Andy Beshear’s budget replaces cuts with pay raises by adding $1.53 billion in revenue
Kentucky Gov. Andy Beshear on Tuesday proposed to lawmakers a two-year state budget that offered rare good news for public workers after a decade of painful cuts, relying on $1.53 billion in fresh revenue from sources including state-regulated sports betting and new taxes on tobacco and vaping.
“Since 2006, we have seen deep, difficult and historic cuts in our state budgets,” Beshear told the General Assembly in his first televised budget address. “These cuts were not simply numbers on a spreadsheet. They were lost services, lost opportunities and sometimes even lost lives. They were a lack of support to repair broken lives.”
“Tonight, I am proud to report that I am submitting a budget that ends these 14 years of painful cuts,” he said.
Beshear, a Democrat, included in his $23 billion spending plan pay raises for school teachers and state employees, small funding boosts for K-12 schools and higher education, full funding for the state’s two public pension systems and partial pension relief for regional universities and quasi-governmental entities, such as health departments, that otherwise faced a choice between ruinous cost increases or forced retreat from pension enrollment.
But to protect these initiatives — including his decision to not trim spending across swaths of government, as his two predecessors did — Beshear must convince the Republican-led legislature to stick with his revenue plan, which pays for them.
The House and Senate get to take turns writing their own budget bills, based on Beshear’s proposal, and it will be their compromise that determines the final product before the General Assembly adjourns on April 15.
After the budget address, House Speaker David Osborne, R-Prospect, said the governor’s plan was “what I expected,” with proposed revenue sources that did not seem to stray too far from reasonable limits. Senate President Robert Stivers, R-Manchester, complained that he and other lawmakers hadn’t been briefed on the budget plan by Tuesday night, so they knew no details.
“There is a certain sense of skepticism,” Stivers said. “This was all puppy dogs and rainbows.”
The governor’s revenue plan has many sources: anticipated increases in existing state revenue for the General Fund ($841.7 million over the rest of this fiscal year and in fiscal years 2021-22); fund transfers from other state-controlled accounts ($288 million); a category Beshear calls “maximizing resources,” including lawsuit settlements, retired debts and enhanced tax collections ($206.4 million); and new revenue ($147.7 million).
The new revenue could prove to be the toughest sell politically, although Beshear mostly stuck with ideas already floating around the General Assembly during this legislative session.
As expected, given fierce Republican opposition, he didn’t try to include state-licensed casino gambling. But he did rely on licensing fees and taxes from sports betting, the subject of a much-discussed bill now awaiting a House floor vote.
He proposed a 10-cent increase in the tax on cigarettes and other tobacco and a new 10-cent-per-milliliter tax on vaping products. And he called for a higher minimum tax on limited liability entities to adjust for inflation, raising it from $175 a year to $225.
Not everything Beshear wanted made it into his budget. One noticeable absence was $90 million in annual funding to help local school districts provide full-day kindergarten statewide, an ambition for candidate Beshear last year during his gubernatorial campaign.
But Beshear did manage to protect government from further cuts and spread around extra money, such as:
▪ 1 percent pay raises for state employees in each year of the budget, with separate, larger raises for Kentucky State Police. State workers haven’t seen across-the-board raises for most of the last decade. As wages stagnated and pensions were replaced with defined-contribution retirement accounts, state agencies have had a difficult time recruiting and retaining qualified employees.
▪ The $2,000 pay raise Beshear repeatedly promised public school teachers during his campaign. That would be a 3.7 percent increase for the average Kentucky teacher, who made $53,923 in 2019. The money for this raise — $188.6 million over two years — will be reimbursed directly to school districts by the state and will not be a part of the state’s SEEK per-pupil funding formula.
▪ A 1 percent increase in the SEEK per-pupil funding formula for K-12 schools, or $39 million more in 2021 and $48.5 million more in 2022. That would raise the base amount per pupil to $4,040. In inflation-adjusted dollars, the state’s SEEK funding has been declining over the past decade, forcing local school districts to contribute more.
▪ Partial restoration of funds ($11 million) to help local school districts buy textbooks, an item zeroed out of the current state budget, and $10 million over two years to help support preschool programs in disadvantaged areas.
▪ A 1 percent funding increase for state universities, or $17.2 million more from the General Fund. The Kentucky Council on Postsecondary Education recently said it hoped for a 6.2 percent increase in 2021 and an 8.8 percent increase in 2022. Beshear’s plan obviously is a lot less. However, for context, for most of the last 13 years, the state has cut higher education funding.
▪ Full funding for the actuarial required contributions for the pensions of state workers in the Kentucky Retirement Systems and educators in the Teachers’ Retirement System of Kentucky. Unlike former Gov. Matt Bevin, for whom pensions were the top budget priority, Beshear does not additionally recommend extra money for the two pension systems to pay down their $30 billion unfunded liability at a faster-than-scheduled pace.
▪ Funding assistance with pensions for regional universities and quasi-governmental entities, such as local health departments, mental health nonprofits and rape crisis centers. The legislature last year passed a law allowing these public employers either to exit the Kentucky Retirement Systems or else face the same mushrooming pension costs that state government must pay. To ease their choice, Beshear would provide $100 million over two years to cap their contribution rates at 67 percent of payroll, rather than the 93 percent they otherwise could expect.
▪ Hiring 350 new social workers at the Child Protection Branch over the next two years for $31.5 million, taking the staff size from 1,309 up to 1,659. The state’s social workers have been overwhelmed in recent years by excessive caseloads, burnout and high staff turnover, aggravated by Kentucky’s poverty and addiction epidemics.
▪ Spending $13.9 million more over the next two years at the Department of Revenue on hiring and new computer systems to improve tax collections for the state.
▪ Giving $6 million more over two years for staffing at commonwealth’s attorneys’ offices and $1.68 million for expenses at county attorneys’ offices, but nothing for public defenders who work for the Department of Public Advocacy.
▪ Fully funding the state’s share of both the traditional Medicaid and expanded Medicaid programs that provide health coverage for 1.3 million low-income and working-poor Kentuckians. This cost an extra $238 million from the General Fund as the federal government will be reducing its share over the next two years.
▪ Returning additional coal severance tax funds to the coal-producing counties that generate them. Traditionally, coal severance money was split evenly between state government and the coal counties — a sore point among local officials in the coal counties, especially as the mining industry has collapsed and the taxes have withered. Beshear’s budget would send an additional $17.8 million in coal severance funds back to the counties in 2021 and 2022.
▪ Restoring small sums to several agencies that Bevin had cut from the budget, including the Commission on Women, the Commission on Human Rights and the University Press of Kentucky.
This story was originally published January 28, 2020 at 7:00 PM.
