State of the Commonwealth Budget Address

By John Gregory | 1/29/16 7:30 AM

Gov. Matt Bevin 2016 SOTC Budget Address Transcript 01.26.16 (.pdf document)

In his address to the Kentucky General Assembly Tuesday night, Gov. Matt Bevin called for a 9 percent reduction in the overall state budget while also proposing significant contributions to the public pension systems and additional spending on state police and criminal justice, social workers, and infrastructure repairs.

The plan trims $650 million from state spending, but exempts a number of government functions including K-12 education from any funding reductions. Although Bevin said he wanted to include tax cuts, his budget included no such measures. The governor said the state simply can’t afford them at this time.

“This budget has been prepared with financial reality in mind,” Bevin told lawmakers. “It’s a sober budget, it’s one that is austere… it’s one that is pragmatic.”

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Putting Kentucky’s Financial House in Order
Bevin likened Kentucky’s finances to the spot on U.S. Route 60 that overlooks the state capitol building in Frankfort. He said the tourist pullout is crumbling in some places, overgrown in others, and in desperate need of attention. The governor said the overlook and the state are better than that and called on lawmakers to take immediate action to get the state’s financial house in order.

To strengthen the commonwealth’s fiscal foundation, Bevin proposed cutting 9 percent or $650 million from the state budget for the new biennium. And to start that process he asked state agencies to slash 4.5 percent from their budgets for the remainder of this fiscal year. The governor said he would leave it to his cabinet secretaries to determine the best ways to implement the budget reductions.

Spared from these cuts are veterans affairs, public school funding, student financial aid, pensions, public safety employees, social workers, and other activities Bevin said are critical.

“We’ve taken away all the things that are easy to poke holes at,” the governor said. “We’re not going to eat our seed corn, we’re not going to cut into infrastructure and education to the degree that we might if we truly wanted to cut everything… We’ve exempted [these things] so that we can focus on where there are some inefficiencies and redundancies that we can eliminate.”

Bevin provided little detail about what the spending cuts might impact other than to say he hopes to reduce the number of personal service contracts the state uses. He also reiterated his call to shut down Kynect, which he said is heavily subsidized and cannot sustain itself. Bevin said ending the state insurance exchange and transferring those individuals to the federal exchange would cost far less than the $23 million some have estimated.

As for Medicaid, Bevin said it was time to dispel the myth that the program’s expansion pays for itself. He acknowledged the need for the health coverage but he said the state can’t pay to keep 30 percent of the population with Medicaid. He said his administration will devise a plan to cover vulnerable citizens in a way that the state can afford, which would likely include “means testing” individuals to ensure that they qualify for Medicaid coverage.

Addressing the Pension Crisis
The governor called for significant steps to begin the long process of shoring up the unfunded liabilities in the state pension systems. He called for lawmakers to fund the actuarially required contributions to the Kentucky Employees Retirement System and the Kentucky Teachers’ Retirement System, and to make additional payments to both plans. Bevin said the state would pump a total of $1.1 billion into the systems in the next biennium.

“This is the heartbeat of this entire budget,” Bevin said, “because everything else we care about, including things I want, things I campaigned on… we cannot afford until we get our financial house in order.”

Bevin said he would oppose any bill or budget that funds the pensions through bonding, as House Democrats have proposed. He said he would not encumber future generations with debts that should be paid today.

Finally the governor called for complete audits of the pensions systems to be conducted by an outside firm. He said lawmakers must have a thorough understanding of the nature and extent of the pension problems before they consider any specific structural changes to the plans.

Education Spending
Bevin said base funding for primary and secondary education would not be cut this biennium, and he allocated an additional $39 million to help the state’s public schools handle the projected increase in students.

The governor did not mention any new money for higher education, but said the state’s colleges and universities would be moved to an outcomes-based (or performance-based) funding model. Starting in 2018, one-third of higher ed dollars would be tied to achieving specific outcomes; in 2019, two-thirds; and in 2020, all public college and university funding would be performance based.

“The net result of putting public tax dollars into education is to ensure that we actually are graduating people that can go into the workforce,” Bevin said. “If we’re going to subsidize it with taxpayer money, we’re going to focus on the outcomes.”

Bevin also pledged to provide additional money to Northern Kentucky University and Western Kentucky University to help equalize their funding bases in comparison to the other state universities. And the governor said he would ensure that 100 percent of Kentucky Lottery proceeds would go to education and student scholarships, instead of allowing some of those dollars to be applied to other budget needs.

Investments in People and Infrastructure
The mid-section of Bevin’s 67-minute speech comprised a list of new investments he proposed to lawmakers. His spending plan includes:

– $100 million in bonding to support workforce development initiatives.

– $4.8 million to increase starting salaries for mid-level social workers.

– Pay raises for Kentucky State Police officers ($12.4 million) and correctional officers ($4.5 million), as well as funds to hire more probation and parole officers ($2.4 million), and public defenders ($6.2 million).

– $4.5 million to process the backlog of untested rape kits held by law enforcement agencies around the commonwealth.

– $10 million for airport and aviation improvements, plus additional funding for upgrades to Interstates 64, 69, and 75, and to paint and repair the Brent Spence Bridge in northern Kentucky.

See Bevin’s full budget proposal.

The governor concluded his address by asking legislators and state workers to be patient, communicate their best ideas with his office, think outside the box, and, as the state motto says, stand united. Then he made one final challenge to House and Senate members:

“Pass this budget,” Bevin said.

Legislative Leaders Respond
Senate President Robert Stivers (R-Manchester) said Bevin’s main goal with his budget is to solve the public pension problems without sacrificing K-12 education funding. He applauded Bevin’s call for an audit of the state retirement plans, which he said would be supplemented by a Senate bill to bring more transparency to the management of the systems.

“We don’t have enough insight to have appropriate oversight because they keep the records confidential,” Stivers said. “So that’s the step Senate Bill 2 is going to take. We want to know what is going on behind the scenes so we can make appropriate decisions.”

House Speaker Greg Stumbo (D-Prestonsburg) said Bevin’s plan doesn’t go far enough to address the unfunded liabilities in the retirement systems. He also challenged the governor’s assertion that the state can’t pay to continue Kynect and the expansion of Medicaid.

“He doesn’t believe that it’s sustainable or affordable, but he really doesn’t offer any proof to that effect,” Stumbo said. “If we’re going to talk about auditing the pension systems, which I support, then let’s get some true facts out by independent sources to verify what [health reform] is really going to cost Kentuckians.”

The House now takes up the governor’s budget proposal. Stumbo said he hopes to have a completed budget document ready for the Senate by early March.