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Ky. budget shortfall worsens

FRANKFORT — After the state's projected budget shortfall grew by more than half on Friday to $456.1 million, Gov. Steve Beshear warned that the blooming financial crisis may bring tax increases, layoffs and cuts to education and social services programs.

Beshear made his somber remarks shortly after a group of independent economists raised the state's projected revenue shortfall for the state's General Fund from $294 million to $456.1 million. That represents about a 5.1 percent decline in the $8.9 billion of revenue that was expected.

"This financial crisis is neither imagined nor exaggerated. It's real and it must be addressed," Beshear said.

"Kentucky's elected leaders, regardless of party or politics, must come together to confront this challenge. Make no mistake, only tough choices lie ahead."

The Democratic governor said a special legislative session is likely in January to deal with the shortfall for this fiscal year, which ends June 30.

However, Republican Senate President David Williams of Burkesville said no special lawmaking session is needed and challenged Beshear's authority to address the crisis.

State law appears to give a governor the power to reduce expenses only when a shortfall is 5 percent or more of expected revenue.

Beshear said he disagreed with Williams' contention and hopes to have a plan by early December to address the shortfall.

The prior shortfall projection, made late last month by Beshear's staff, was 3.3 percent of expected revenues.

The group of economists, known as the Consensus Forecasting Group, also projected a $104.7 million shortfall in the Road Fund on Friday. That is a decline of nearly 8 percent from expected revenue receipts.

Beshear, who asked the forecasting group for the projections, said he expected the gloomy news from the panel because of the worsening economy.

"Most economists predict our economy will remain deeply troubled for several months, if not a couple of years," he said. "Next year, the budget shortfall may be even larger."

Advocates for education and social services met the grim news with distaste.

University of Kentucky President Lee T. Todd Jr. said in a statement that an additional cut to UK "on top of the $20 million reduction we have already experienced over the last 11 months, would be devastating to our progress."

The state's universities were cut 3 percent in the current two-year budget, which reduced state spending overall by about $135 million over the prior two years.

Todd said he "will continue to strongly advocate that the best way for Kentucky to both move past this economic downturn and avoid subsequent situations is to invest in education."

Sheila Schuster, a mental health advocate, said she is concerned that some programs that "already are dramatically underfunded will get cut even more."

She recommended that legislators raise the state cigarette tax, saying the move would generate more money for the state's coffers and boost the health of Kentuckians.

Williams has been reluctant to consider any tax increases to balance the budget, especially an increase in the cigarette tax, but told reporters Friday that he is willing to consider Beshear's plan to increase the tax.

Beshear unsuccessfully proposed in this year's law-making session raising the 30-cent-a-pack tax on cigarettes to $1 a pack. That would generate an extra $185 million a year for the state.

Williams said he hopes Beshear meets with legislative leaders instead of "running all over the state to tout a plan."

Lawmakers will return to Frankfort for four days in early January for an organizational session to select their leaders and then return Feb. 3 for 26 days of making law.

Williams said the House and Senate budget committees could work in January on the budget and all lawmakers could consider their work in February, avoiding a costly special session.

Beshear said he is looking at a special session because only a majority of votes would be needed in each chamber to approve revenue measures in it, whereas, 60 percent of the votes in each chamber would be needed for such action in a 30-day regular session.

But Beshear said he would be willing to negotiate on the issue.