Lack of Adequate Revenue to Make Needed Investments in Commonwealth Sets Up the Most Difficult Budget Session in Years


Round after round of damaging budget cuts, a decades-long refusal to clean up tax breaks, and the reality that additional appropriations are needed for pensions, corrections, Medicaid and other crucial state programs are converging to set up what will be one of the most difficult budget sessions in Kentucky’s history.

A new 53-page report by the Kentucky Center for Economic Policy (KCEP), Commonwealth at Risk: A Preview of the 2018-2020 Kentucky State Budget, provides a comprehensive overview of the serious budgetary challenges faced by state agencies and educational institutions struggling to provide vital services with diminished resources. The report also scrutinizes why revenues have failed to keep pace with the growth in Kentucky’s economy, leaving the state in a condition where necessary expenditures far exceed available revenues.

“Decisions made in Frankfort are never trivial, but the decisions made in crafting the next two-year budget will be among the most pivotal in a long time,” KCEP Executive Director Jason Bailey said. “If legislators overreact to the pension challenge by massively increasing contributions and at the same time neglect cleaning up some of the tax breaks that are draining state revenue, Kentucky will be thrown into a fiscal crisis that is difficult to overstate.”

More cuts will come on top of a decade of underinvestment in the commonwealth, as documented in KCEP’s report. Already, funding for education through the SEEK formula has been eroded through inflation in recent years, adding up to one of the nation’s worst cuts. Some school districts are in severe financial crisis, and the gap between wealthy and poor districts is growing closer to what it was before the Kentucky Education Reform Act. Higher education has become increasingly unaffordable and thousands lose out on financial aid every year due to inadequate state resources.

The Departments of Corrections, Public Advocacy, Juvenile Justice, and Community-Based Services – all of which provide critical public protection and safety net services – are suffering from high turnover and vacancy rates due to low wages, high caseloads, long hours and difficult working conditions. The result of successive rounds of budget cuts, these conditions threaten the health and safety of Kentucky’s most vulnerable people. The opioid epidemic has further strained our criminal justice and human services systems and the decision last session to enhance and expand criminal penalties rather than supporting additional treatment options is only increasing costs. Our existing systems and programs are crumbling under the weight of increased needs and diminished resources.

As a result, the state is not making adequate progress on addressing racial, regional and economic disparities. In addition, we lack the resources needed to update our infrastructure and support economic growth in our communities going forward.

“Budget cuts of the size being considered are not inevitable or responsible,” Bailey said. “By undermining the foundations of our economy, they will worsen our fiscal challenges rather than making things better. We can choose a wiser direction, one that includes a more measured and targeted approach to funding our long-term pension liabilities and that generates new revenue by ending some of our many tax breaks.”

Click to view the report as a PDF.

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