Kentucky Political News Headlines

Tuesday, January 24, 2012

House A&R - Gov. Budget Update

Budget Director & Secretary of the Cabinet Mary Lassiter presented Governor Beshear's budget proposal to the House A&R committee today. This presentation comes just a week after Governor Beshear's budget address when his budget was unveiled. The House will work through their budget review subcommittees, which have begun to meet, and over then next 6 weeks will build the House version of the budget. Certainly there will be differences with the Governor's proposal, but due to the austere nature of the budget significant changes are unlikely.

A press release on the meeting is below and you can access Mary Lassiter's slides HERE. Our three main takeaways from today's presentation are:

- The Governor's budget provides for $815 million in new spending above the base. That $815 million can be broken down into 4 major categories:
1. debt service ($391)
2. Health & Family Services ($169)
3. State employee & teacher retirement & health benefits ($167)
4. Postsecondary Ed & Corrections ($68)

In all of this new spending only $19 million is dedicated to new debt service for $304 million in general fund capital projects. This is a very small amount and even when combined with university projects and new road bonds, is the smallest capital budget since the mid-90's.

- Medicaid enrollment has slowed but is expected to grow at 1550 new eligibles per month. Lassiter touted the savings they are expecting from the Medicaid budget over the next biennium due to the managed care program. Without managed care, Lassiter projected the Medicaid program would have needed an additional $294 million in general fund dollars this biennium. This number is going to weigh heavily on the minds of legislators as they continue to hear complaints from providers and patient advocates who are dissatisfied with managed care.

- Lassiter provided more details on the tax amnesty program the Department of Revenue is proposing to carry out. This program is expected to raise $61 million in new revenue in this year of the biennium. She even said that they would have a bill draft to Chairman Rand on the program this week.

The press release is below and we will be back in touch as the budget review subcommittees get into their work.

For Immediate Release
January 24, 2012

House budget committee updated on governor's spending proposal

FRANKFORT—The House budget committee today heard details of the governor's $19.4 billion Executive Branch budget plan for 2012-2014, which includes plans for $815 million in new spending along with spending cuts and other measures to fill a projected $742 million budget gap over the next two fiscal years.

State Budget Director Mary Lassiter explained to the House Appropriations and Revenue Committee—which will craft a House budget proposal for legislative consideration in coming weeks—that while Gov. Steve Beshear has proposed reducing the budgets of most state agencies by an additional 8.4 percent next fiscal year and keeping those budgets at that reduced level in fiscal year 2014 to help fill the budget gap, the governor's plan would exempt "priority" areas like Medicaid, state corrections, per pupil school funding, teacher's retirement and over a dozen other areas from cuts over the biennium. 

Medicaid would also be among a limited number of areas that would receive part of $815 million in proposed new spending under the governor's plan, Lassiter said. Postsecondary education, expansion of public preschool, debt payments on state projects, state employee and teacher's retirement and health insurance , substance abuse treatment, services for severely mentally ill adults, child support enforcement, colon cancer screening are other limited areas that would get some additional funding, she said.

"We all know the paradigm that when the economy is bad, the demand for services is greater," Lassiter said.

Lassiter described the governor's proposal as a balanced but challenging plan that would improve the state's job competitiveness and "make fiscally responsible and critical investments for the future"—including, but not limited to, authorization of $451 million in state agency bonds for state postsecondary building projects and expanding Medicaid-based substance abuse treatment to 5,800 juveniles and adults over the biennium.

First and foremost on state budget officials' mind as they proceeded to craft the governor's budget proposal was jobs, said Lassiter.

"Without a job, an individual doesn't have the capacity to take care of their family … job number one for us in government is to do what we can to help our citizens have jobs." The goal to protect education runs a close second, Lassiter said.

"That's been a goal of the governor's and a goal of the General Assembly throughout tough times and better times," Lassiter said.

