Lexington, KY - Before lawmakers and the governor's staff can even begin to address how to deal with an $800 million shortfall in the next biennial budget, they must first cut the current budget for a sixth time.
"The next two years are going to be tough. While this economy is beginning, I think, to turn the corner, and we see some glimmers of hope, our tax revenue hasn't changed yet," Governor Steve Beshear said in an interview.
The current two-year budget that runs through June has been buoyed by stimulus funds, but that infusion hasn't prevented some agencies from being forced to cut upward of 25 percent of their budget, according to Beshear's budget director Mary Lassiter.
"It's helpful to remember how much of state government spending was off the table from any cuts," Lassiter said in reference to the fact that about $8 billion of the overall $9.1 billion budget was viewed as untouchable - areas such as Medicaid, corrections and primary and secondary education - known as the SEEK Formula.
"At this juncture, I think everything has to be on the table Ö We're going to reach a point where it is not practical and not mathematically possible to balance the shortfalls that we're going to have in the next two years just on the backs on that core," Lassiter said.
And that is sentiment shared with her boss, the governor, and the two legislative chairmen who oversee the state budget process.
"It would be foolish not to take that attitude," said Sen. Bob Leeper (I-Paducah), chairman of the Senate Appropriations and Revenue Committee, on cuts yet to be made, such as potential layoffs and furloughs for state workers. "With the economy the way it is, it will be difficult for us to avoid them; through attrition, we've been able to up to this point."
The state has cut nearly 2,000 full-time workers since Beshear took office in December of 2007, but none of those have been forced.
"If we get to the year 2012 and nothing changes, everything stays as we know it today, it's hard to imagine that we can balance the budget without having SEEK involved in some way, or at least education funding in some way. There would be just too much there for the state budget to bear," said House A&R Chairman Rick Rand (D-Bedford).
State revenues likely won't rebound to their pre-economic meltdown levels of FY08 until FY2012, according to a group of economists called the Consensus Forecasting Group.
"This next two-year budget is going to be the most difficult budget that's ever had to have been addressed," Lassiter said in an interview with Business Lexington. While a statement such as that could be seen as hyperbole from a governor's political appointee, Lassiter has spent a dozen years in the state budget office as a merit employee and as interim budget director under former Gov. Paul Patton, and almost a year as budget director in the final year of Gov. Ernie Fletcher's administration before becoming the highest ranking Fletcher official asked to stay on under Beshear. "Everything is going to have to be on the table from both the revenue side and the expenditure side."
As of presstime, Lassiter said the governor had yet to decide if he planned to base the budget he'll present to the legislature on Jan. 19 on expected revenues from expanded gaming, which would face a tough fight with lawmakers. Lassiter said there is a possibility of another increase in the state's cigarette tax, but nothing large-scale beyond that.
"Raising taxes in a broad way on people and businesses right now would have the opposite effect (of what is desired). It would push this state much further into recession instead of helping us come out of it," Beshear said, shooting down thoughts of reworking the state's tax structure. Without support from the governor's office, such an undertaking ould be a non-starter in either legislative chamber, according to Leeper.
One area that will come under close scrutiny is the bonding of capital projects. Previously bonded projects are an area that absolutely cannot be cut; the state must service its debt in the next biennium.
"We will look at our debt levels as we go through this next cycle of budgeting, but we want to make sure we don't overextend ourselves," Beshear said. "Right now we've got a good credit rating and we're going to be working with (Wall Street to keep it) Ö I like us where we are right now, but you can't always control that, and during these real tough times, a lot of states have already been downgraded on their debt. We haven't at this point; hopefully we can avoid doing that."
But bonded projects prime the economy by creating much-needed construction jobs, Lassiter said. "It's well documented that Kentucky is slow to go into a recession and slow to come out," she said.
And getting people working is what will make the next budget cycle easier than the last two. "Until we get our people back to work, our tax revenues aren't going to improve," Beshear said.