tool name

Sunday, Nov. 01, 2009

Lawmakerswill face a$1.19 billionquestion

When lawmakers return to Frankfort in January, one number will loom large: $1.19 billion.

According to preliminary estimates, that's how much money lawmakers must find in the couch cushions of state government to continue spending at current levels through June 2012.

The state still has $485 million of federal stimulus money to throw at its budget gap, but bridging the remaining $705 million shortfall could create headaches for just about everybody, including students, state workers, the poor and the sick.

Despite the state's money woes, proposals by two lawmakers from different ends of the political spectrum to overhaul Kentucky's tax system won't likely gain approval in the upcoming legislative session.

Rep. Bill Farmer, R-Lexington, and Rep. Jim Wayne, D-Louisville, have re-filed separate and very different plans for systemic tax reform. Although different in most ways, both plans call for extending the state's sales tax to services ranging from manicures to engineering work.

They say their plans would make the tax system more modern and fair, and most importantly, bring in more money.

"Our revenue stream is entirely unsustainable," said Farmer, who filed Bill Request 31 last week. "We have to find something that's going to get our revenue to grow."

However, Gov. Steve Beshear, facing re-election in 2011, said both proposals are tantamount to tax increases that he won't support.

"As Kentucky grapples with the challenges of a global recession, raising broad-based taxes is not in the best interests of working Kentuckians and families," Beshear said in a statement.

The tax overhaul proposals don't fare any better in the Republican-led Senate. "I think there is a reluctance to look at tax reform because those proposals, at the bottom line, usually include some kind of tax increase," said Senate budget committee chairman Bob Leeper, an independent from Paducah.

Beshear and House Speaker Greg Stumbo, D-Prestonsburg, prefer raising revenue by allowing casino-style gambling at racetracks.

How much money slots at race tracks would actually generate for the state depends on the proposal. Under one proposal that passed the House this summer, the state could receive about $190 million annually. That proposal died in the Senate.

"When we get back to Frankfort in January we are going to have some very sobering budget projections to deal with," said Senate Minority Leader Ed Worley, D-Richmond. "The governor is going to make slots part of his revenue package. I don't think that should be a shock or surprise to anybody. We're going to have to look at this or make some budget cuts that are so drastic they could change the course of the future of the commonwealth."

Stumbo has also said raiding the contingency funds of local school districts might produce hundreds of millions of dollars for the General Fund, but school districts have pledged to fight back.

Robbing Peter to pay Paul

So far, Kentucky has been able to avoid mass layoffs or drastic cuts to vital services such as education in large part because of money provided through the federal stimulus program.

But that money is running out.

Earlier this year, the state used $787 million in federal stimulus dollars to plug a nearly $1 billion hole. Kentucky has about $485 million of federal stimulus funds left to use for the upcoming fiscal year, said State Budget Director Mary Lassiter.

Without a tax overhaul, Farmer said, the state will continue to rob Peter to pay Paul, raiding different pots of money to make up deficits in its $9.1 billion budget. Since 2007, the General Assembly has used such tactics, which former Gov. Paul Patton called a "smoke and mirrors game," to spend about $2 billion more than was deposited in the General Fund.

Preliminary projections, which will be finalized in December, show the state facing another $161 million shortfall in the current fiscal year. To spend $9.1 billion in each of the following two years, the state must somehow boost projected revenues by $680 million in fiscal year 2011 and $350 million in fiscal year 2012.