State now bearing cost of poor tax policy

With interest rates at historic lows, this is an opportune time for universities to tackle a backlog of maintenance and building needs.

Except Kentucky cannot afford to issue bonds to protect taxpayers' investments in the state's campuses. Kentucky cannot afford to take advantage of any opportunities and is barely carrying out some of its basic obligations to protect the public.

Gov. Steve Beshear described the budget that he proposed last week as "inadequate," which is an understatement. Instead of investing for the future, Kentucky will be making more cuts.

As the economy picks up, it hurts to think about how much better positioned the state would be to capitalize on the upturn if a succession of governors and legislatures had not ducked tax reform.

Twenty years ago, the late Gov. Wallace Wilkinson called for broadening the tax base by taxing services. Numerous studies have highlighted exemptions and loopholes that should be closed. It still hasn't happened.

At the beginning of his second and last term, Beshear is launching a tax reform effort that could have proposals ready for a special legislative session late this year.

If this budget doesn't sell Kentuckians on tax reform, nothing will.

How bad is it?

Layer this budget proposal onto recent years' cuts and the state's financial commitment to protecting the environment, consumers and workers will have been slashed by about a third. State support of universities and the Kentucky State Police will have declined 15 percent. KET will have lost 27 percent of its state funding; juvenile justice, 13 percent, and Veterans' Affairs, 6 percent. Per student spending through the basic public school funding formula has declined. Elderly Kentuckians waiting for services to keep them out of nursing homes will keep waiting. The list goes on.

Many will applaud the reduction in government. But no one, studying the above chart, can say with a straight face that Kentucky can keep on spending more than it takes in.

Kentucky has satisfied the constitutional requirement for a balanced budget, while running a decade-long structural deficit, by tapping various pots of money, many of them non-recurring. The biggest was $1.9 billion provided by President Barack Obama and Congress to help states weather the crash. That money is gone. Also, various fees paid by users of state services have been raided. Courts have upheld this use of supposedly restricted funds to balance the budget, but it's still not a sustainable way to pay for government.

Beshear wants to spend $100 million of the Rainy Day Fund and collect $61 million from tax amnesty over the next two years.

Hard times have forced $1.3 billion in cuts since Beshear took office. Those cuts have been more than offset by unavoidable increases in other areas, especially health care. Beshear and lawmakers have made systemic changes to bend the cost curve on health care, pensions and prisons, but costs will still climb. If Kentucky wants to invest in its future and compete with other states, it has to broaden its tax base and bring in more money.