As far as state capital projects are concerned, Lassiter said the governor's proposed biennial spending plan would include $778 million in investment in necessary state government infrastructure—the smallest amount of new capital funding since 1996, she added. The $778 million would include the $451 million in agency fund bonds for postsecondary institutions, $304 million in General Fund bonds and $23 million in Road Fund bonds, according to the governor's proposal.

Funding for road design and construction under the 2012 Six-Year Highway Plan overseen by the state Transportation Cabinet would be restricted under the governor's proposal to $1 billion in design and construction contract letters annually, Lassiter said.

The House Appropriations and Revenue Committee and its subcommittees will hold more discussion on the 2012-2014 state Executive Branch budget proposed by the governor in coming days and weeks as the 2012 Regular Session of the Kentucky General Assembly progresses. The governor's budget plan has been filed as House Bill 265 for consideration by the General Assembly this session.


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Tuesday, January 17, 2012

Governor's Budget Address

Governor Beshear delivered his Budget Address to a joint session of the General Assembly this evening. At these links you can download the Budget AddressBudget Proposal, and Road Plan. We have also provided the press release below, here are the highlights:

- The Governor said at the State of the Commonwealth his budget would make significant cuts and he didn't disappoint. Most state agencies will see 8.4% cuts in 2013 and straight lined budgets in 2014. The cuts are not across the board, some agencies will receive reduced cuts, like higher education at 6.4% and law enforcement at 2.2%. Some areas will be exempted totally, like corrections and SEEK, which will be maintained at 2012 levels. Furloughs for state employees are off the table, but limited layoffs may be necessary.

- Given the budget cuts, it wasn't surprising for the Governor to discuss new revenues this evening. He sees that developing two ways: expanded gambling and tax reform. The Governor utilized numbers from a recent study on expanded gaming that would potentially bring in $266 million in license fees and $377 million in annual tax revenues. This is still premature as the Governor has not yet released his gambling proposal. On tax reform, the Governor reiterated his creation of a blue-ribbon panel and he expected their recommendations by end of the year.

- The Governor does have some spending. Nearly $800 million in capital projects, the smallest amount since 1996. He also laid out several policy areas he makes investments in, including: reducing social worker caseloads, colon cancer screening, drug abuse prevention, and expanding pre-school enrollment.

- The Road Fund is the one budget bright spot. Revenues are expected to increase in each year of the biennium 6.1% in 2013 and 4.6% in 2014. This allowed the Governor to propose an aggressive road building plan. 

We will be digging into the details and will provide those in the days ahead.  

Attached please find Governor Beshear's 2012 Budget Address. 

Commonwealth of Kentucky
Office of the Governor


Kerri Richardson

Terry Sebastian

Gov. Beshear:  Deep, Painful Cuts Required to Balance Budget
Budget prioritizes education, attacks persistent woes, protects most vulnerable

FRANKFORT, Ky.  (Jan. 17, 2012) –Governor Steve Beshear presented his biennial budget proposal to the General Assembly tonight, a budget he termed "inadequate for the needs of our people."   The Governor pointed to slow-to-recover revenues and loss of one-time funds, combined with the lingering effects of a devastating recession, as the culprits for the dismal budget outlook.

"We should be making substantial investments in our physical and intellectual infrastructure to bring transformational change to our state. This budget does not allow us to do enough of that," said Gov. Beshear.  "Instead, it requires painful cuts that may well force us to retreat on some core services, and that risk jeopardizing progress we've made over decades in education."

Most state agencies will see cuts of 8.4 percent in the first year of the biennium, Fiscal Year 2013, and then straight-lined budgets in the second year, Fiscal Year 2014.  These reductions are in addition to cumulative cuts of 30 percent or more made to many agencies over the last four years.  While some services are protected from the deepest cuts, including education and public safety, very few programs are fully exempted from reductions.

However, declaring that he refused "to simply accept the status quo," Gov. Beshear recommended several critical investments designed to better protect vulnerable populations and to attack persistent, generational problems that continue to hold Kentucky back.

Finally, he reminded lawmakers that in order for Kentuckians to thrive, the state must have more revenue, and the best ways to grow revenue are through expanded gaming and vigorous tax reform.

