Gov. Steve Beshear is asking every Kentucky agency and public university to draw up plans for 4 percent budget cuts in the wake of a state revenue shortfall that's nearing a half-billion dollars.
Such trims, if implemented, could mean reductions to vital services, including medical care for poor and disabled Kentuckians, local school districts and university programs.
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In light of bleak revenue estimates that came out last week, "we have to ask areas throughout state government — including higher education — to develop scenarios that detail the potential impact of cuts," Beshear's spokesman Jay Blanton said in a statement.
The request from Beshear's office was the first step in quantifying the fiscal pain the national economic downturn could inflict on Kentucky's programs and services as tax revenue continues to shrivel each successive month.
Beshear's interim budget director John Hicks delivered an order Tuesday morning to agency leaders to begin planning for 4 percent cuts. They must submit their drafts of how to slash their bottom lines to Beshear's budget office by Dec. 5, which falls roughly in the middle of the fiscal year.
State education officials who oversee elementary and secondary schools as well as the universities say their areas — which have absorbed several budget reductions recently — will feel pain if the cuts come.
"Within less than 12 months, if this 4 percent cut happens by January, the universities would have had their general fund base reduced by 10 percent," said Richard Crofts, interim president o n the Council of Postsecondary Education, which oversees the state colleges and universities. "You can't do that without having serious consequences."
Which specific programs and services will be up to individual campus leaders.
Four percent cuts for the eight state universities and the Kentucky Community and Technical College System would amount to $41 million.
Officials at the Kentucky Department of Education, which manages the state funding that flows to local school districts, will begin reaching out Wednesday to local superintendents to see how the agency could cut 4 percent from its nearly $4 billion budget. Most of that money — more than $3 billion of it — is distributed to the 174 school districts through what is known as the Support Education Excellence in Kentucky, or SEEK, funding formula.
Medicaid could be cut
Medicaid, a $5.1 billion program funded by the state and federal governments, also could see reductions, said Blanton. But that would be up to the Health and Family Services Cabinet, which oversees that program, and must decide how to trim 4 percent from the whole agency.
It remains unclear whether Beshear is preparing to order a 4 percent reduction in state spending or whether the legislature will have to pass an amended state budget for the fiscal year, which ends June 30, 2009.
Senate President David Williams, R-Burkesville, said any cuts or restructuring of the state budget must be approved by the legislature, citing the state's budget reduction act of 2000. That law says the governor can order cuts when tax revenue falls less than 5 percent off initial estimates.
Last week, the state economists known as the Consensus Forecasting Group revised their numbers, predicting this year's revenue will fall $456 million short of what was budgeted — a 5.1 percent drop.
Williams said he wants to hear testimony from officials, advocacy groups and citizens about what the effect of cuts will be before deciding whether the legislature should approve any tax increases, such as raising the 30-cent-per-pack tax on cigarettes.
"I would be open to hearing the testimony with an open mind," he said. "I think it's very fortunate that we didn't expand the budget (in April) like the governor and some in the House wanted to do and that we held raising the cigarette tax in reserve."
He acknowledged that raising the levy on packs would be the easiest, politically.
House Speaker Jody Richards, D-Bowling Green, issued a statement that revealed little about how he planned to handle the financial crunch.
"When the 2009 Session gets under way, the House of Representatives will work with (Beshear) to figure out the best way to preserve our educational progress and essential human services," the statement said. "Together we must work to weather the worst crisis this nation has seen since the Great Depression."
Richards' spokesman, Brian Wilkerson, said that statement was Richards' only comment for now.
A first step
A statement from Beshear said asking the state agencies and universities to plan for 4 percent cuts was the first necessary step to gauge the effects of potentially painful cuts.
"We know this process is not easy for anyone involved, and the size of the cuts being contemplated would, as the governor indicated last week, result in very difficult and painful choices," the statement said. "But we have to prepare and these scenarios are critical in doing that."
The eight state universities and the Kentucky Community and Technical College System were cut by 3 percent last January and saw their funding slashed by another 3 percent in the Fiscal Year 2009 budget the legislature approved in April.
More cuts for UK
For the University of Kentucky, that has meant more than $20 million in reductions, resulting in a hiring freeze and the elimination of 188 positions.
A 4 percent cut for UK now would mean ripping out an additional $13 million from the more than $316 million it receives from the state.
That figure is roughly 15 percent of the university's total revenue, a sharp decline from the percentage of funding it received from the state 10 years ago: 27.4 percent.
UK President Lee T. Todd Jr. said in a statement that "every area of our budget, from services to programs to people, will be considered to deal with this reduction."
Crofts, of the CPE, said UK and the other universities will be hard-pressed to trim from already stressed utility budgets and from personnel because many professors and instructors are locked into contracts.
"A mid-year reduction of this size is very difficult to administer," he said. "It's almost impossible to do strategically."