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    • Budget Basics
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    • Recent History
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    • Needs and Wants
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The State Budget

Needs and wants

Some officials and analysts align progress with low taxes and a reduced government role; others point to $1.8 billion in unmet needs due to chronic under-funding of state government. By 2010, they claim the shortfall will be $2.3 billion.

With a modest General Fund surplus carried forward from last year and projected for the next two years, Gov. Fletcher and the legislature have received many requests from cabinet secretaries, university presidents, city and county officials, and special project advocates. More than $1 billion in special requests are before the 2006 General Assembly.

Despite tax modernization and efficient management, most analysts conclude that long-term projections are bleak and that future balanced budgets will require either substantial tax increases or elimination of programs and services typically embraced as a state government responsibility.



The Kentucky school reforms that were launched in the 1990s and the ambitious higher education initiatives in recent years are not without critics who challenge progress reports and question whether more money should be directed at programs that don’t work. They suggest more support for private schools, extended privileges for parents to pull their children from poor-performing schools and lower construction wages to reduce the cost of new school buildings.
Education advocates stress that impressive progress has been achieved in Kentucky, but the state has lost ground and continued success is threatened by under-funding. The chairman of the Business Forum on Kentucky Education says there’s no question that education is under-funded in Kentucky.
Gov. Fletcher points to a $526 million increase in spending on P-12 education, a $123 million increase in spending on postsecondary education and $27 million spent for debt service on local school and campus construction projects since 2004. Education leaders and advocates say that these increases did not make up for previous cuts by the legislature since the 1990s.

Why do some people say that state government should invest more in education?

To invest in a competitive future
Kentucky is ranked 50th in per capita support for education. Ours is the only state that spends less than $1,000 per student. Depending on the measurement used, Kentucky spends between $800 and $1,400 less per student annually than other states, a difference of $500 million to $1 billion.

To attract and retain the best teachers
Kentucky needs skilled, qualified teachers with majors or minors in the subjects they teach (almost a third teach outside their field). Moreover, the average teacher salary in Kentucky was more than $7,000 less than the national average in 2005, and nearly $4,400 less than the average of surrounding states. Some analysts claim that when Kentucky’s low cost-of-living is considered, teachers in our state are not underpaid.

Our public schools need $337 million to bring pupil spending up to the average of surrounding states, and $982 million to lift Kentucky into the top 10.

To educate our workforce
For the state to reach the national average of working-age adults with a bachelor’s degree, Kentucky would need to double those with bachelor’s degrees to 800,000. Postsecondary institutions cannot educate that number of students without substantial increases in resources.

To seek excellence in higher education
In recent years, as more Kentuckians recognize the need to complete college, state government has cut funding. Kentucky’s public colleges and universities need more than $250 million annually to catch up with funding of comparable institutions in other states. Many construction projects (including Owensboro’s Advanced Technology Center) have been on hold or incomplete for years. The mandated goal of creating top-ranked research universities at the University of Kentucky and the University of Louisville will be a historical footnote if ample funds are not authorized toward that end. (Kentucky is currently ranked 41st in university research and development.)

The Council on Postsecondary Education requested an 18 percent increase for fiscal year 2007-2008 and a capital construction program that will cost $55 million per year for debt service.

Health and Human Services


Kentucky faces daunting challenges in health care – and in human services that are exacerbated when health care is less accessible:
…skyrocketing costs for care and prescriptions drugs
…a growing number of uninsured and underinsured who seldom receive preventive care, postpone medical care when they need it and resort to hospital emergency services when conditions get serious
…unhealthy lifestyles characterized by smoking, inactivity, obesity, and poor nutrition
…a poor, aging, and largely uneducated population

Why do some people say that state government should invest more in health and human services?

To improve the health of Kentuckians
Kentuckians death rate is 18 percent worse than the national average and the health of its children recently dropped to its lowest rating in 16 years. Kentucky leads the nation in lung cancer deaths and is second in deaths from all cancers. Kentucky has the highest smoking rate in the nation. More than 575,000 Kentuckians currently have no health insurance.

To help lift people out of poverty
Kentucky’s poverty rate is increasing faster than all but one state. The overall well-being of Kentucky’s children is now ranked 42nd among states, the worst ranking in the 16 years. Nearly 44,000 Kentuckians experience homelessness during the year. Many poor children are reared by single mothers who will have greater difficulty obtaining child support after federal budget cuts reduce enforcement capacity.

To sustain the only source of health care for many
Medicaid, a federal/state program, serves 15 percent of Kentucky’s population: 700,000 poor, disabled, and pregnant women and 50,000 children (44 percent of births). As health care costs increase and more employers reduce or eliminate health insurance benefits, an increasing number of people will qualify for Medicaid. (The federal government contributes 70 percent of the cost of Medicaid, state government 30 percent.)

