Kentucky Political News Headlines

Tuesday, January 21, 2014

Gov. Beshear's Budget Address

Governor Beshear gave his Budget Address this evening to a joint session of the General Assembly. A copy of the Governor's speech and accompanying press documents are attached. To preview an actual copy of the Governor's Budget proposal access it HERE.

A few highlights from the Governor's budget proposal, we will be previewing and providing more analysis:

- To meet the Governor's spending goals in his plan it was necessary for him to come up with roughly $756 million. The sources of those funds are: 

Fund Transfers -- $370,769,500 
Savings from the Affordable Care Act -- $166,763,600 
Spending Cuts -- $98,599,400 
FY 14 Estimated Ending Balance -- $69,458,400 
Other Resources and Lapses -- $49,546,200 

- Of the roughly $99 million from spending cuts, the Governor cut most state agencies 5%. Though he held several agencies harmless from the cuts including Education Funds, Medicaid, Public Health, Economic Development Cabinet, and many others.

The Governor's spending priorities included:

- Restoring K-12 education funding, increased funding for education supports, and making investments to pre-school by expanding eligibility
- Raises for state employees
- Fully funding ARC for public employee pensions
- Restoration of child care subsidy cuts
- A robust capital construction plan for universities and KCTCS, including an advanced manufacturing training center in Georgetown
- Investments in Eastern KY for broadband, 4-laning the Mountain Parkway, and economic development efforts

On the Road Fund: 
- The Governor froze the floor on the gas tax
- Identified several high priority projects (I-65 widening, completion of several bridge projects, and 4 laning the Mtn Parkway)
- Additional monies for revenue sharing and maintenance

In terms of political analysis, the Governor proposed a budget that has a little something for everyone. The initial areas of concern for some members of the General Assembly may be: the budget proposal increases bonded indebtedness to 7% an all-time high, some state agencies through the 5% cuts proposed by the Governor will have been cut over 40% over the last 5 years, and some of the funds the Governor has "found" may create structural imbalances that are difficult to deal with in the future.

The real question is whether the General Assembly will feel compelled to look at new revenues through either expanded gaming or tax reform to forgo these significant cuts to some agencies and prohibit the significant use of one-time monies. 

More analysis to come.

Attached please find a copy of Governor Beshear's budget address and budget fact sheets on education, families, healthcare, jobs and SOAR. 

Commonwealth of Kentucky
Office of the Governor

Kerri Richardson

Terry Sebastian

Education Gets Historic Lift in Gov. Beshear's Budget
Investment in education, children means deep cuts to many agencies

FRANKFORT, Ky. (Jan. 21, 2014) – Saying Kentucky needs to lead, not cower, Governor Steve Beshear on Tuesday unveiled a two-year budget proposal that combines harsh cuts and strategic borrowing to create funding for historic proposals that support Kentucky's schools and workforce.

Gov. Beshear's proposed 2014-2016 biennial budget increases per-pupil K-12 funding to its highest level ever; restores damaging cuts to teacher training, textbooks, school safety and Extended School Services; expands preschool services to more than 5,100 more children; dedicates funds to expand high-speed broadband access throughout the state; uses "agency bonds" for the first time ever to invest in the campuses of Kentucky's two-year community and technical colleges; restores funding to desperately needed child-care assistance programs that help parents stay employed; and builds a $24 million advanced manufacturing training center that will supply workers to the auto industry and other sectors.

In his budget address to legislators, Gov. Beshear urged legislators to join him in using the two-year budget to make a tangible and bold difference in the lives of Kentucky families.

"So tonight, we must answer a fundamental question: Does Kentucky march aggressively into the future, or do we cower under the covers as the world leaves us behind? Do we lead, or are we too afraid to even follow?" the Governor asked.

"This budget proposal clearly gives my answer: We can and we must build a more vibrant Kentucky. And this proposal provides the roadmap to do just that."

