FRANKFORT — Legislative leaders from both parties acknowledged for the first time Tuesday that the state must raise new revenue to deal with a projected $456 million budget shortfall.
Senate President David Williams, R-Burkesville, said all budget options — including increases in cigarette or liquor taxes — are on the table. Previously, he has said there is little sentiment in the Senate to raise taxes.
Despite a federal stimulus package currently being debated in Congress, the state needs money now, Williams said.
"It appears to me that there will be a need for some revenue," Williams said.
Still, Williams warned of impending budget cuts, regardless of whether lawmakers approve any revenue measures. His admonition came as the General Assembly reconvened Tuesday after a nearly month-long break.
"Anyone who thinks there will not be a significant round of cuts — even if the governor gets the entire amount of his new revenue — is not well informed," Williams said.
Gov. Steve Beshear has proposed a 70-cent increase in the cigarette tax, approximately 4 percent cuts to most state agencies and furloughing state workers to rectify the shortfall in the current fiscal year, which ends June 30.
House and Senate budget committees have spent the past three weeks going over the state's budget and leaders from both houses have been discussing budget options. Williams and House Speaker Greg Stumbo, D-Prestonsburg, said they hope to have a consensus budget bill ready by the end of the week or early next week.
"I would like to resolve it that quickly, but I'm not sure that can happen," Stumbo said. "But we have gained a lot of ground these last couple weeks and we're making progress."
Stumbo said the next step is to resume negotiations Wednesday with House Republicans and Senate leaders.
Lawmakers also will continue watching a federal stimulus package wind its way through Congress, but realize that any money from that package probably won't bring relief before July 1, when the next fiscal year begins.
Stumbo said after a closed-door Democratic caucus meeting Tuesday that it was clear the House did not want to make up the entire $456 million shortfall with cuts.
Budget cuts are "the least preferable option to our caucus," Stumbo said. "The caucus is unified on pressing forward to find some budget solution that will not require us to go to the last least desirable option — allowing the governor to enact the full budget cuts."
Still, it's unlikely that lawmakers will raise the cigarette tax by 70 cents a pack to $1, both leaders said Tuesday.
Stumbo said he could support a 70-cent cigarette tax increase, but many of his colleagues can't.
"I think realistically it's going to be something lower than that," Stumbo said.
Williams said there was concern in the Senate that raising cigarette or liquor taxes too high could put Kentucky retailers at a disadvantage, especially those along the state's borders.
Stumbo said that increasing the wholesale tax on beer and alcohol is gaining momentum, especially with the cigarette tax up for discussion.
"There's some general discussion and a lot of public sentiment ... that people will say that if you're going to tax one of these items, why not tax them both," Stumbo said.
In 2005, the General Assembly raised the cigarette tax from 3 cents to 30 and the wholesale alcohol tax from 9 percent to 11 percent as part of former Gov. Ernie Fletcher's tax restructuring bill.
Several House Democrats said Tuesday they are open to all revenue options.
"We have not committed to any option," said Rep. Jim Wayne, D-Louisville.
Rep. Robin Webb, D-Grayson and a vice chairman of the House budget committee, said key House and Senate members have been combing through the budget for the last two weeks to find how deep the cuts to programs would be under various scenarios: no new revenue, some new revenue and the full 70-cent cigarette tax proposed by Beshear.
Webb said after the caucus meeting that no specific numbers were discussed.
"It was more of a topical discussion," Webb said of the meeting. Additional cuts to the already reduced state budget was not an attractive option. "Nobody wants to feel that kind of pain," Webb said.
Some lawmakers in both parties said Tuesday that the state might have to look at long-term changes to its tax structure in order to resolve chronic budget problems.
Wayne, for instance, filed a bill early Tuesday that called for changes in the state's tax system. The bill — which calls for a state earned income tax credit for the poor, increasing taxes on the wealthy and new taxes on luxury service items — has been proposed four previous times but has never been passed.
Wayne said Tuesday he has talked to House leadership about the bill and said Beshear has also agreed to talk to him about his proposals. However, Wayne acknowledged it is unlikely his tax overhaul plan will pass this session, which has only 25 working days left.
Wayne said he is hopeful that the bill will at least get a hearing in the House during this session but said overhauling the tax system might be something the legislature could address in a special session.
"We don't have the revenue to provide the services people want us to provide," Wayne said. "You need a diversified revenue system."