Kentucky Economy

FRANKFORT, Ky. (AP) - Kentucky lawmakers, facing a familiarly
dismal state economy, don't seem to have many options when it comes
to filling a possible budget shortfall of more than $1 billion.
Lawmakers may consider cutting government programs and services,
raising more money either through higher taxes or fees or a
combination of both. There is one added twist that may soften
Kentucky's harsh financial reality: federal stimulus money.
"We're going to solve this because we have to," said Gov.
Steve Beshear. "We don't have any choice."
Beshear announced last week his administration's internal
projections show Kentucky may be facing a budget shortfall that
eclipses $1 billion. The governor is expecting an official
projection from a statewide team of economic experts, but said
internal numbers predict Kentucky's budget shortfall in the fiscal
year that starts July 1 may range from $818 million to about $1.1
Lawmakers budgeted about $9.3 billion during the next fiscal
Kentucky is already coming off a year filled with budget cuts
and tax hikes as state lawmakers offset a $456 million revenue
shortfall in the fiscal year that ends June 30. Lawmakers approved
a budgetary fix earlier this year that included tax increases on
cigarettes and cuts in government services and agencies.
Cuts of some degree are likely next year, officials said. But
whether state legislators are ready to approve tax increases to
raise money two years in a row remains to be seen.
Kentucky's total share of the federal stimulus money is about $3
billion, and $650 million of that money can be used specifically
help stabilize the state budget, Beshear said.
"If we didn't have it, we would be in terrible shape," said
Rep. Rick Rand, chairman of the House budget committee. "This
gives us another option. I think it's going to be very helpul, and
it could potentially save employee layoffs."
Earlier this year, lawmakers chose to leave the federal stimulus
money largely intact, Rand, D-Bedford, said. That positions the
state better for the coming financial angst because it's still
available, Rand said.
Using the stimulus money to plug state budget holes, however,
won't boost the economy and will only delay monetary problems, said
Jim Waters, a spokesman for the Bluegrass Institute in Bowling
"That's like putting a Band-Aid on a gaping wound that's about
to make your leg fall off," Waters said. "That's not going to
address our long-term budget predicament."
But state Rep. David Floyd, a Bardstown Republican, said the
option of tapping stimulus dollars sounds like "a wise use of
those funds in order to keep critical services going and avoid tax
Still, other lawmakers have called for a massive overhaul of the
state's tax code.
Rep. Jim Wayne, a Louisville Democrat, said earlier this year he
wanted the General Assembly to begin looking at a plan to
restructure the state's tax code to bring in more revenue.
Rep. Bill Farmer, a Lexington Republican, has proposed a plan
that would eliminate income taxes and instead place a 5.5-percent
sales tax on all goods and services. Now, when the economy is down,
is the proper time for legislators to consider such a proposal,
Farmer said.
Farmer said he expected a legislative panel would hold a hearing
on the plan later this month.
"If the economy is good, overhauling the tax system is a
headache," Farmer said. "You've got to do it when times are
House Speaker Greg Stumbo, D-Prestonsburg, has proposed allowing
video gambling terminals at race tracks to generate additional
revenue. The plan did not come up for a vote during the legislative
session earlier this year, but Stumbo claimed the plan could
eventually generate about $350 million per year.
Beshear, who has been a proponent of allowing casino gambling in
Kentucky, did not dismiss the idea when asked about it last week.
"In my mind, I think all issues are on the table," Beshear
said. "I'll be thinking about all of this as we move forward."

(Copyright 2009 by The Associated Press. All Rights Reserved.)