Kentucky state budget (2008-2009)

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State Information

Kentucky faced a $456 million budget shortfall for fiscal year 2009. It was a "complex" shortfall that Gov. Steve Beshear said gave the state the opportunity to provide for a "leaner government." In order to close the budget gap Beshear suggested $150 million in additional spending cuts, limited transfer of funds and finding new sources of revenue.[1] In February, two forms of revenue were accepted, an increase on tobacco and alcohol taxes. Senate President David Williams said, "I believe that there is more sentiment now for a cigarette tax more now than there has been in the past."[1] However, in light of the state's budget woes, some legislators called the taxes a "band aid" and sought different avenues of reform.[2] Some lawmakers suggested a review of the state's tax code.[3]

Impact of budget woes

See also: State budget crisis, 2009-2010
  • In December 2008 Kentucky's unemployment rate was 7.8 percent, compared to 7 percent in November and 5.3 percent in 2007. According to the Office of Employment and Training, December's rate was the highest the state had seen since 1988. However, in December, public education, public agencies and state-owned hospitals saw an increase of 1,200 positions. Despite the increase in government jobs, the construction sector saw a decline of 5,500 positions and manufacturing lost 4,400 jobs.[4][5]
  • The governor called for an increase of the state's tax on cigarettes by $0.70 per pack to $1; he also proposed to double the taxes on other tobacco products.[6] The tax increase took effect April 1, 2009. Officials estimated they would generate $50 million before the fiscal year ended June 30 and nearly $160 million the following year.[7]
  • Most government agency budgets would be cut by 4 percent in order to offset the projected shortfall.[6]
  • The governor asked for a review of the 1990 education-reform law in light of the state's budget deficit. The law increased funding for schools and impacted how progress was assessed through testing.[8]
  • The Department of Education proposed $46 million in education budget cuts, thus reducing the agency's budget by 12 percent. The cuts would affect areas of professional development, textbooks, safe schools and extended school services.[9]

Budget background

See also: Kentucky state budget and finances

In Kentucky the legislature passes biennial budget bills, which include two fiscal years. However, the state's fiscal year begins July 1 and ends June 30 of the following year. The budget includes appropriations for the state's operating and capital budgets and recommendations made by each state agency. Estimates of the General Fund and Road Fund revenues are compiled by the Consensus Forecasting Group. Prior to the governor's approval the budget passes first through the House of Representatives and then the Senate for amendments. After a series of hearings the governor can either approve the budget as approved by the legislature or continue to amend the bill through vetoes. Once the budget is approved, amendments can be made to the budget bill as necessary.[10]

Budget figures

The following table provides a history of Kentucky's expenditures and gross domestic product (GDP).

Fiscal year Expenditures (billions) GDP (billions)
2000 $21.5[11] $111.9[11]
2001 $23.1[11] $115.1[11]
2002 $24.8[11] $120.7[11]
2003 $25.8[11] $124.9[11]
2004 $26.9[11] $131.7[11]
2005 $27.0[11] $138.5[11]
2006 $29.5[11] $146.4[11]
2007 $32.3[11] $154.7[11]
2008 $35.3[11] $162.4[11]
2009 $38.6*[11] $171.0*[11]
  • NOTE: The figures for FY 2009 had not been finalized at the time this data was compiled.

Ideas about why the crisis occurred

Gov. Steve Beshear speaks about the Kentucky Budget
  • In January 2009 Kentucky was hit with an ice storm that state officials said may have been the cause of a spike in unemployment in the month of February. Some mining companies were forced to shut down. Steve Earle, a vice president for the United Mine Workers of America in Madisonville, said, "Just about all of western Kentucky was shut down."[5] The state and local governments incurred approximately $45 million in costs as a result of the ice storm.[12]
  • The state's Medicaid program saw nearly 2,000 more people, a 200 percent increase over the previous estimate, bringing the total to 3,000 and pushing the state program further into deficit.[6] The state faced an approximately $70 million deficit in its Medicaid program.[13]
  • The state's Road Fund had seen a reduction in revenue because of a downturn in car sales and uncertainty about proceeds from the gasoline tax.[14]

