Governor proposes budget cuts

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Increasing taxes on tobacco is key component of proposal

By The Staff

Gov. Steve Beshear proposed a plan Thursday to address the state’s budget crisis that would utilize a 70-cent increase in cigarette taxes and double the tax rate on other tobacco products to protect funding for education as well as the state’s most vulnerable populations through Medicaid and mental health services.

Specifically, Beshear’s plan would protect SEEK, Support Education Excellence in Kentucky, the $3 billion in basic funding for elementary and secondary education; and student financial aid for higher education, while limiting cuts to the rest of elementary and secondary education and higher education institutions to 2 percent.

Medicaid and mental health services would be protected; along with corrections beds in the state’s prison system and state run juvenile justice facilities and school-based programs that are considered vital in many communities. In addition, the governor’s plan would limit cuts to the Kentucky State Police to 2 percent, which saves a new class of 60 troopers.

The plan, released Thursday at a Capitol news conference, was developed in response to a $456.1 million deficit in this fiscal year that ends June 30. Beshear said his plan represents an important starting point for discussion with legislators, who will be asked to consider the plan early next year.

But the governor cautioned that even as he works with legislators and people across the state to solve the budget crisis this fiscal year, storm clouds are looming just over the horizon as most economists predict an even more troubled economy next fiscal year.

That prospect, he said, makes it essential that both the administration and legislators work together in a thoughtful and careful way to solve both the short-term crisis while positioning the state to deal with even more troubling economic challenges in the months ahead.

All other areas of state government – state agencies and cabinets from Energy and Environment to Tourism, Arts & Heritage, and Public Protection – would make 4 percent cuts.

Beshear’s plan consists of the following items:

  • $147.1 million in spending cuts in addition to $432 million in reductions made in the last year. Under Gov. Beshear, the executive branch is the smallest it has been in 20 years, with 2,000 fewer employees than last year and nearly 600 fewer non-merit employees than under the previous administration.
  • $81.5 million this budget year by increasing the cigarette tax 70 cents, as well as increasing the tax on other tobacco products.
  • $8 million by furloughing state workers three days.
  • $40.6 million in other funds, such as transfers from restricted funds.
  • $178.9 million from the Budget Reserve Trust Fund or Rainy Day Fund, during this fiscal year. Currently, the legislature has appropriated $191 million of the $226 million fund for the 2010 fiscal year. Under Gov. Beshear’s proposal, increased cigarette tax revenues in the 2010 fiscal year – about $144 million – would be used to replenish the revenues expended from the Rainy Day Fund.

Beshear said there will be pain under this proposal, but the consequences of balancing the budget without new revenue would be devastating. Cuts to state government, including education and Medicaid, would be severe and would eliminate many basic services.

Without new revenue, some of these anticipated impacts would include:

  • Significant layoffs of state employees;
  • Universities would initiate hiring freezes, cap enrollment and cut scholarships.
  • Prison beds would be reduced and juvenile justice centers closed.
  • Health care for low-income and disabled Kentuckians would be cut and mental health facilities would be closed.