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Beshear details cuts, tax hike

FRANKFORT — Gov. Steve Beshear wants to raise the state cigarette tax from 30 cents to $1 a pack and put state workers on three days of unpaid leave to tackle a $456.1 million budget shortfall.

His plan also includes implementing 4 percent budget cuts in most state agencies and the legislative and judicial branches, diverting surplus coal severance tax proceeds and draining the state's "rainy day fund" for emergencies.

The plan now goes to state legislators, many of whom are wary of Beshear's call for a tax increase.

Some lawmakers expressed doubt that a 70-cent increase would make it past either the Democratic-controlled House or the Republican-controlled Senate.

"I don't think realistically you could pass a 70-cent tax increase," said Rep. Jimmie Lee, D-Elizabethtown, noting that he would vote for it.

"Those legislators that live close to a border state may find 25 cents more palatable because it would keep Kentucky cigarette taxes lower than most states," Lee said. "I think he has a lot of selling to do."

In the meantime, Cabinet secretaries will make public next week how they plan to cut their budgets by 4 percent, which might include some layoffs. Beshear is not seeking any cut in state workers' salaries.

Under Beshear's plan, the state Department of Education, public universities and the state police are being asked to trim 2 percent from their budgets. The move would save a new class of 60 state police troopers who are scheduled to begin training in January.

Spared from any cuts are the basic funding formula for schools, student financial aid for higher education, the corrections department, juvenile justice facilities, Medicaid, mental health and retardation programs, the teachers' retirement system and the Executive Branch Ethics Commission.

Beshear unveiled his plan at a Capitol news conference Thursday morning on the anniversary of his taking office. He said he will work with the legislature on "every aspect" of his plan.

Senate President David Williams, who has been reluctant to back a tax increase, had little to say about Beshear's plan. The governor briefed him and other legislative leaders shortly before the news conference.

"As of this date, we have only received a press release," Williams, R-Burkesville, said in a statement.

"We look forward to viewing the proposed legislation as we continue our commitment to working together whenever possible for the benefit of all Kentuckians," he said.

House Speaker Jody Richards, D-Bowling Green, said the House will support an increase in the cigarette tax, but he declined to say by how much.

At a minimum, he said the 25-cent increase that cleared the House earlier this year could pass again. That proposal died in the Senate.

Richards said the biggest concern about Beshear's proposal is his intention to divert about $17.5 million in surplus coal severance tax proceeds that otherwise were headed to coal-producing counties — a move he opposes.

Those funds are part of $40.6 million in various "restricted" state funds that Beshear wants to tap.

During the first half of this fiscal year, counties collected $20 million more than the budget assumed they would from coal, natural gas and oil severance taxes, said John Hicks, Beshear's acting state budget director.

The counties will keep those funds, which "are out the door and already distributed," he said. But the state is planning to skim off an estimated $17.5 million in additional windfall coal severance tax receipts the counties would receive for the rest of the fiscal year.

A disgruntled state Sen. Brandon Smith, R-Hazard, said in a statement that it appears the Beshear administration "continues to put the interests of the coal counties last."

Beshear called his budget plan "a starting point." He added that he is open to other ideas to resolve the money crisis, but hopes legislators will deal with his plan in January.

Lawmakers are scheduled to be in session Jan. 6 through 9 to elect their leaders and then return Feb. 3 to work through March 24 on legislation. They could change their schedule to add working days in January, or Beshear could call them into special session during their time off in January.

Sen. Tom Buford, R-Nicholasville, said a tax increase would have a better chance of passing during a special session, when only 50 percent of the vote in each chamber — rather than the 60 percent required in the regular session — would be needed for approval. Buford said he would support a tax increase to dissuade children from smoking.

The governor's plan to raise the tax on cigarettes by 70 cents and double the tax on other tobacco products such as snuff would raise $81.5 million in this fiscal year, which ends on June 30.

The tax increase would be expected to bring in $144 million the following year. That money would be used to help replenish the $178.9 million taken this year from the rainy-day fund.

An increase in the cigarette tax, Beshear said, not only would raise money for the state but would create a "healthier population and substantially decrease long-term health care costs."

Beshear said the proposed three-day furloughs for state workers were an alternative to massive layoffs. Still, he acknowledged that cabinet secretaries might have to implement some layoffs to address their budget cuts.

Lee Jackson, president of the Kentucky Association of State Employees, said he prefers furloughs to layoffs but reserved judgment on furloughs until the administration released more information.

Beshear's plan got mixed reaction from advocates for the poor, disabled and neglected.

Health advocate Sheila Schuster said she was pleased that the plan protects mental health programs.

But child advocates were dismayed that Beshear allowed cuts to child protection services.

"(Beshear) said we were obligated to pay for beds for people in jail but I don't see how we aren't obligated to care for kids in foster care," said Bart Baldwin, president of the Children's Alliance, a non-profit that represents agencies that provide services for children in foster care.

Beshear's plan also does nothing to address a deficit of more than $180 million in Kentucky's Medicaid program.

Beshear said he hopes that a stimulus package to be considered by Congress in January will include more federal dollars for states to pay for Medicaid, the health care program for the poor and disabled.

Prosecutors also were disappointed with the governor's plan.

Christian County Attorney Mike Foster said commonwealth's and county attorneys will have to furlough staff, lay off people or reduce salaries. County attorneys face about $1.1 million in cuts while commonwealth's attorneys would see a $1.3 million decrease.

Fayette Commonwealth's Attorney Ray Larson has said he will ask his staff to take furloughs of up to two weeks to make up for the budget cuts.

The state Transportation Cabinet, which faces a projected $104.7 million shortfall in the Road Fund, has not yet determined how to deal with the problem, said spokesman Chuck Wolfe.

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