Cuts to Agencies and Services
State revenues are growing, but not quickly enough to keep pace with the increasing cost of mandatory expenses such as Medicaid, state employee health insurance, retirement benefits and debt service. 

Most state agencies will receive 8.4 percent cuts, including the Governor's Office and all other constitutional officers, the Cabinets of Economic Development, Energy and Environment, Finance, Labor, Public Protection and Tourism and many other areas. (Please see attached charts for the full list of agencies receiving 8.4 percent cuts.)

Gov. Beshear warned that the easy cuts to state agencies were made long ago, and the proposed reductions will have real impact not only for state employees but also for Kentuckians who utilize those services.  While there will be no furloughs of state employees, the cuts will likely lead to delays in service, loss of federal funds, possible facility closures, unfilled positions, and possible layoffs.

The cuts will not be made across the board.  Some areas, including classroom funding, corrections, the Department for Community Based Services, veterans' affairs, and behavioral health, are exempt from reductions.  (Please see attached charts for the full list of exempted areas.) 

SEEK, the main funding formula for classrooms, will be maintained at the same funding level as 2012 for the upcoming biennium.  SEEK has been protected through ten prior rounds of budget cuts.  Base funding for higher education will be cut by 6.4 percent in the first year and straight-lined in FY 2014, which is a smaller cut than most other agencies will experience.  While corrections budgets are exempted from cuts, the remainder of public safety services will be cut at a rate of 2.2 percent in the first year, then straight-lined in the second year.  Again, that's a smaller cut than the 8.4 percent most agencies will experience.

The proposed budget would authorize $778 million in bonds for new projects, including those supported by the General Fund and agency bonds.  This is the smallest capital program since 1996.

Sustained Investments for Jobs, Public Protection, and Efficient Health Care
The proposed budget also includes support for several major initiatives designed to create jobs, provide better services, and save money. 

Gov. Beshear's top priority throughout his administration has been attracting and maintaining jobs in Kentucky.  This budget helps our economy by reinvesting in programs that retain and create jobs, including $20 million in bonds for the high-tech grant and loan program. This nurtures our cutting-edge companies, especially small companies, which create many new jobs.

HB 463, the landmark penal code and corrections legislation passed last year, will continue to decrease the state's prison population, reduce incarceration costs, reduce crime and increase public safety.  The savings resulting from the lower prison population will be reinvested into expanded treatment programs, parole services, pre-trial release, and other approved programs. 

In November, 560,000 Kentucky Medicaid recipients transitioned to a managed care program, which is projected to save $1.3 billion in taxpayer funds through Fiscal Year 2014.  While total Medicaid costs are increasing due to increasing enrollment and increasing cost of health care, those increases are significantly blunted by the savings provided through managed care.  The savings realized this biennium through managed care total $294 million in state funds.

Strategic Investments to Protect Vulnerable Groups, Attack Persistent Problems
Despite the budget challenges, Gov. Beshear told legislators that Kentucky had to make investments in key areas, particularly in protecting vulnerable populations and attacking persistent problems that cripple our workforce.

·           Reduce social worker caseloads:  Gov. Beshear proposed investing $21 million over the biennium to reduce caseloads for Department of Community-Based Services employees. Caseloads for social workers have increased 8 percent since 2008 while staffing levels have dropped by 12 percent in the same time period.  This investment will not only reduce above-average caseloads for these critical employees, but will also help ensure that Kentucky families in jeopardy will get the timely services and protections they need.

·           Expand preschool for 4-year-olds:  Kentucky currently provides funding for
4-year-olds in families whose income is at or below 150 percent of poverty level to attend preschool, and fully funds preschool for all 3- and 4-year-olds with certain disabilities.  Gov. Beshear's budget proposal recommends expanding preschool eligibility for 4-year-olds to 160 percent of poverty level in Fiscal Year 2014, and called for increasing it to 200 percent by the end of his term.  The initial expansion to 150 percent would cost $15 million, allowing 4,430 more Kentucky children to participate in this critical program, a huge step that greatly improves their chances at a successful life.  Expanding to 200 percent would add an additional 3,920 children, for a total of 8,350 more children.

