FRANKFORT — After a day of negotiations, state House and Senate leaders were unable to agree to a compromise to fix the state's Medicaid budget. They will return Tuesday morning to try again.
Late Monday, Senate Republicans' counterproposal included some savings in the $6.5 billion Medicaid program as a way to balance the state's two-year budget.
The proposal still includes some cuts to state government and to the main funding formula for K-12 and higher education, but those cuts are not as deep as the Senate's original proposal, said Senate President David Williams, R-Burkesville.
The Senate's counterproposal came after the two sides met four times Monday to discuss key differences in the House and Senate budget proposals. The House will now meet and decide whether the cuts would be acceptable.
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The legislature must pass a budget proposal by midnight Tuesday in order to preserve one day to override a gubernatorial veto.
At issue is how to fix a potential hole in the state's Medicaid budget. The House previously approved Gov. Steve Beshear's budget proposal, which included moving $166.5 million from the next fiscal year to the current one.
Beshear has said he can make up the difference in the second year of the Medicaid budget through savings generated, in part, by starting managed care plans.
The Senate's version of House Bill 305 includes across-the-board cuts of 0.525 percent for the remaining months of this fiscal year and across-the-board cuts of 2.26 percent in the second year, which begins July 1. Education would be spared in the first year but would be cut in the second year of the budget.
Senate leaders have said it's not possible for Beshear to generate the savings he has promised because contracts creating managed-care Medicaid programs won't be signed until summer.
Stumbo and House Republicans have said they would not support cuts to education to eliminate the Medicaid budget shortfall. Beshear has said the Senate's plan would cut K-12 education by $47.4 million, including $38.4 million from SEEK, the basic funding formula for classroom teaching.
Cuts to higher education would total $28 million, including $22 million from institutions' basic budgets and $4.3 million from student financial aid.
The state's education community has said the cuts would be devastating.
A House proposal
The House late on Monday drafted a counterproposal that would use one-time money to plug a hole in the Medicaid budget and would rely only on $98.6 million in Medicaid savings.
Stumbo and House Budget Chairman Rick Rand said the House proposal strikes a middle ground and still spares state government from further cuts.
In addition to the $98.6 million in savings in the Medicaid program in the budget's second year, an assortment of one-time money would close the remainder of the $166.5 million hole.
"It preserves the rest of state government," Rand said of the proposal, noting that it would not require any cuts.
But Senate Republicans said they still had problems with the House proposal. For example, the House's version would leave little extra for emergencies, said Williams.
He said the Senate version would assume Medicaid savings of $83.25 million. Late Monday, legislative staff members were still trying to calculate what that would mean in terms of a percentage cut across state government.
The cut would remain 0.525 percent for the remaining months of this fiscal year and probably would translate to less than 2 percent in the second year of the budget, Williams said. That would mean a little less than a 1 percent cut for the main funding formula for K-12 education in the second year of the budget, he said.
"I think the fallacy of the original budget proposal ... by the House and proposed by the governor was pretty evident to everyone in the room," Williams said of the amount that could be saved. "We feel like the proposal that we came forward with is more than fair and more than halfway."
House Speaker Pro Tem Larry Clark said he wasn't sure whether the House would accept cuts across the board given that Beshear thinks he can generate the savings in the second year of the budget.
"I think making cuts across the board is just not going to be acceptable to the House side," Clark said.
Stumbo said after Monday's negotiations that smaller cuts are still a hit to the budgets of strapped school districts and that he would not accept them if there was a viable alternative.
"It may be that there is a time ... for across-the-board cuts, but now is not the time," Stumbo said. "There is not this crisis ... I don't buy this argument that the sky is falling."
Williams, who wants Beshear's job, said during the second round of negotiations Monday that education must take a hit because it has been spared in previous rounds of cuts.
There have been eight rounds of budget cuts during the past three years. Some agencies have seen spending cuts of 20 percent to 30 percent.
Williams said the proposed cuts to education translate to 9 cents a day per student. If the House and Senate agree to Beshear's plan and the savings in Medicaid aren't generated, the cuts to education will be even deeper next year, Williams said.
"We would have to do double the cuts," he said. "We need to start to do something now."
House leaders asked at one point to close the budget conference talks to the public, but Williams declined.
During the first round of budget negotiations Monday, the two sides reached a tentative agreement to limit Beshear's ability to refinance debt and concluded that he should reach certain cost-saving targets in key areas.
Early Monday, Williams outlined the spending targets the Senate version included. Those include spending reductions in areas such as political appointments and government contracts. Such reductions were in the original two-year budget the House and Senate passed last year, but Beshear vetoed them, saying he needed more flexibility.
Williams said Beshear has relied on debt restructuring to cut short-term costs rather than slashing contracts and political appointees. Beshear restructured about $67 million more in debt than the legislature allowed in its budget, he said.
Stumbo agreed and said he thought the governor might not have the authority to restructure debt without the legislature's approval.