State budget picture 'getting worse, not better'

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August 27, 2009

By RONNIE ELLIS The Glasgow Daily Times Thu Aug 27, 2009, 03:35 PM CDT

FRANKFORT — The General Assembly just enacted a budget reduction plan which cut the state budget by $1 billion but Budget Director Mary Lassiter told lawmakers Thursday that won’t likely be enough.

She said the state finished fiscal year 2009 on June 30 with 2.7 percent less revenue than it received in 2008. Now, the Consensus Forecasting Group, independent economists who advise the state on the economy and projected revenues, predicts the state will see revenues drop this year another 2.5 percent.

“Things are getting worse, not better,” Lassiter, who also is Gov. Steve Beshear’s Executive Cabinet Secretary, told the Interim Joint Committee on Appropriations and Revenue. “Things have been deteriorating very quickly.”

Lassiter said when lawmakers passed the budget reduction measure in a June special session, they removed some of Beshear’s proposals for savings such as three to five unpaid holidays for state workers while adding tax breaks and credits for car and home buyers. That has forced the administration to cut most agencies by 4 percent over last year’s spending, rather than the 2.6 percent Beshear had proposed.

Exempted, however, are such programs as SEEK – the school funding formula – Medicaid, mental health services and public safety.

Lassiter said while it appears the recession may be ending, many national economists are predicting a “jobless recovery” in which employers are slow to rehire laid off workers and unemployment is expected to remain high through the end of 2010 – it’s currently almost 11 percent.

The state has softened the blow by using federal stimulus money – from the American Recovery and Reinvestment Act or ARRA. Most of that has come in Medicaid which is funded by a federal-state match. Instead of the previous 70 percent match, the federal government is paying 80 percent of the cost and the state transferred the savings from the general fund to other programs.

That frightens Rep. Jimmie Lee, D-Elizabethtown. He worries when the stimulus ends in December 2010, the state will have a difficult time finding the money to cover the gap.

“I have a grave fear there is a cliff out there for Medicaid,” Les said.

“There is a cliff in Medicaid and there is a cliff in the general fund,” Lassiter responded.

Rep. Harry Moberly, D-Richmond, said the current budget would be nearly $300 million in deficit if not for the stimulus funding – even after the $1 billion adjustment. Rep. Jim Wayne, D-Louisville, asked if the administration has discussed revisions in the tax code, something Wayne has long pushed to do. Lassiter said there has been no specific discussion of tax reform.

“But you have a gap and you either have to cut spending or raise revenue or some combination of both,” Lassiter said.. “It’s not rocket science.”

If the Consensus Forecasting Group projections are accurate, Lassiter said, it will be fiscal year 2012 before the economy will supply enough growth to return state revenues to the fiscal year 2008 levels.

RONNIE ELLIS writes for CNHI News Service and is based in Frankfort.. Reach him at rellis@cnhi.com.

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