The Richmond Register

Local News

July 16, 2014

Beshear taps Rainy Day Fund to cover shortfall

FRANKFORT — FRANKFORT – Gov. Steve Beshear tapped the state’s Rainy Day Fund and reduced funding for all three branches of government in an order Wednesday afternoon announcing how he’ll cover a $91 million shortfall for the budget year which ended July 30.

Beshear said the budget adjustments still protect core services such as education, public safety and healthcare.

But it also represents the 14th time in more than six years that Beshear has been forced to cut spending to balance the state budget. The action follows previous cuts to the budgets of constitutional offices such as the Attorney General, Secretary of State and other state agencies. The previous cuts reduced the state’s General Fund budget by $1.6 billion.

Most of the latest cuts came in the executive branch, including cuts of $200,000 to Attorney Jack Conway’s office and $100,000 to Secretary of State Alison Lundergan Grimes’ office. Larger reductions were made to the Department of Local Government ($255,000) and Military Affairs ($350,000).

The governor’s office was reduced $13,200. In all, cuts in the Executive Branch totaled $2.9 million. The Judicial Branch saw its budget reduced $1.5 million and the Legislative Branch was cut $287,600.

Education, Medicaid and social services were spared.

The governor resorted to a frequent budget balancing tactic of “sweeping” money from restricted funds such as boards of nursing and pharmacy, the Medical Licensure Board, and animal control administrative fund. In total, Beshear got $49.9 million from such funds. A recent court ruling confirmed Beshear’s authority to use such funds to balance the budget.

He also moved $21.2 million out of the Budget Reserve Trust Fund, commonly called the Rainy Day Fund, leaving a balance of only $77 million. For comparison, the state had more than $200 million in the fund in 2008 as the great recession began.

The rest was accounted by using $14.9 million in unspent appropriations to balance the General Fund.

Senate President Robert Stivers, R-Manchester, called Beshear’s plan “appropriate,” but blamed the on-going problem on “the downward spiral of Kentucky’s economy,” which he said is being “stymied” by the policies of Democratic President Barack Obama.

He pointed to the decline in coal severance taxes as an example, though most industry analysts have blamed the decline in coal production primarily on cheaper natural gas prices and market forces although they say federal environmental policies have played a lesser role.

But several studies over the years have indicated Kentucky’s tax code is outdated, based on an erstwhile manufacturing and agrarian economy that has been outpaced by a growing service economy. Those studies repeatedly show that Kentucky’s tax receipts don’t keep pace with improvements in the economy.

Two years ago, Beshear appointed a Blue Ribbon Task Force on Tax Reform which made numerous recommended changes in the tax code and which the commission estimated would produce about $650 million in new state revenues.

But the legislature never acted upon the report, although Beshear proposed some but not all of the recommendations.

Ronnie Ellis writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.

 

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