In his State of the Commonwealth address two weeks ago, the Governor signaled his intentions to cut other areas of state government to fund education, although he said Tuesday that he was "painfully aware" of what those cuts would do.

The challenge, he said, was that moderate projected increases in revenue are not sufficient to cover the growth in required expenses and maintenance of current levels of services.  As a result, Gov. Beshear recommended $98.6 million in cuts over the biennium.  Many agencies will see reductions of five percent in the first fiscal year, then a straight-lined (no increase or decrease) budget for the second year.  Since 2008, many of those agencies have seen their budgets slashed by 41 percent.  These cuts could lead to delays in service, loss of federal funds, possible facility closures, and even possible layoffs.

"Imagine running a business and being told to maintain the same level of services while slashing your budget 41 percent. That is a difficult and sometimes impossible task," said Gov. Beshear.

The Governor exhorted legislators to make these investments in education, even by slicing funding for other needs.  The state's school district budgets are stretched to their limits thanks to the simultaneous impacts of diminished property taxes and years of stagnant state budget allocations.  Despite those challenges, the Governor said Kentucky schools and students have excelled – and it is critical to maintain that momentum.
"We are accelerating the momentum that has seen Kentucky leap ahead of many other states in measures of student performance and policy reform," he said.  "This budget proposal strategically focuses our very limited resources on what I believe will deliver the greatest return: a more highly educated population that will become a more talented workforce."

Improving Kentucky's Competitiveness through Strategic Investments
Improving Competitiveness through EducationThe most important investments in the Governor's proposed budget are in K-12 education. The largest item is SEEK, the main funding formula for our classrooms.  From 2000 to 2008, SEEK grew an average of 3.4 percent each year.  But from 2008 to 2014, funding flatlined – even as enrollment expanded, costs increased and local support in some areas declined. In effect, per-pupil spending dropped, even though the annual SEEK allocation remained the same.

Governor Beshear recommends investing $189 million over the biennium into SEEK, bringing per pupil spending to its highest total ever.

That allocation will include pay increases for all teachers and classified school personnel (2 percent the first year, 1 percent the second year).

Gov. Beshear's proposed education investments also include:
·         $95.4 million over the biennium for textbooks, professional development, school safety and Extended School Services (restoring funds to near-2008 levels)
·         $36 million over the biennium to expand preschool services to serve 5,125 more 4-year-olds by increasing eligibility from 150 percent of the poverty level to 160 percent. This is a 22 percent increase in enrollment.
·         $50 million for technology and school equipment upgrades, funded through General Fund-supported bonds
·         $100 million for school facilities construction to replace aging K-12 school buildings through General Fund-supported bonds

Improving Competiveness through Higher EducationThe Governor also recommends using $520.3 million in General Fund supported bonds and $704 million in agency bonds to invest in critical infrastructure for our state universities. These investments include new construction, such as new science buildings, health care and student services facilities, as well as renovation and maintenance projects. 

The budget also recommends $60 million for Bucks for Brains, the endowment match program which helps universities attract world class faculty for research and innovation.

For the first time, the Governor recommends authorizing $145.5 million in agency bonds for the Kentucky Community and Technical College System.  About 100,000 students access education through KCTCS and its 16 colleges and 73 campuses.  The General Fund can't meet the system's infrastructure needs, so KCTCS leadership recommended issuing agency bonds for up to 75 percent of project costs.  The remaining 25 percent will come from local communities and other public or private sources.  The bonds will support one project at each KCTCS college. 

