Where will he get the money? Five things to look for in Andy Beshear’s first budget.
Kentucky Gov. Andy Beshear will reveal his first two-year state government budget proposal on Tuesday, turning his amiable rhetoric into cold, hard numbers.
Beshear’s $23 billion spending plan — to be launched with a 7 p.m. address to state lawmakers televised on KET — is only the start of the process. Next, the House and Senate, in that order, each get their own shot at writing budget proposals. A final compromise between the two chambers is due back on Beshear’s desk by the time lawmakers adjourn for the year on April 15.
Here are five things to watch for Tuesday:
1. Scant revenue
Beshear has expressed lofty ambitions for education, health care, public safety and other pressing needs. But he won’t have much extra money to pay for any of that.
The Consensus Forecasting Group, a panel of experts that develops revenue growth estimates for the state’s General Fund, handed down a grim prediction in December: a meager 1.3 percent in growth for Fiscal Year 2021 and 1.8 percent in growth for Fiscal Year 2022. By comparison, the federal government anticipates that inflation in the United States will average 2.1 percent in 2021.
Those are the lowest revenue growth numbers a governor has faced since Kentucky began the forecasts 25 years ago, back when the state’s annual growth estimates routinely topped 4 percent.
Some critics, such as the Berea-based Kentucky Center for Economic Policy, blame the state’s tax system for giving away hundreds of millions of dollars in tax breaks to banks, corporations and other wealthy interests with lobbyists on duty at the Capitol. And it’s worth noting that lawmakers this session already have filed roughly two dozen bills calling for additional tax credits and deductions.
One of the experts who forecast the weak growth, University of Kentucky economist Chris Bollinger, said he and his colleagues are worried about rough waters ahead.
“We think a recession is coming and we think it’s in the next year or two,” Bollinger said Monday. “It’s really hard to predict recessions. But we’re clearly at the top of the business cycle. ... Most economic forecasts nationally show growth slowing over the next couple of years, so this seems to be something people agree on.”
Beshear, a Democrat, has other ways to try and raise revenue, of course, but lawmakers must approve.
That rules out his dream of state-licensed and -taxed casino gambling, an idea Republican legislative leaders have declared dead on arrival. A more modest sports gambling bill — if it passes — could raise an estimated $22.5 million a year, but that would be partly offset by the costs of establishing new gambling crimes and jailing people who commit them, according to legislative analysts.
In 2018, the legislature approved a 50-cent tax increase on every pack of cigarettes that has yielded about $140 million in fresh income a year. Beshear could propose another tobacco tax hike and a tax on e-cigarettes. He’s also expected to engage in the time-honored Frankfort tradition of “fund transfers,” which means raiding different special-purpose accounts — such as one established for state employees’ health insurance — and diverting that money into the General Fund to spend as he wishes.
2. Public pensions
Beshear’s Republican predecessor, Matt Bevin, built his budget proposals around fully funding the state’s actuarial required pension contributions for state employees in the Kentucky Retirement Systems and educators in the Teachers’ Retirement System of Kentucky. By doing so, Bevin ended a long stretch of inadequate pension contributions going back two decades, with blame to be shared by governors and lawmakers from both political parties. The result of that negligence is a staggering $30 billion public pension debt.
Beshear says he will continue full pension funding during his own administration. It won’t come cheap. Kentucky is already spending more than $2 billion a year on the two pension systems, working toward a 30-year goal of full solvency. The state budget office says $169 million more will be needed over the next two years for additional pension contributions just to keep the progress going.
3. Teacher raises
On the campaign trail last year, Beshear promised to give every public school teacher in Kentucky a $2,000 raise. More recently, he has insisted that his first budget will make good on this pledge.
The state budget office puts the cost at $2,000 raises for 42,000 teachers at $97 million, including the salary-related benefits that are affected when pay rises. Nearly $100 million a year, every year: That’s about five times what the most optimistic projection calls for the sports betting bill to collect.
4. Education spending
Kentucky state colleges and universities say they are asking Beshear and lawmakers for their first funding increase since the Great Recession more than a decade ago. As state support waned, tuition and fees quickly rose to make up the difference, driving up the cost of attending college.
The Kentucky Council on Postsecondary Education says higher ed wants a 6.2% increase in 2021 and an 8.8% increase in 2022. Current state funding for these schools is $862.9 million; the new request would take that to $913.3 million and then $935.8 million.
The state budget office says it would cost $255 a million annually to restore the money that state leaders have cut from colleges and universities. How much extra money Beshear will give — if any — is unclear. In his State of the Commonwealth address two weeks ago, the governor simply promised to end the cuts. The first budget “will embrace higher education,” he added. That could mean no more than current levels, but also no less.
In K-12 schools, the state’s basic per-pupil funding formula, known as SEEK, was $2,552 in 2020. In inflation-adjusted dollars, that continued the fairly steady decline that has placed a burden on local school districts, which must come up with a larger share as the state’s portion shrinks.
How much would it cost to raise SEEK spending? For a $40 increase per pupil, that’s $31 million a year, according to the state budget office.
The current state budget holds no money for additional school needs, like textbooks and professional development for teachers. And state funding for other important items such as preschool, after-school programs and assistance with school districts’ transportation costs all were cut. If Beshear wants to restore them, he’ll need to find the money.
5. Criminal justice
Beshear held a news conference Jan. 17 to complain that Kentucky’s criminal justice system is badly overdue for reform because booming prison and jail costs are breaking the state budget.
The Kentucky Department of Corrections expects to pay $115.3 million in additional expenses just to finish this fiscal year and make it through the next two-year budget, on top of the many hundreds of millions of dollars it already was allotted to get, Beshear said. For a comparison, he added, Kentucky could help local school districts pay for full-day kindergarten statewide for about $90 million.
Beshear told Kentuckians to watch his budget proposal for a first look at his reforms, which could include changes in where the state’s roughly 24,000 inmates are held. The governor would like to consolidate the 13 existing prisons that house inmates, closing some of the older, costlier state facilities that are crumbling, and possibly buying two newer private prisons with which the state has contracts.
Overall, the state needs to incarcerate fewer people, he added. For every 1,000 inmates that Kentucky can eliminate, the state budget gets about $12 million it can spend on education, health or other pressing needs, he said.
But those sorts of large savings depend on the legislature passing criminal justice reform legislation. As of Monday, the 14th day of the 60-day legislative session, there was little serious discussion in the House or Senate about such a sweeping reform effort.