To ensure dignity and compassion for our elderly
Approximately half the $50,000 average annual cost of nursing home care is covered by Medicaid. An estimated 30,000 Kentuckians live in nursing homes. Seventy percent of Medicaid is used for long-term care. With an aging population, this need will increase dramatically in coming years.

Medicaid (Kentucky’s portion) faces a $135 million shortfall in the current fiscal year, reducing funds available for other government services such as education, state employee and teacher pensions, corrections and more. Moreover, Medicaid costs may increase by 40 percent in the next biennium.

Beyond absorbing the current shortfall, advocates for the poor promote the need to develop recurring revenue to fund Medicaid as an essential service. Meanwhile, officials recognize the need to re-examine Medicaid eligibility criteria, limits on services, fees or co-pay increases as ways to reduce the shortfall. Nonetheless, many analysts conclude that the program is not sustainable without a significant infusion of state money.

Officials and advocates point to other under-funded programs, such as mental health, and pressures from requirements of the federal government as participant in the Medicare prescription drug benefit program. Some estimate that as much as $110 million is needed for these programs alone.

Justice and Corrections

Since 1970, Kentucky’s prison population increased from 2,838 to 17,330 (600 percent). This was due in large part to stiffer drug penalties enacted by state legislators. Drug crimes have serious societal implications and warrant serious penalties, but the penalties must be weighed against the impact on the judicial and corrections system.

Why do some people say that state government should invest more in justice and corrections?

To develop more effective alternatives to incarceration
A dollar spent on prevention programs saves more than four dollars in crime costs. Rehabilitation coordinated through a drug court costs an average of $3,000; the average cost of imprisonment is $17,000. Drug courts saved Kentucky $14.5 million since 1996. Existing regional treatment centers serve only 10 percent of the 260,000 Kentuckians who abuse drugs, alcohol, or prescription drugs.

To relieve county governments of a responsibility most cannot handle
County detention facilities are typically ill-equipped to absorb the volume and complexity of incarcerating and treating inmates who are incarcerated for drug-related offenses. Before officials established a county occupational tax, Daviess County was forced to absorb a deficit of approximately $1 million per year tied to its detention facility.

To ensure quality legal representation for the poor
Despite representing more than 130,000 clients annually in criminal cases (double the recommended caseload), the Kentucky Department of Public Advocacy budget has been cut in recent years. Public defenders have fewer than four hours to spend on each case. Six hundred thousand Kentuckians are eligible for legal aid, but because of the excessive caseload, many clients must be turned away. For indigent defense, Kentucky spends $7.31 per capita, 27 percent less than the national average.

Officials say that drug treatment alone should be increased at least $15-20 million per year. To move Kentucky to an average status state (25th from 44th) in terms of state mental health and substance abuse funding, $25 million per year for 10 years would be needed.
An estimated $100 million per year is needed to prevent county jails from facing deficits when housing state prisoners. Ten million dollars is needed to fully fund an adequate public defender system, and legal aid programs need upwards of $3 million.

Economic Development

Championed by state and community leaders, economic development projects include workforce development and skills assessment programs for employers, capital projects, infrastructure, industrial parks, incentives for business recruitment or expansion, job training, and much more.

Some analysts claim that 80 percent of the $800 million Kentucky spent on economic development in 2004 was used for short-sighted financial incentives to entice businesses to Kentucky. They claim that funds would have been better spent on education, small business development, infrastructure or technology.

Why do some people say that state government should invest more in economic development?

To bring jobs and opportunity to Kentucky
Kentucky is the fifth poorest state in the U.S. We have the sixth lowest per capita income and our average weekly wages are the slowest growing in the nation.

To help Kentucky “grow its own”
Some analysts promote a strategy of business expansion and entrepreneurialism through business incubators, technology pilot projects and university partnerships, venture capital, job retraining, and more.

To bring distinction, marketability, and an improved quality of life to Kentucky
Arenas that could attract an NBA franchise, facilities to attract the premier equestrian event in the world, riverfronts that attract spin-off development and enhance a community’s image…some make a case that state government should have a lead role in such initiatives that generally require local, federal and private funds as well.

State Employee/Teacher Retirement Funds

The state employee-teacher retirement program is under-funded by $4.36 billion, more than twice the average state payroll. With an average age of 42, the number of eligible employees will peak at 51,000 in three years. Without proper planning or adequate funding, this obligation could dilute resources available for other vital state government services. The cost of health care and insurance premiums is a driving factor in this major expense. Health insurance currently costs $132 million for teachers and state employees.

Why do some people say that state government should spend more toward state employee-teacher retirement?

To fulfill our obligations
Unlike a corporation that can file bankruptcy and abandon its retirees, state government is obligated to provide retirement benefits for its former employees, which includes public school teachers.

The executive director of the state employee retirement system urges the 2006 legislature to authorize $350 million for the system.

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