Crafting the next $20 billion biennial state budget remains the focus for legislators during early days of the 2018 General Assembly. This budget process began on Jan. 16 when Governor Bevin introduced his budget bill (HB 200) to lawmakers. Last week, State Budget Director John Chilton came before members of the House and Senate Appropriations and Revenue Committees to further explain the administration's proposal. During the presentation, Director Chilton reviewed the tough budgeting challenges, such as modest projected tax revenue growth, enormous obligations to public employee pension systems and higher costs associated with prison and Medicaid populations.
Chilton also summarized the Governor's policy and budget priorities, beginning with the commitment to fully fund state employee pension systems ($3.3 billion), Medicaid and keep debt levels below 6%. Both pensions and Medicaid are absorbing a growing share of the state's General Fund revenues and will account for approximately 1/3 of budget spending. Even if a pension reform bill passes this session, any savings would likely not be realized until future years.
It remains to be seen if pension reform or tax reform will be addressed this session. Director Chilton acknowledged the need for comprehensive tax reform and a proposal that could generate at least $2 billion in new revenues to meet the state's growing needs. However, Chilton didn't endorse any specific proposal. Under the current structure, the individual income tax and sales tax generate more than 75% of state General Fund revenues. Other taxes include property, corporate income, cigarette, lottery and LEET. Less than 2.5% growth is expected in tax revenues over the biennium. Additionally, no growth was projected in the state motor fuels tax, which provides the bulk of the revenue for the state road fund. This was attributed to more fuel more fuel-efficient vehicles and low wholesale prices for gas.
Other key points from the presentation included:
Chilton also summarized the Governor's policy and budget priorities, beginning with the commitment to fully fund state employee pension systems ($3.3 billion), Medicaid and keep debt levels below 6%. Both pensions and Medicaid are absorbing a growing share of the state's General Fund revenues and will account for approximately 1/3 of budget spending. Even if a pension reform bill passes this session, any savings would likely not be realized until future years.
It remains to be seen if pension reform or tax reform will be addressed this session. Director Chilton acknowledged the need for comprehensive tax reform and a proposal that could generate at least $2 billion in new revenues to meet the state's growing needs. However, Chilton didn't endorse any specific proposal. Under the current structure, the individual income tax and sales tax generate more than 75% of state General Fund revenues. Other taxes include property, corporate income, cigarette, lottery and LEET. Less than 2.5% growth is expected in tax revenues over the biennium. Additionally, no growth was projected in the state motor fuels tax, which provides the bulk of the revenue for the state road fund. This was attributed to more fuel more fuel-efficient vehicles and low wholesale prices for gas.
Other key points from the presentation included:
- Budget Cuts/Exemptions: Chilton also said the Governor's proposed 6.25% budget cuts will generate annual General Fund savings over $300 million each fiscal year and the 70 program eliminations will generate an estimated savings of $85 million each year. Some state agencies and programs were exempted from the cuts. These included: student financial aid, efforts associated with the recently passed heroin bill, coal severance programs, Public Safety, Justice/Corrections, Department for Community Based Services, Commonwealth Attorneys, County Attorneys, Public Defenders and Economic Development.
- K-12 Education: SEEK per pupil funding for K-12 education funding remains unchanged at $3,184 per student. Cost associated with transportation and employee health care were shifted to the local districts. To accommodate this request, the budget plan calls for local districts to reduce administration expenses by 12% in FY 19 and by another 12% in FY20 if over 15% of instruction costs. School districts would be allowed to use part of their financial reserves to cover expenses. FCPS Superintendent Manny Caulk has expressed concerns noting the district's contingency fund is currently $31.5 million, which is 6.4% of the total operating budget and covers a little less than one month's operating expenses. He also said the proposed cuts to transportation funding will cost FCPS $6.5 million.
- Public Safety/Most Vulnerable: Additional spending was recommended for the Department of Corrections for projected increases in inmates, workforce and economic development (i.e. $100 million bond pool for capital projects to meet job growth for high skilled jobs and 100% of lottery funds going to scholarships), social work programs/personnel, adoption/foster care support, Kentucky State Police for emergency radio systems, lab equipment and vehicles, and prosecutors and public defenders.
- Building and Maintaining Infrastructure: The Governor provided more than $800 million in bond pool funding for post-secondary institutions to utilize for the maintenance of existing building. Funding was also increased to address the backlog of deficient bridges and to repair deteriorated pavement on the state's highways.
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