FRANKFORT – To get a better understanding of the size of Kentucky’s state budget, it may help to compare it to revenues earned by Fortune 500 companies. In that scenario, we’d be about 83rd this year, putting us ahead of Coca-Cola and American Express but a little behind Facebook and Best Buy.
Our budget for the next 12 months is about $37 billion, and that includes state and federal tax dollars as well as restricted funds like college tuition. If we carry the business analogy a step further, state government’s “product” is essentially three things: Education, health and human services and criminal justice. These areas account for nearly 90 cents of every budget dollar.
State officials recently announced we had a surplus of $114 million in the fiscal year that ended June 30th. That’s good news, of course, but it is important to note that it follows a $150 million cut from about six months ago, when the budget forecast was gloomier.
Kentucky has generally seen its revenues increase slowly since coming out of the Great Recession, but our expenses are unfortunately growing faster. As a result, the current two-year budget includes 6.25 percent cuts across broad sections of government, although some critical areas, like per-pupil spending, are exempt.
According to the National Association of State Budget Officers (NASBO), most states have stopped cutting their budgets, but the collective revenues for all 50 states are only slightly ahead of where they were a decade ago, when adjusted for inflation. That underscores just how steep of a climb it has been for our nation to recover economically.
One part of Kentucky’s budget that hasn’t gotten much attention, but should, is a new performance-based funding formula for our eight public universities and the Kentucky Community and Technical College System. This year, the formula is using $31 million collected from these schools’ base budgets and having them compete for the money.
I believe that competition is unfair, because it pits the University of Kentucky and University of Louisville against our regional universities, and it does not take into account challenges that are beyond the schools’ control. As such, Morehead State University and Kentucky State University are getting nothing from that $31 million pool, and neither are several KCTCS schools located in coal-producing regions.
Those schools are shielded from any base cuts this year, but that protection will be phased out in the years ahead, meaning they will be more at risk of losing what is rightfully theirs and what they desperately need after repeated rounds of budget cuts. At the very least, the schools should be competing either against their own high standards or for new dollars, which is how other states have done it.
No discussion of the current two-year budget would be complete without highlighting the controversial tax increase that is helping to fund it. I voted against this revenue plan, because this is not the tax modernization we need. Instead, it will ultimately take more money out of the pockets of most working families.
Any income-tax savings that most individuals will see will be eaten up by the new sales tax on nearly 20 different services. Those range from dry-cleaning, pet care and car repairs to landscaping and recreational activities like golf and bowling. Even non-profits are feeling the pinch when it comes to implementing this law.
Another provision of this new tax plan takes advantage of the recent U.S. Supreme Court decision that allows states to collect sales tax from remote companies that don’t have a physical presence within their boundaries. Here in Kentucky, that will apply to out-of-state businesses with at least 200 sales here in the commonwealth or that have sales exceeding $100,000. Large companies like Amazon have long been collecting this sales tax for the states, but smaller ones have not had to.
It is still too early to gauge the impact of these budgetary and tax decisions, but I worry that they do not do enough for those most in need. Many families are on track to pay more for reduced services and higher college tuition. That’s not the way it should be.
I would like to hear your thoughts or concerns about these changes. You can always send me an email at Rick.Rand@lrc.ky.gov, while the toll-free message line, which is open year-round, is 800-372-7181. For those with a hearing impairment, the number is 800-896-0305.