Improving Competiveness through Economic DevelopmentThe Governor's top priority throughout his administration has been helping Kentucky businesses thrive and attracting new jobs to the Commonwealth.  His proposed budget recommends several investments to continue the state's economic development momentum.
·         Statewide high-speed broadband access through the Next Generation Information Highway:  High-speed Internet access is no longer a luxury in today's economy.  It's a critical need that supports economic development, education, health care, and every business sector.  Kentucky ranks 46th in broadband availability, and 23 percent of rural areas do not have any broadband access at all. To attack this gap and promote economic growth, Gov. Beshear allocated $60 million in bonds to build the Next Generation Kentucky Information Highway, which will provide high-speed broadband capability for the entire state.  An additional $40 million is planned from federal and private sources. Eastern Kentucky will be the first priority region.  Two-thirds of the state debt service will be supported by existing state expenditures set aside for Internet access. 
·         Building an Advanced Manufacturing Training Center:  Gov. Beshear proposes to spend $24 million in General Fund supported bonds to build an advanced manufacturing training center in Georgetown associated with the Bluegrass Community and Technical College. This College has been partnering with the Kentucky Federation of Advanced Manufacturing Education to produce workers for Toyota and other manufacturers.

Improving Competiveness by Strengthening Eastern Kentucky:  To support the continuing efforts of the "Shaping Our Appalachian Region", or SOAR initiative, Gov. Beshear recommends multiple investments in the region to enhance economic development and leverage public-private partnerships.
·         Four-laning and Extending the Mountain Parkway:  Gov. Beshear's proposed Highway plan recommends a series of projects, totaling $753.6 million, by which the Mountain Parkway would be four-laned and extended by 2020.  The Governor's plan would make the current two-lane section – from Campton to Salyersville – a four-lane highway.  It would then extend the Parkway from Salyersville to Prestonsburg by four-laning 16.2 miles of two connecting routes – U.S. 460 and Ky. 114. At Prestonsburg, the new Parkway would connect with four-lane U.S. 23 – creating a modern, four-lane corridor all the way from I-64 near Winchester to Pikeville. 
·         Funding Coordination of the SOAR Initiative.  Gov. Beshear's budget provides $400,000 over the biennium from multi-county coal severance funds for administrative costs associated with coordinating SOAR-related initiatives. These funds will be matched with other public and private funding to cover costs including staff support, workgroup  meetings, economic analysis, public hearings, and other outreach efforts to improve the region
·         Creating a Regional Strategic Development Fund for Eastern Kentucky: Gov. Beshear's budget creates a new Regional Strategic Development Fund and provides $4 million from the Local Government Economic Development Fund Single County allocations over the biennium.  Details on how the funds should be governed and invested will be discussed over the next several months through the SOAR initiative, and recommendations will be made to the 2015 General Assembly.
·         Increasing Funding for Coal County Scholarships.  Gov. Beshear proposes to double current funding for the Coal County College Completion Program to $2 million per year, which will provide more than 500 scholarships per year in eastern Kentucky.

Improving Competitiveness through Strengthening Families and ChildrenGov. Beshear recommends investing in services that support families and children, to help families become economically stable and to ensure safety for our youngest citizens.
·         Restoring Child Care Assistance Cuts. Last year, the loss of federal funds forced the state to freeze applications to the Child Care Assistance Program and to reduce eligibility guidelines from 150 percent of the poverty level to 100 percent.  As a result, many parents who could no longer afford child care had to quit their jobs, and many child care centers which relied on those payments had to close their doors.  Gov. Beshear's budget restores the funding cut from that vital program. This action will impact 18,000 children and more than 10,000 families.
·         Funding Staff for the Child Fatality Review Commission.  Gov. Beshear will fulfill the request made by the new Child Fatality Review Commission for $840,000 for staffing and support over the biennium.

Competitiveness through Improving Health:  The federal Affordable Care Act created $166.7 million in savings for the Commonwealth, which the Governor is reinvesting in health and family services such as Medicaid, child care assistance and numerous other services.  Among those investments: 
·         Funding for Colon Cancer Screening.  For the second straight budget, Gov. Beshear will again provide $1 million for the Kentucky Colon Cancer Screening Program to provide screenings for low income and uninsured Kentuckians.  The Kentucky Cancer Foundation will match the budget allocation.  To date, more than 900 Kentuckians have participated in the program. 
·         Funding to Increase Screening for Women for Breast and Cervical Cancer.  Gov. Beshear proposes $1 million to expand screenings through the Kentucky Women's Cancer Screening Program to increase breast and cervical cancer screening among Kentucky women.  The funding will also develop systems to help women navigate the health care system.

