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  • 1
    • Budget Basics
  • 2
    • Recent History
  • 3
    • Needs and Wants
  • 4
    • Options
  • 5
    • Reference Information
  • 6
    • For More Information / To Get Involved / Share Your Views / Sources

The State Budget

The total needs and wants for the 2006 legislature as set forth by officials and analysts in education, health and human services, justice and corrections, economic development and the state employee-teacher retirement system: more than $2 billion. Some respond that requests are inflated by officials who recognize that it is unusual, even in good times, for agencies and projects to receive the full amount requested.

How should Kentucky respond to these needs, these requests?

  • Within the context of a “revenue neutral” budget framework and a “no new taxes” climate, what can be done?
  • Should officials reduce government services and shift funds to priority areas?
  • Does state government have a spending and inefficiency problem or a revenue problem?
  • How should legislators balance the budget? We examine the following options:

Option 1: Cut the bureaucracy

Surplus funds available at the end of the current fiscal year would nearly cover the Medicaid shortfall, but there are other priority needs and Gov. Fletcher is committed to rebuilding the Budget Reserve Trust (“Rainy Day”) Fund.

Consequently, this option calls for further reductions in state government. Agency budgets would be trimmed with across-the-board reductions. There would be a continued emphasis on eliminating waste, fraud and abuse. The fundamental role of government would be re-examined and the bureaucracy dismantled when warranted.

Option 2: Increase Taxes

This option calls for taxes to replenish at least some of the revenue base that has been depleted from the 26 tax cuts implemented since the 1990’s. Proponents point to several apparent opportunities: cigarette tax increase, corporate tax adjustments and closing of loopholes, sales tax on services, a progressive income tax, increase in coal severance tax, preservation of the state estate tax and others.

Option 3: Eliminate exemptions and loopholes

The Kentucky tax code, which generates $8.1 billion for the General Fund annually, exempts many individuals and groups that otherwise would bring in $6.4 billion.

Many of these exemptions are popular and considered appropriate – for example, the sales tax exemption on groceries. Other exemptions are unpopular. There are nearly 70 exemptions to the sales tax. Other exemptions, such as economic development incentives, are considered excessive by some analysts. Some project that closing corporate loopholes alone would raise $300 million per year.

Option 4: Allow more gaming

Once again, the General Assembly is considering legislation to place casino gambling on the ballot for a voter referendum. The horse track industry anchors the effort and seeks to be awarded exclusive sites, but some communities – such as Owensboro – are fighting hard to be eligible as well.

Gov. Fletcher does not personally support expanded gambling, but says he will not stand in the way of the legislature. Some legislators think the governor’s leadership is essential for passage.


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