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Kentucky Spending Plan Seeks to Create Jobs

Sat March 13, 2010 - Midwest Edition
Bruce Schreiner - ASSOCIATED PRESS

FRANKFORT, Ky. (AP) Kentucky House leaders wrapped up work March 5 on a state budget blueprint for the next two years that proposes funding a flurry of construction projects aimed at creating thousands of jobs to help ease the state’s high unemployment rate.

The approximately $17.5 billion spending plan relies on budget cuts, revenue enhancements and other steps to plug a shortfall exceeding $1 billion for the two years beginning July 1.

“I think the tone of this budget is one of fiscal responsibility … of creating jobs and of moving us forward in a tough time in a fair manner,” House Speaker Greg Stumbo said.

The plan includes about $1 billion in bonding for school construction, water and sewer projects and road building, House leaders told reporters. About $500 million of that amount would go toward construction in school districts and on community and technical college campuses, said Rep. Rick Rand, chairman of the House Appropriations and Revenue Committee.

“We think this will touch communities and will create more jobs and will create more economic activity,” said Rand, D-Bedford.

Stumbo, a Prestonsburg Democrat, said the goal was to create about 25,000 jobs.

Rand said he was not concerned about the state taking on too much additional debt to fund the projects. He called it an ideal time to do the projects because of historically low borrowing rates and a trend in which project bids are coming in well under estimates. Also, some of the bonding will be absorbed by other revenue sources.

State officials announced March 4 that Kentucky’s annual unemployment rate for 2009 jumped to a 26-year high of 10.5 percent.

Senate President David Williams withheld judgment on the proposed projects, saying he wanted to see the details. But if the chambers can’t agree on a revenue package, he said, that “casts some doubts on our ability to do very much capital construction in this session.”

The House leadership spending plan calls for a 1.5 percent spending cut for public universities and colleges in the first year and a 1 percent reduction in the second year. Higher education had faced deeper cuts in early drafts of the spending plan.

The proposal would not cut the state’s basic funding formula for elementary and secondary education. But it calls for trimming two instructional days in public schools, a move projected to save about $34 million each year.

State workers would go without pay raises under the plan.

The blueprint also projects about $30 million in savings from spending on corrections, partly from the expectation of stepped up paroles of some nonviolent prisoners.

Stumbo pointed to an existing policy requiring the Parole Board to review the cases of nonviolent offenders sentenced to 1 to 5 years once they become parole eligible.

The savings in corrections also reflect projections of slower growth in the state’s prison population — by about 1,500 inmates — based on current trends, House leaders said.

Other savings would come from cuts in government contracts and a reduction in nonmerit political appointees across state government.

Rand said the plan closely mirrors Gov. Steve Beshear’s proposed spending for human services. Beshear’s budget plan estimated general fund savings of $75 million in the first year and $33 million in the second year through efficiencies in Medicaid, the state-federal health insurance program for the poor and disabled. The program covers about 790,000 Kentuckians.

Some agencies hard hit by past budget cuts would actually get additional money under the plan, Rand said. Kentucky Educational Television would get about $1.1 million more each year.

A key component of the spending plan is a revenue package that was passed by the House on March 4. That proposal is aimed at raising more than $300 million in two years to help fill the shortfall. The plan would not raise tax rates, and relies on such steps as suspending a business tax break, speeding up sales tax collections and capping some tax credits.

The measure cleared the House with the support of just one Republican.

Williams, R-Burkesville, said he needed time to review the revenue package. But he said he worried about the signal the tax plan would send to businesses looking at Kentucky.

The proposed tax change drawing the most concern from business interests would temporarily suspend tax write-offs for businesses reporting losses. The proposal would generate an estimated $72 million in the first year of the next budget and $90 million in the second year.

Affected businesses would still be able to eventually claim those losses for tax purposes.

The write-off suspension is meant to last two years, but top House Democrats said the tax benefit could be restored in the second year if state revenue collections improve.

Beshear’s budget assumed about $780 million in new revenue from an expansion of gambling in Kentucky. However, lawmakers have shown no willingness to allow video slot machines at race tracks.

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