Kentucky Gov. Andy Beshear will reveal his first two-year state government budget proposal on Tuesday, turning his amiable rhetoric into cold, hard numbers.
Beshear’s $23 billion spending plan — to be launched with a 7 p.m. address to state lawmakers televised on KET — is only the start of the process. Next, the House and Senate, in that order, each get their own shot at writing budget proposals. A final compromise between the two chambers is due back on Beshear’s desk by the time lawmakers adjourn for the year on April 15.
Here are five things to watch for Tuesday:
1. SCANT REVENUE
Beshear has expressed lofty ambitions for education, health care, public safety and other pressing needs. But he won’t have much extra money to pay for any of that.
The Consensus Forecasting Group, a panel of experts that develops revenue growth estimates for the state’s General Fund, handed down a grim prediction in December: a meager 1.3 percent in growth for Fiscal Year 2021 and 1.8 percent in growth for Fiscal Year 2022. By comparison, the federal government anticipates that inflation in the United States will average 2.1 percent in 2021.
Those are the lowest revenue growth numbers a governor has faced since Kentucky began the forecasts 25 years ago, back when the state’s annual growth estimates routinely topped 4 percent.
Some critics, such as the Berea-based Kentucky Center for Economic Policy, blame the state’s tax system for giving away hundreds of millions of dollars in tax breaks to banks, corporations and other wealthy interests with lobbyists on duty at the Capitol. And it’s worth noting that lawmakers this session already have filed roughly two dozen bills calling for additional tax credits and deductions.
One of the experts who forecast the weak growth, University of Kentucky economist Chris Bollinger, said he and his colleagues are worried about rough waters ahead.
“We think a recession is coming and we think it’s in the next year or two,” Bollinger said Monday. “It’s really hard to predict recessions. But we’re clearly at the top of the business cycle. … Most economic forecasts nationally show growth slowing over the next couple of years, so this seems to be something people agree on.”
Beshear, a Democrat, has other ways to try and raise revenue, of course, but lawmakers must approve.
That rules out his dream of state-licensed and -taxed casino gambling, an idea Republican legislative leaders have declared dead on arrival. A more modest sports gambling bill — if it passes — could raise an estimated $22.5 million a year, but that would be partly offset by the costs of establishing new gambling crimes and jailing people who commit them, according to legislative analysts.
In 2018, the legislature approved a 50-cent tax increase on every pack of cigarettes that has yielded about $140 million in fresh income a year. Beshear could propose another tobacco tax hike and a tax on e-cigarettes. He’s also expected to engage in the time-honored Frankfort tradition of “fund transfers,” which means raiding different special-purpose accounts — such as one established for state employees’ health insurance — and diverting that money into the General Fund to spend as he wishes.
2. PUBLIC PENSIONS
Beshear’s Republican predecessor, Matt Bevin, built his budget proposals around fully funding the state’s actuarial required pension contributions for state employees in the Kentucky Retirement Systems and educators in the Teachers’ Retirement System of Kentucky. By doing so, Bevin ended a long stretch of inadequate pension contributions going back two decades, with blame to be shared by governors and lawmakers from both political parties. The result of that negligence is a staggering $30 billion public pension debt.