·           Fund an Adult Abuse Registry:  Governor Beshear urged the General Assembly to create an adult abuse registry that would record any incidents of abuse or neglect by caretakers hired to aid elderly Kentuckians, so employers can make sure potential hires don't have prior problems with assisting the elderly.  Approximately $2 million over the biennium is included in the budget to fund the registry.

·           Provide Colon Cancer Screening for Uninsured Kentuckians:  Gov. Beshear recommended investing $1 million for colon cancer screening, to be matched dollar-for-dollar by a new private foundation, for a total of $2 million to be spent over the biennium.  Kentucky has the highest incidence rate of colon cancer in the nation, and the second highest death rate, though the disease is highly preventable with screening.  This funding will provide screening for 4,000 uninsured Kentuckians, and save both lives and money.

·           Enhance drug abuse prevention and treatment efforts:  Gov. Beshear recommended adding $4 million to expand the use of the state's prescription drug tracking program, KASPER, in order to better track and target illegal prescribing habits.  He also recommended adding $8 million to expand substance abuse treatment in the Medicaid program for both adults and teens.  The proposal would allow 5,800 Kentuckians to receive community-based drug treatment, such as intensive outpatient treatment, case management, and peer support. 

New Revenue is Critical
Gov. Beshear reminded lawmakers that increasing revenues, not just continued deep cuts, is the only way to ensure Kentucky will prosper in the future.

"We're at the point where drastic cuts will do more damage to Kentucky's long-term future than realized savings will help," said Gov. Beshear.  "There are those who continue to insist that Kentucky can cut its way to prosperity.  If that were the case, we'd all be wealthy."

In order to bring more revenue to the state and help balance the budget, Gov. Beshear proposed a tax amnesty and enhanced compliance program, the first in Kentucky in a decade.  To encourage taxpayers – both individuals and businesses – to make payments on back taxes, the state will waive penalties and one-half of the interest owed.  Additional penalties and enforcement efforts will be imposed after the amnesty period. Forty states have held similar amnesties.  The program is expected to net $61 million over the biennium.

The real answers to Kentucky's revenue woes, Gov. Beshear said, are tax reform and expanded gaming. 

Gov. Beshear recently announced the formation of a Blue Ribbon Commission on Tax Reform.  That group will study ways to better align our state's tax system with the principles of fairness, business competiveness and adequacy.  Recommendations are expected to be finalized toward the end of this year.

In addition, legislators will have the opportunity in this session to allow Kentuckians to vote on expanding gaming.

"Kentuckians have made it clear that they want to vote on this issue," Gov. Beshear said. "The only question is whether we listen to them, or we ignore them."

The Governor noted that Kentucky's neighboring states are enhancing their budgets with hundreds of millions of dollars they rake in by taxing Kentuckians who visit casinos in their states.

According to a just-released economic study, Kentuckians spent $451 million in casinos in surrounding states in 2010.  This study's scenario predicted Kentucky would receive $266 million in one-time license fees and $377 million in annual tax revenues if gaming were expanded here. 

Road Fund Continues to Grow
The Transportation Cabinet is funded through a separate budget from the rest of the executive branch, and is supported largely by the Road Fund.  For the fourth and fifth years in a row, the Road Fund is expected to show growth in revenues.  In year one of the biennium, state revenues are expected to increase 6.1 percent; in year two, 4.6 percent.

This growth will allow the state to increase revenue sharing with local governments, as well as to fund projects in the Six-Year Highway Plan that aggressively invest in Kentucky's primary road system.