Investing in Pension Solvency and State Workforce:  Gov. Beshear's budget proposal fully funds the actuarially recommended contribution (ARC) for the Kentucky Retirement System.  That means additional General Funds of $101.3 million in FY15 and $106.3 million in FY16.

The state's workforce has not had a raise since 2010.  Gov. Beshear recommends a sliding scale of salary increases for all state workers, with the largest percentage increase – 5 percent – going to workers earning $27,000 or less per year in FY15, and a 1 percent across-the-board raise in FY16.

Competitiveness through Transportation Infrastructure:  The Governor's Biennial Highway Construction Plan would provide about $1 billion in new construction each year for transportation improvements across the Commonwealth.

Proposed projects include widening and extending the Mountain Parkway for economic development in eastern Kentucky, completion of the six-laning of Interstate 65 and continuation of funding for the Ohio River Bridges Project.

The proposed plan also would provide for badly needed new bridges across Lake Barkley and Kentucky Lake, funding to support the Brent Spence Bridge project in northern Kentucky and continuation of long-awaited projects to complete the I-69 Corridor in western Kentucky.

New Investments Funded through Severe Cuts Elsewhere
Gov. Beshear noted that this budget does not rely on new funding from sources like gaming or tax modernization. Instead, the new investments are largely created through new, deep cuts of 5 percent for many state agencies.  Some agencies are held to just 2.5 percent reductions, including higher education institutions and state police.  A few agencies are protected entirely from cuts.

"Look, I am painfully aware that with this reduction, our colleges and universities will have undergone cumulative cuts of 17 percent during this historic recession. This was one of the most difficult choices made in this budget, because higher education deserves more support, not less," lamented Gov. Beshear. "But there simply is no way to create enough money to make the needed investments in pre-K through 12th grade unless higher education is included in the reductions.

The Governor warned that with these new cuts, many agencies will have endured cumulative cuts of 41 percent since 2008.  The impact of these cuts may include service delays, more employee attrition, possible layoffs, loss of federal funds, and possible facility closures.

"I am deeply disturbed by the damage these reductions will cause. Much of the "right-sizing" we've done with state government over the last seven years was needed," he said. "But some cuts went way too deep."

Governor Calls for Bipartisan Cooperation; Support for Gaming, Tax Reform
The Governor acknowledged that he could have simply slashed the budget across the board, but instead, he chose to make damaging cuts to some areas in order to make strategic investments in education.  He pointed to tax reform and gaming as two alternatives that would allow much more progress and more investment with far less damage to needed services. 

The Governor will present a tax modernization proposal to legislators soon, which will offer specific recommendations on how to move the Commonwealth's antiquated tax system into the 21st century and make the state more competitive.

"One of the silver linings of a more competitive tax structure is that it will, as the economy grows, also stabilize long-term revenue – not because of higher rates, but because it's aligned with today's economy, instead of one that existed a century ago," said Gov. Beshear.

Expanding gaming would produce additional recurring revenue even faster – again, not by creating a new burden on Kentuckians but by capturing a revenue stream that already exists.

"Kentuckians are currently spending hundreds of millions of entertainment dollars on gaming – but they're spending it in other states, funding programs outside our borders," said the Governor. "Let's allow Kentuckians to decide this issue by placing a Constitutional Amendment on the ballot related to expanded gaming."

He concluded his remarks by reminding the legislators of their recent successes attained by working across party lines – everything from robust prescription drug laws to pension reform.

"I believe that with the same level of respect, collaboration and vision, we can direct the resources of this budget to help Kentucky maintain its position as an innovative force in this 21st century world," he said.  "Now, let's get to work."