Proposed actions

Governor Steve Beshear

On February 12 the Kentucky Senate finalized the governor's proposition of raising taxes for both alcohol and tobacco throughout the state in an attempt to eliminate the $456 million budget deficit. The bill would double the tax on a pack of cigarettes to $0.60 from $0.30 and impose a 6 percent tax on beer, wine and liquor bought in stores. The increase would take effect April 1 and was estimated to produce $50 million in revenue before the end of the fiscal year and approximately $160 million the following year.[7]In addition, in Beshear's budget proposal he suggested a three-day furlough for state employees.[15]


Some Republicans were hesitant to support the governor's tax increase bill, with Rep. John Carney arguing that the measure was just a "band aid" that only addressed part of the budget deficit problem.[2] Carney added that a one-half to one cent increase could have raised sufficient funds for the deficit. Like the governor's proposal, however, most Republicans support the review of the Kentucky Education Reform Act and the protection of Medicaid, Medicare and education funding.[2]


With a looming half-million dollar deficit, Kentucky Democrats said that they agreed with the governor's budget proposal, namely the alcohol and tobacco tax increases. Former budget chairman Harry Moberly Jr. said, "People are used to paying six cents for water, for soft drinks, and I would be very surprised if there’s one person who fails to buy a fifth of Maker’s Mark or a six pack of beer because they have to pay sales tax on it."[16] House Speaker Greg Stumbo revised a version of a bill that would allow video lottery terminals at racetracks. The bill set a tax rate of 28 percent for the first five years. House Speaker Pro Tempore Larry Clark estimated $1.178 billion in total revenue for the fifth year.[17]

Re-work the tax code

In light of the state's budget crisis some lawmakers were calling for the state's tax code to be revamped. Rep. William Farmer Jr. suggested eliminating individual and corporate income tax and extend sales tax to services, with the exception of medical and other business services. He also added that he would lower the 6 percent rate to 5.5 and exempt food and agriculture products.[3]

However, Rep. Jim Wayne suggested an alternative approach - making the state's income tax more progressive. Wayne said that he would like to establish increasing rates at the upper income levels, retain the estate tax for estates over $1 million and increase the Earned Income Tax Credit for lower income wage earners. Like Farmer, he too would have liked to extend the sales tax to some services.[3]

Economic stimulus package

Kentucky was expected to receive approximately $2 billion from the $787 billion economic stimulus package. According to White House officials, the stimulus bill was estimated to create or save 48,000 jobs.[18]

According to preliminary reports Kentucky was expected to receive:[19][20]

  • $305 million for low-income and special education students
  • $46 million to renovate and improve school buildings and technology
  • $268 million in Pell grants
  • $421 million to build and repair roads and bridges throughout the state

Budget transparency

Check It Out Kentucky, V.I.E.W., and Kentucky's Open Door are the names of the online transparency databases that are available for citizens of Kentucky. Check It Out Kentucky! is the name of the Secretary of State's publicly available online spending database. The spending incurred by the Office of the Secretary of State is recorded in a searchable format, and is updated monthly.

V.I.E.W. (Vendor Income and Expense Watch) is a website sponsored by the Kentucky Office of the Treasurer.

Kentucky's Open Door has expenditure information on state grants, contracts and employee salaries.[21]

Economic stimulus transparency

  • The Economic Recovery and Reinvestment Act of 2009 designated $787 billion to be spent throughout the nation. Of that $787 billion stimulus package, it was estimated that 69%, or over $541 billion, would be administered by state governments.[22]
  • Kentucky would receive an estimated $2,090,341,858.[23]

Government tools

The following table is helpful in evaluating the level of transparency provided by Check It Out Kentucky!, V.I.E.W., and Kentucky's Open Door:

