KY Policy Blog

Op-Ed: Kentucky Must Invest, Reform Tax Code to Progress

By Jason Bailey
March 18, 2011

Published in the Lexington Herald-Leader.

Lawmakers left Frankfort last week without agreement on closing the hole in this year’s Medicaid budget, and are convening this week to give it another try. A point of contention between the chambers has been whether to include additional across-the-board cuts to a range of state services.

The House and Governor Beshear argue that more cuts aren’t necessary, while the Senate claims that cuts now will prevent bigger cuts later.

But before the legislature makes any more cuts—now or next year—it should consider that they would come on top of deep budget reductions already made over the last few years. Those reductions are limiting Kentucky’s capacity to cope through the downturn and forestalling our ability to move forward as a state.

The cuts the Senate proposed added to previous reductions would mean General Fund support for many areas would be 10 to 30 percent less in 2012 than originally appropriated in 2008. Agencies as diverse as career and technical education, the Attorney General’s office, Kentucky Educational Television, public health and the state police are already struggling with severe reductions.

Universities and community colleges would receive $142 million less than in 2008 under the Senate plan; the Support Education Excellence in Kentucky (SEEK) program of school funding would receive $69 million less; and the Cabinet for Health and Family Services’ Department for Community-Based Services $35 million less.

These reductions in funding over a four year period have come while the cost of services continues to grow (especially because of health care inflation) and at the same time that the demand, eligibility and need for many services has increased substantially because of the economic downturn.

Cuts would have been much more severe if it weren’t for the American Recovery and Reinvestment Act, which provided Kentucky with $3.4 billion over the years 2009-2011 to help plug budget gaps and address growing service needs. Recovery Act funds made up 42 percent of the state’s approach to closing the shortfall in the 2009-2010 budget, with 29 percent coming from budget cuts and the balance from one-time measures and cigarette and alcohol tax revenues.

The Recovery Act money ends this summer while the economy still has a long way to go until it reaches full speed. Kentucky has 87,000 fewer jobs now than it did before the recession, and needs 131,000 more jobs once you take into account growth in the working-age population since the recession began. At current rates of growth, the nation’s unemployment rate won’t reach pre-recession levels until 2015 or later.

That will mean continued revenue challenges and ongoing high demand for public services.

To make matters worse, Kentucky faces two other well-known problems. First, recent budgets have been patched together using a range of measures that push off our problems. The current budget includes significant debt restructuring, the use of one-time money and the delay of the last payroll of fiscal year 2012 until fiscal year 2013.

Second, Kentucky’s tax system continues to be in need of reform, but the legislature again chose to take no action this session. The only positive move was the passage of a resolution to study the effectiveness of the state’s economic development tax incentive programs, including asking what information should be collected to even begin understanding their impact.

Meanwhile, the evidence of need for greater rather than less public investment continues to pile up. The task force on Transforming Education in Kentucky quietly released its final report during the session; it identified $270 million in needed new investments with an emphasis on early childhood education.

And a new report by Gallup ranked Kentucky next-to-last, ahead of only West Virginia, in its 2010 well-being index. The index looks at emotional and physical health, access to basic needs and perception of quality of life.

We have a long way to go in Kentucky. To make progress, our budget debate must move beyond Frankfort’s two main strategies in recent years: cut investments we need and delay facing our problems until another day.

Jason Bailey is Director of the Kentucky Center for Economic Policy (KCEP).

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