For Immediate Release
Nov. 20, 2002
Contact: Terry Sebastian (682-9405) or Channell Barbour (502) 564-2611 

Patton calls for bipartisan dialogue to address budget situation

FRANKFORT, KY. – Calling for a bipartisan dialogue to address Kentucky’s financial woes, Governor Paul Patton today disclosed the state’s current fiscal condition in a report that emphasizes the need for revenue to pay for promises already made to citizens like education and health services. 

“As elected officials, we have a responsibility to make the difficult choices that will determine the future prosperity of the citizens we serve,” Patton said. “These difficult choices can only be resolved by working together in good faith. I am committed to just such an honest dialogue and welcome the opportunity to work in partnership with the General Assembly.”  

Patton has been meeting with lawmakers from both parties this week regarding the budget situation.  

The 26-page report documents the causes of the state’s current financial situation and gives a history of how the administration viewed and handled budgetary problems during FY 2001-2002 and FY 2003-2004.  

During these years, actual revenue was much less than the budgeted expenditures. The administration, Patton said, addressed this problem by making cuts in budgeted expenditures that could be made without severely impacting service delivery to Kentuckians and using non-recurring funds to finance essential services.  

The cuts have totaled $463.8 million during this three-year period, and the use of non-recurring funds to date has totaled $680 million, he said.  

“Our people have not yet felt real pain as a result of this sustained slowdown in state revenue growth, but we no longer have the options we have had to cut funding without impacting service delivery,” he said. “We are out of non-recurring funds and out of ‘easy cuts’ in the budget.”  

The Governor said absent increased revenue, additional cuts in the FY 03 spending plan of $144 million will have to be made, and cuts of $365 million will have to be made in the FY 04 budget proposal the Governor made to the 2002 Special Session of the General Assembly.

“The cuts in FY 03 will hurt. The cuts in FY 04 will stop the progress in Kentucky that has been made during the past 12 years, especially in education,” he said. “In addition to the cuts due to the budget shortfall, there will be no money in FY 04 to address the $135 million needed to fund the Medicaid program or the $11 million needed to house the increase in prison population caused primarily by the poor economy.”  

Some of the key aspects of the current financial situation the Governor pointed out are:

·        Kentucky’s tax code is outdated and produces revenue erratically and inadequately.  Comprehensive tax reform is needed to keep the situation from getting worse. 

·        The tax increases adopted to pay for KERA-related initiatives will fall $263 million short of the amount needed to fund KERA-related programs in FY 04.

·        Corporate support for education through state revenues has not been as strong as was anticipated when the KERA tax increases were enacted.  In fact, corporate support for Kentucky State Government has declined.  The percent of General Fund revenue received from the corporate income tax and the corporate license tax fell from 10.0 percent in 1990 to 5.0 percent in 2002.  If it were still 10.0 percent in FY 04 the increase would be $350 million.

·        During the Patton Administration 26 different tax cuts totaling $2.24 billion dollars cumulatively and another $485 million in FY 04 will have been implemented.  These tax cuts have been as the result of legislative action, judicial action, and executive action.

·        The percent of personal income of Kentuckians devoted to state and local governments has declined from 11.9 percent in FY 95 to 11.1 percent in FY 99 (the last fiscal year for which data is available).  This is a 6.7 percent decline.  This is the largest percent decline of all our neighboring states.  If it had remained at 11.9 percent for FY 04 our General Fund would take in $485 million more money in FY 02.

·        The fiscal problems of the state, which have much of their origins in 1990, have been masked by the strong revenue growth from FY 95 through FY 00.

·        Previous budget crises faced by Governor Brown and Governor Jones occurred while revenue was increasing and were therefore a crisis of over-commitment, not declining revenue.  The current budget crisis is a crisis of deficit revenue, not new commitments because the budget proposed by the Governor in the 2002 session has no new commitments and is a true continuation budget. 

·        Because the administration has already cut Medicaid and postsecondary education 2 percent and all the rest of government except K-12 education 5 percent, any further cuts will directly affect service delivery. 

“In recent years, Kentucky has made dramatic progress in key areas of public policy that can ensure a brighter economic future for our people – early childhood, elementary and secondary, postsecondary and adult education,” Patton said. “As we face these additional shortfalls that present tremendous challenges, we must continue to move forward and work to maintain our momentum in all these areas and more.”

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Note: The report can be viewed @ http://gov.state.ky.us/fiscalassessment.pdf