Criteria for evaluating spending databases
State database Searchability Grants Contracts Line item expenditures Dept./agency budgets Public employee salary
Check It Out Kentucky! Y
600px-Yes check.png
n/a Y
600px-Yes check.png
600px-Yes check.png
600px-Red x.png
600px-Red x.png
V.I.E.W. Y
600px-Yes check.png
600px-Yes check.png
600px-Yes check.png
600px-Red x.png
600px-Red x.png
600px-Red x.png
Kentucky's Open Door Y
600px-Yes check.png
600px-Yes check.png
600px-Yes check.png
600px-Yes check.png
600px-Yes check.png
600px-Yes check.png

Limitations and suggestions

The individuals who developed realize it's not perfect yet, and they welcome suggestions for improvements. According to the site, "Governor Beshear realizes that Kentucky’s Open Door will not be complete. Nor would it ever be. The site will be ever-evolving and ever-improving; it will be a continuing goal to refine and supplement the site, providing more and more information to Kentucky taxpayers in an easy-to-access format. And we treasure YOUR input."[24]

Support for creation of the databases

The National Taxpayers Union urged Kentucky legislators to pass House Bill 105.[25]

Americans for Tax Reform urged legislators to adopt greater levels of transparency.[26]

Public employee salary information

See also: Kentucky state government salary

See also

External links

Additional Reading


  1. 1.0 1.1 WAVE3-TV, "Fixing budget shortfall was main topic of State of Commonwealth address," February 4,2009
  2. 2.0 2.1 2.2 The Adair Progress, "Stimulus money can't be used for KY 55 south bridge," February 24,2009 (dead link)
  3. 3.0 3.1 3.2 CNHI News Service, "Budget, education issues top legislative agenda," February 6,2009 (dead link)
  4. Business Courier of Cincinnati, "Ky. unemployment highest in 20 years," January 30,2009
  5. 5.0 5.1 The Courier-Journal, "Kentucky jobless claims shot higher earlier this month," February 20,2009
  6. 6.0 6.1 6.2 Associated Press, "Budget woes still loom when Ky. lawmakers return," February 2,2009
  7. 7.0 7.1 The Courier-Journal, "Increases in tobacco, alcohol tax approved," February 14,2009
  8. The Courier-Journal, "Beshear calls for budget bravery, review of KERA," February 5,2009
  9. Courier-Journal, "Proposed Kentucky school budget cuts," accessed February 24,2009
  10. Kentucky's Open Door, "How the budget was made," accessed February 24,2009
  11. 11.00 11.01 11.02 11.03 11.04 11.05 11.06 11.07 11.08 11.09 11.10 11.11 11.12 11.13 11.14 11.15 11.16 11.17 11.18 11.19 , "Kentucky state and local spending," accessed February 24,2009
  12. The Murray News, "Costs from storm prove substantial," February 5,2009 (dead link)
  13. The Courier-Journal, "Kentucky weighs expansion of children's health-care program," February 21,2009
  14. The Herald-Leader, "Important legislative issues remain," February 14,2009
  15. Herald-Leader, "State employees protest budget cuts," February 6,2009
  16. WFPL, "Kentucky budget plan clears first legislative hurdle," February 10,2009
  17. The Courier-Journal, "House panel passes revised slots bill," February 13,2009
  18. Reuters, "Governor says roads top Kentucky stimulus list," February 17,2009
  19. Courier-Journal, "Kentucky schools to get $305 million," February 18,2009
  20. Courier-Journal, "Lawmakers consider spending priorities," February 18,2009
  21. e-Transparency Letter from Jonathan Miller, Secretary of Finance and Administration and Chair of the e-Transparency Task Force (dead link)
  22. National Taxpayers Union, "A Letter to the Nation's Governors: Ensure Transparency and Accountability by Posting Stimulus Expenditures Online," March 10, 2009 (dead link)
  23. Wall Street Journal, "Stimulus Spending by State," March 12,2009
  24. About
  25. "An Open Letter to the Kentucky House of Representatives: Taxpayers Support Spending Transparency Web Site (HB 105)," March 2007, 2008
  26. Americans for Tax Reform, "Letter to Kentucky State Legislators," March 7, 2008