with the governor Thursday about slots, but said he does not believe a proposal pushed by Stumbo would generate as much money for the state or racetracks as has been promised.
When asked about slots, Blanton said the governor has been focusing on the budget but "believes the horse industry is in a state of crisis and we need to find a way to ensure that we remain the horse capital of the world."
Blanton said Beshear has long been supportive of expanded gambling and "will be talking with legislative leaders in the coming days about the budget and other issues that could be considered for inclusion, ultimately, in the special session.
"That certainly could include gaming, but any issues beyond the budget will depend upon the discussions over the next several days."
Only the governor can call a special session and set its agenda.
Stumbo said in a telephone interview that the House is ready to help the horse industry "with the governor's leadership."
"The governor's leadership is critical," he said, noting that the state legislature could not have passed a statewide lottery bill in the late 1980s without the support of then-Gov. Wallace Wilkinson.
Stumbo said Beshear could do more to influence legislators who oppose the expansion.
Advocates fear cuts
Meanwhile, many advocates are bracing for more cuts in light of the state's gloomy budget picture. Some state agencies have had more than 20 percent cut from their budgets over the past 18 months.
Terry Brooks, executive director of Kentucky Youth Advocates, said Friday that he hopes state leaders will look at a host of different options, not just expanded gambling to solve the state's budget problems.
"The national experience in other states paints a clear picture that a balanced plan is the only viable approach in these times of deficit and recession," Brooks said.
Common Cause of Kentucky also called on legislative leaders to form a citizens group to help monitor the state's spending of federal stimulus dollars.
Kentucky is set to receive more than $3 billion in federal stimulus dollars but most of that money is earmarked for particular programs.