Gov. Matt Bevin unveils his proposal tonight for how Kentucky state government should spend a little more than $20 billion over the next two years.
The much-anticipated budget address will provide a granular glimpse into the new governor’s priorities and just how he plans to put the state’s “financial house in order,” as he’s promised.
Last month, Bevin became only the second Republican governor of Kentucky in more than 40 years, and his stances during last year’s campaign pointed to a strong preference for fiscal thriftiness.
Kentucky’s revenues are growing — the state is estimated to rake in about $900,000 more over the next two years.
But so are costs.
Kentucky has struggled in recent years with ballooning obligations in the state pension funds, as well as an expected $250 million payment next year for the Medicaid expansion that added health care coverage for 400,000 residents.
After Bevin’s proposal, lawmakers in the Democratic-led state House will hammer out their final version of the budget. The Republican-controlled Senate will weigh in, and the final budget must be signed by Bevin.
Here’s what to look for in the new governor’s first state budget proposal.
What state programs will be cut?
Bevin has already hinted at across-the-board spending cuts, but details will remain sparse until tonight.
Speculation has swirled in arts circles that Bevin will get rid of the Kentucky Arts Council, which provides grants to artists and arts organizations. Last year, the state appropriated almost $2.8 million for the state agency.
Senate President Robert Stivers said last year that Bevin’s proposal would be “one of the most austere” he’s ever seen, adding later that he imagined the budget would cut state personnel ranks and wouldn’t allow for pay raises or new building projects.
Public education represents about 44 percent of the state’s budget and often represents “low-hanging fruit” for spending cuts.
How much for the pension systems?
The state’s struggling public employee pension funds are major reasons this budget cycle is so complicated.
The funds are woefully underfunded by the state and are facing struggles to meet their obligations to pensioners.
The Kentucky Teachers Retirement Systems, which manages the retirement funds for more than 120,000 current and future retirees, has requested about $1 billion.
It’s unlikely that KTRS will get the full amount requested, but how much Bevin sets aside and what he says he’ll do to improve the fund’s health will be critical.
The administration of former Gov. Steve Beshear estimated that the main pension for state employees, Kentucky Employee Retirement Systems’ non-hazardous fund, would need about $120 million over the next two years. With only 17 percent of the money it needs to make future payouts, the KERS non-hazardous fund is the worst-funded public pension system in the country.
Bevin also might recommend contractual changes for pension holders to reduce the amount the retirement systems have to pay out in benefits. During his campaign, Bevin favored moving future retirees onto 401(k)-style retirement plans, effectively removing them from the traditional state pension systems.
Will there be any new forms of revenue?
With mounting pension obligations and Medicaid expenses, some have recommended that the state create new taxes or raise current taxes.
Bevin has generally opposed raising revenue in the form of tax increases or expanding casino gambling.
But in a campaign document, the “Bevin Blueprint,” the governor recommended trimming some tax breaks.
“As governor, I will call for a significant reduction in the tax exemptions known in state budget parlance as ‘tax expenditures,’” Bevin wrote, saying the state grants $10 billion in exemptions each year.
Will there be tax cuts?
Also in his “Blueprint,” Bevin recommended gradually decreasing the personal income tax and corporate income tax. He said the tax cuts would make Kentucky more competitive with neighboring states.
Bevin also recommended eliminating the state inheritance tax and inventory tax.