The six-year plan:
  • Funds the Louisville Bridges Project.
  • Completes the six-laning of I-65 between Bowling Green and Elizabethtown.
  • Completes the final leg of the 25-year widening of the U.S. 68/Ky. 80 corridor between Bowling Green and Mayfield, including the bridges over Lake Barkley and Kentucky Lake.
  • Advances the Interstate 69 project in West Kentucky by enabling the ultimate conversion of many more miles of parkway to interstate status.
  • Provides about $80 million toward the four-laning of the Mountain Parkway between Campton and Salyersville.
  • Widens a stretch of Ky. 15 in Perry County near Bonnyman to the Hazard bypass.
  • Completes the construction of U.S. 460 in Pike County between U.S. 23 and the Virginia state line.
  • Completes the construction of U.S. 119 in Letcher County between Partridge and Oven Fork.
  • Completes the Newtown Pike Extension Project in downtown Lexington.
  • Constructs new Interstate 75 interchanges and builds a new frontage road system between Richwood Road and Mount Zion Road in Boone County.
  • Spends over $500 million to repair or replace more than 240 substandard bridges across the Commonwealth.
  • And dedicates over $100 million a year to pavement repairs on primary roads.

Gov. Beshear's proposed executive branch budget and Transportation Cabinet budgets are available for review at  The Six-Year Highway plan is available at

Dustin Miller
Government Strategies, LLC
229 Shelby Street
Frankfort, KY 40601
Work: (502) 226-3975
Cell: (859) 227-5800

Tuesday, January 10, 2012

State Receipts Up

General Fund and Road Fund revenues increased in December over the same month last year. The General Fund was up 6.9% (December) up 3.1% (6 months of fiscal year) and need to increase on average 2.6% over the next 6 months to meet the revenue forecast of 2.8% increase. The Road Fund was up 13.3% (December) up 7.4% (6 months) and need to increase on average 3.7% over the next 6 months to meet the revenue forecast of 5.5% increase.

The big takeaway from this receipts report is how Kentucky's revenues are growing as the Consensus Forecast Group predicted, but due to the fact that Kentucky is running a significant budget deficit, it will not be enough to offset the loss of one time monies, like Federal stimulus funds. This will make the Governor's Budget address on January 17 even more interesting.

A full copy of the revenue report is available for download HERE.

Thursday, January 5, 2012

Tax Reform

Kentucky's top legislative leaders joined by the Governor addressed the Kentucky Chamber of Commerce Annual Dinner in Lexington on Thursday night. All of the major issues facing the 2012 Session from comprehensive drug legislation, improving education, expanded gambling, and public employee pensions were all discussed. However, one issue was mentioned more than any reform.

On the heels of his State of the Commonwealth Address, where Governor Beshear touted the need for tax reform, he utilized tonight's Chamber Dinner as a platform to announce a Blue Ribbon Commission that will be his mechanism for generating a tax reform proposal.

Top Takeaways:

1. We said after the State of the Commonwealth address, that the Governor had given the issue of tax reform a shot in the arm, but his success on this issue would be determined by his level of engagement. Certainly following through with this announcement shows he is at the minimum giving it more than lip service.

2. Gov. Beshear has appointed Lt. Gov. Abramson to run this group, furthering the notion that Abramson will be an active Lt. Gov. However, there are still few details about who will serve on this panel. Certainly, the notion that all voices will be heard and all options are on the table is laudable, but not knowing who will be making recommendations gives one pause.

The press release below gives more details in terms of the Governor's goals for tax reform.

Commonwealth of Kentucky
Office of the Governor

Kerri Richardson

Terry Sebastian

Gov. Beshear Announces Blue Ribbon Commission on Tax Reform; Calls for Fairer, More Competitive Tax Code
Raising revenue a key component of Commission's mission

LEXINGTON, Ky.  (Jan. 5, 2012) –At the annual Kentucky Chamber Day dinner in Lexington, Governor Steve Beshear announced he will appoint a new commission on tax reform, led by Lt. Governor Jerry Abramson.  The Blue Ribbon Commission on Tax Reform will study issues related to taxes in the state and will also hold public meetings on the subject.  The Governor will also hire a consultant to study what tax efforts are working in nearby states.

