Kentucky faces an additional $1.2 billion shortfall in the next budget cycle

Kentucky’s budget woes worsening in ailing economy

FRANKFORT, Ky. — Political leaders were sending mixed signals Tuesday about potential tax increases to offset an additional $1.2 billion revenue shortfall that could trigger severe cuts to government services and potential layoffs of state employees.

“I think the debate should continue about our entire taxing structure, the entire revenue streams in this state,” said House Speaker Greg Stumbo, D-Prestonsburg. “If we were running a business like we run government, we probably would be broke because we don’t re-examine and adapt our revenue sources to the changes in the economy.”

Stumbo told reporters Tuesday the General Assembly could face the choice of reforming taxes or making draconian cuts to education, public protection and human services, unless Congress provides a second round of stimulus funds to help balance state budgets.

“I am not convinced that Kentuckians are so callous that they wouldn’t understand the need to have money to fund those vital services,” Stumbo said. “I’m not afraid to look at that.”

Democratic Gov. Steve Beshear said last week he doesn’t favor any broad-based tax increases for fear they could push Kentucky deeper into recession. That sentiment extends into the Republican-controlled Senate.

“Now is not the time to raise taxes,” said state Sen. Damon Thayer, R-Georgetown. “I don’t sense any sentiment at all in the Senate to raise taxes.”

House GOP Whip David Floyd of Bardstown said most lawmakers, like their constituents, are opposed to higher taxes at a time of economic distress. Floyd said he believes they also oppose suggested tax reforms, which he called “a euphemism for taxes increases on certain earners and not others.”

“The people of Kentucky agree that the solution to the problem is to cut spending,” Floyd said.

House lawmakers met at the Capitol on Tuesday for a budget briefing in advance of the upcoming legislative session set to begin on Jan. 5. Senate lawmakers are expected to meet Thursday and Friday.

Appropriations and Revenue Committee Chairman Rick Rand said federal stimulus funds will help in the next fiscal year. After that, Rand said, Kentucky will have used up its allotment of stimulus money and could face the sharpest cuts yet.

Already, the state has trimmed some $800 million from the general fund since the economic recession sent tax revenues into a nose dive.

Rand presented new budget figures Tuesday calculating back-to-back shortfalls over the next biennium — the first an estimated $464 million and the second $781 million.

“Luckily, next year we will have stimulus money,” Rand said. “It will soften the blow.”

Stumbo said he’s hopeful Congress will provide more stimulus funds to help states balance their budgets.

Beshear warned last week that government layoffs are a possibility as Kentucky tries to work through a lingering budget crisis. Balancing the state budget, he said, will require tough choices.

State Rep. Royce Adams, D-Dry Ridge, reiterated those concerns Tuesday, saying smaller government agencies would be particularly prone to layoffs.

Political leaders already have cut some $800 million. And last month, Beshear called on agency heads to slash 6 percent more from their budgets to wipe out an additional projected $161 million this year. That would push overall cuts to the current budget to nearly $1 billion.

Beshear said his staff has begun preparing revenue estimates that he will use to make his case for legalizing slots at Kentucky race tracks. Previous estimates have generally ranged from $200 million to $350 million.

Stumbo said he remains hopeful that lawmakers will pass the slots proposal, which passed the House earlier this year only to die in the Senate. The Senate is expected to deal with a proposal that would put the gambling issue in the hands of Kentucky voters.