Gov. Matt Bevin called for $650 million in "cuts across the board" in his first state budget proposal to the General Assembly on Tuesday, with the details, including possible layoffs of state employees, to be left to his cabinet secretaries.
Bevin said his $21 billion, two-year budget would dedicate $1.1 billion to the state's ailing pension systems for state workers and schoolteachers, although it was not immediately clear from where that money would come, and even that large sum falls short of what the teachers' system requested.
The Republican governor pledged to protect per-pupil K-12 school funding, Medicaid, social workers, prosecutors, state police and prison correctional officers; hire more public defenders; and fully fund DNA testing of rape kits and last year's Senate Bill 192, meant to curb the heroin addiction epidemic.
But most of the rest of state government -- such as universities, regulatory agencies, parks, public television, workplace safety, public health, environmental quality and economic development -- would face spending cuts of 4.5 percent for the remainder of this fiscal year, which ends June 30, and 9 percent over each of the next two fiscal years. Schoolteachers and state workers other than those in the protected categories should not count on a pay raise during that time.
This comes on top of $1.6 billion that has been sliced from state spending since 2008 by Bevin's Democratic predecessor, Steve Beshear.
"This is my challenge to you. This is what we need to do. We need to shore up our foundation," Bevin said in his budget address to legislators gathered in the House chamber. "Because to continue to ignore our financial problems is no longer an option. It just isn't."
After the budget address, Senate President Robert Stivers, R-Manchester, complimented the governor for making a priority of the pension systems while preserving per-pupil school funding. House Speaker Greg Stumbo, D-Prestonsburg, said he would like to have seen a long-overdue increase in per-pupil funding, but overall, Bevin might get the budget he wants.
"It's his government to run," Stumbo said. "If he thinks his agencies can sustain that sort of reduction, I don't know that we're going to interfere with him."
Kentucky must pour far more money into the pension systems to address years of funding shortfalls, Bevin said. The pension fund for most state workers is only 17 percent funded; the pension fund for teachers is 42 percent funded. Collectively, the state is $35 billion short of what it's expected to need to pay promised benefits to future public retirees.
"The most important thing to do is stop digging," Bevin told lawmakers.
He said he would let his cabinet secretaries decide what should be cut or closed in their departments to satisfy the spending cuts. Dismissing rumors that he ordered the elimination of the Kentucky Arts Council, which remained funded in the budget proposal released Tuesday, Bevin said, "There's no single one thing that is being singled out as being thrown under the bus. ... Anything that specific has never even been a topic of conversation."
As he works to balance the budget, Bevin said he is not pursuing tax cuts he previously supported on business inventories and inherited wealth, which could have drained tens of millions of dollars in annual revenue, or any other tax reductions.
"I would love to see tax cuts. So would many of you," he said. "We can't afford them right now."
The budget proposal now goes to the Democratic-led House, which can make changes and then pass it to the Republican-led Senate, which will have its own ideas. A conference committee representing the two chambers will hammer out a compromise to be signed into law before the legislature adjourns in April.
However, Bevin warned lawmakers that he won't give them much leeway.
"This is a budget that is serious," he said. "It is one that I don't, frankly, expect a whole lot of equivocation on. There will be debates. The House will have their versions, the Senate will have their versions. But it is not my intention to have a whole lot of debate about getting off in the weeds on this. And I will not sign a bill that looks tremendously different than that which we're gonna put out. I just won't."
Bevin successfully campaigned last year on a platform of fiscal conservatism and smaller government, sweeping 106 of the state's 120 counties and beating his Democratic opponent, Jack Conway, by nine points.
Now Bevin has a chance to put his plans into action. He said his budget would:
-- Give $130.7 million more to the Kentucky Retirement Systems as the General Fund contribution for state workers and $591.5 million more to the Kentucky Teachers' Retirement System as the contribution for schoolteachers. In addition, he said, if "certain conservative budgeting targets are met and the budget reserve trust fund is strengthened as a result," $135.7 million more could be dedicated over the biennium to stabilize both systems.
Bevin acknowledged that sum falls short of the full budget request by KTRS, which asked for more than $1 billion over the next two years to meet its actuarial goals.
"KTRS alone, I'll just tell you right now, we cannot in year one, even with everything we've talked about, cover everything that they want. We can't. We don't have a half a billion dollars to cover that," Bevin told reporters.
A spokesman for 31,000 retired teachers called Bevin's budget "encouraging."
"He always said in his campaign that we've gotta pay the bill," said Bob Wagoner, executive director of the Kentucky Retired Teachers Association. "So to me, it's encouraging that he's willing to put this much money into the budget. The request was $500 million a year, and this is less, but I never anticipated that he would provide all of the requested money."
House Democrats have proposed a $3.3 billion pension bond to borrow money that could be used to stabilize KTRS in the short term. But Bevin rejects that idea, calling it "borrowing from our children."
Apart from the budget, Bevin said he soon would order independent audits of all state pension agencies and, armed with that information, would propose "substantive structural changes" at the start of the 2017 legislative session. Bevin has called for enrolling future state employees in defined-contribution retirement plans, like a private sector 401(k), to minimize the state's financial liability.
-- Provide $4.8 million over the biennium to hire more social workers and social service clinicians, and raise entry-level wages, affecting 2,030 positions statewide.
-- Include $12.4 million to boost salaries for Kentucky State Police and $4.5 million in retention raises for correctional officers at state prisons. The prisons are grappling with a 67 percent turnover rate among employees, Bevin said.
"We have folks who are working (in prisons) for 12 hours on 12 hours on 12 hours on 12 hours. It's crazy," the governor said. "We have to offset some of that."
-- Add $6.3 million to hire 44 public defenders, reducing caseloads for the lawyers at the state Department of Public Advocacy who represent indigent criminal suspects. Also in the courts, Bevin said he would fully fund last year's heroin bill, known as Senate Bill 192; fully fund Operation UNITE, an anti-drug task force in southeastern Kentucky; exempt prosecutors from budget reductions; and include $6.4 million for the KASPER system, which tracks prescriptions for controlled substances.
Public advocate Ed Monahan was delighted to learn of the additional money to hire more public defenders.
"I think it's a very smart investment that will help reduce the frustrations of victims and prosecutors," Monahan said. "Better capacity at the front end allows cases to be resolved more quickly, more fairly and more reliably."
(c)2016 the Lexington Herald-Leader (Lexington, Ky.)