In 2011, the national Tax Foundation ranked Kentucky's business tax climate as the 19th best in the nation, and in the growth rate of new jobs over the past year, Kentucky ranks 19th in the country.  Despite those high national rankings, Gov. Beshear said the state has room to improve its tax code in order to encourage economic growth. 

"Kentucky's system of taxation served us well during the recession," said Gov. Beshear.  "But to prepare ourselves to compete in the future, we must, in a thoughtful and non-partisan way, re-align our system with the principles of fairness and with a 21st century economy."

In the State of the Commonwealth address Wednesday evening, the Governor said the process for tax reform would be inclusive and encourage all voices to have input.  All options will be considered, and the tax changes will be framed to meet the state's future needs.  In particular, the Governor expects the Commission to recommend ways to increase revenues in order to pay for and protect critical state services, such as education, public protection, and job creation. 

Five elements for successful tax reform
The Governor set five goals for the commission:

·           Fairness:  The Commission will review the tax burden that different taxpayers shoulder, from Kentucky families to Kentucky businesses, from small businesses to big businesses, and within different industry sectors in the state.  The tax system should treat people equitably.

·           Competitiveness:  Any changes to the tax system should ensure that Kentucky continues to attract jobs and investment to the state, while keeping and protecting the jobs and businesses we already have.  The Commission will review how Kentucky compares to other states regarding business taxes, and identify ways to improve business tax competitiveness.

·           Simplicity and Compliance:  A tax system should be easy to understand and follow. The Commission will make recommendations to ensure compliance with Kentucky's tax system is simple for individuals and businesses and to ensure efficient administration by the state.

·           Elasticity:  The tax code should allow state revenue performance to mirror economic performance.  While Kentucky's code has performed well during the recession, revenues may not keep pace once the economy recovers. 

·           Adequacy:  The tax reform process should create a tax system that provides adequate revenue to fund critical state services.  The tax structure should allow revenues to grow along with the economy.

The Commission will work over the next several months, with recommended legislation expected before the 2013 General Assembly.  This allows time to build consensus as well as give more opportunity for the state's economic recovery to take hold.

Unemployment Insurance
Gov. Beshear applauded the state Chamber for their work on the Governor's Unemployment Insurance Task Force in 2009, which led to a recommendation from business and labor interests on how to keep the crucial unemployment insurance fund solvent. 

Kentucky borrowed approximately $948 million from the federal government to support unemployment insurance, and thanks to the formula developed by the task force, has a plan for paying back the principal on that loan.  Now, business and labor interests are again working with state leaders to figure out a mechanism to pay the interest on funds borrowed from the federal government. 

"I'm confident that if we continue to sit down and negotiate in good faith, this problem will be solved," said Gov. Beshear.


Follow Governor Beshear on Twitter @Govstevebeshear, read the Governor's personal notes on his blog at, and view the Governor's video commentaries at

Tuesday, January 3, 2012

And Away They Go...

The Kentucky General Assembly got the 2012 Session underway today in Frankfort, completing the first of 60 legislative days. The General Assembly is scheduled to adjourn by early-April, but must complete their work by April 15 per the constitution.

Generally, the sessions begin rather slowly and end with a flourish. The ending will be much the same I predict, usually with blearly-eyed legislators leaving the Capitol after a marathon of recesses and impromptu committee meetings that takes us right up until the final hour of midnight on the last legislative day in mid-April.

The beginning of this session feels a little different than the norm, however. Legislators have acknowledged that there are many important issues to tackle in the days and weeks to come, and although there is plenty of room to negotiate or disagree on issues like: the budget, expanded gambling, comprehensive drug legislation, public employee pensions, etc. The leadership of each Chamber seems interested in trying to accomplish something this session.

That being said legislators will turn to their own internal politics over the next couple of weeks as they prepare a  redistricting plan for the House, Senate, Judicial, and Congressional districts. These internal politics will preoccupy the leadership over the next couple of weeks until the Governor delivers his budget address on January 17. Speaking of the Governor he will further lay out his priorities not just for the 2012 Session, but for his second term as he gives his State of the Commonwealth address on Wednesday evening, January 4.