During his budget briefing with reporters, Gov. Matt Bevin cautioned that Kentucky might well suffer another downgrade of its credit rating, even after a whopping transfer of funds from higher education and other state services into the teetering public pensions.
Bevin also cautioned that his approach — cutting other areas of government to free up money for pensions — would take many years to make the retirement systems sound.
In other words, after a decade of cuts, there’s no way to slice enough out of government to make up for the years of underfunded pensions. Or, as we see it, the most effective way to fix pensions is to bring in more money by closing tax loopholes and widening the tax base.
We never expected the new governor, who rose from the Tea Party, to propose tax increases in his first year. He’s also rejected House Democrats’ proposal to issue bonds to shore up pensions.
That left him one option to deal with the pension crisis that he inherited — deep cuts ($650 million in an $11 billion budget) — even though General Fund revenue is up and expected to grow 3.2 percent over the two-year budget span.
Bevin’s plan would free up a lot of money, but, as he said, it’s just a start on closing the gaps: The Kentucky Retirement Systems is underfunded by $11 billion and selling assets to meet monthly obligations. The teachers retirement system is underfunded by $24.4 billion. It took years to dig these holes and will take years to climb out.
While we can’t argue with the areas Bevin wants to shield from cuts — most prominently basic funding for public schools and Medicaid — sheltering so much of government required deep cuts in the remaining areas.
Under Bevin’s plan, Kentucky’s universities and community colleges would lose $76 million in state support. Adjusted for inflation, state funding for universities and colleges would be 35 percent less in 2018 than it was in 2008, according to the Kentucky Center for Economic Policy.
Tuition will continue to soar to make up for lost state support even as other states reinvest in higher education. Kentucky’s hard-won gains in percent of youngsters going to college have been slipping. Kentucky’s support for elementary and high schools also has been slipping relative to most states. The Bevin budget accelerates these self-defeating trends.
The governor’s proposed modest increases are worthy, including $1.5 million for services for sexually abused children, $4.8 million to improve social workers’ salaries, $4.5 million to eliminate the state’s forensic testing backlog, almost $17 million for raises for State Police and corrections officers, funding for 44 new public defenders.
Bevin also is proposing $625 million in new debt, including $100 million for public-private partnerships to improve workforce development and $60 million toward renovating Lexington’s convention center.
Rather than rushing changes in the retirement systems or Medicaid, Bevin is gathering information on both — a smart step. He also plans to develop a more strategic approach for apportioning the higher education pie, also a good idea.
Given some of his campaign rhetoric, Bevin’s budget and measured approach are a relief.
Looking at the big picture, though, this budget is a recipe for stagnation. It likely won’t satisfy the rating agencies that downgraded Kentucky’s creditworthiness; nor will it satisfy the new governor’s ambitions for Kentucky.
Bevin spoke passionately about putting the state on a solid financial foundation. He cannot do that without looking at the revenue side and closing tax exemptions that drain more money than the state takes in.
The sooner Bevin moves on tax reform, the better the chances that he will succeed as governor and that Kentucky will succeed as a state.