BRADENTON, Fla. - Kentucky Gov. Matt Bevin delivered his first budget Tuesday night, promising cuts and other savings to deal with what he called the state's two biggest financial challenges: "runaway" Medicaid costs and pension liabilities.
For the fiscal 2017-2018 biennium, Bevin's $70.4 billion proposed budget would not raise taxes, though it would reduce baseline spending by most agencies by about $650 million or 9%.
Most of the savings will go toward higher payments on Kentucky's more than $30 billion in pension liabilities, he said.
The state's pensions are among the worst funded in the country.
"We cannot move forward unless we address the crippling debt that is facing this state," he told a joint session of the Legislature. "We have got to focus on getting our financial house in order."
Bevin, a Republican who took office Dec. 8, rejected an idea pending before lawmakers that Kentucky issue pension obligation bonds to shore up its liabilities.
An additional $1 billion in pension funding will be contributed over the biennium and the state will return to long-term fiscal stability if legislators approve his budget, he said.
"This budget is a common sense effort to begin dealing with our pension obligations while also investing in critically important areas to better serve all Kentuckians," Bevin said. "We have to tighten our belts in order to begin paying down the billions of unfunded liabilities."
However, the amounts Bevin proposes for the state's most ailing pension fall short of the official actuarially required contributions necessary over the next two years, according to Kentucky Teachers' Retirement System Executive Secretary Gary Harbin.
The state's formula requires it to contribute a fixed amount equal to 13.1% of teacher's payroll. The system's actuary has said an additionally $520 million is needed in fiscal 2017 and $512 million in 2018 to fully fund the ARC.
Bevin's plan calls for contributions of $300.05 million in 2017 and $291.46 million, with additional funding contingent on spending cuts and other measures.
Harbin said he appreciates the governor's proposal as it would be the first additional money contributed by the state beyond fixed payment since the 2007-2008 fiscal year.
"The money provided under the governor's budget is a great step forward, and KTRS looks forward to working with him and the General Assembly as the funding issue progresses in the legislative session," he said.
Bevin's two-year spending plan includes $624.6 million in bonds, down from $1.5 billion authorized in the 2014-2016 biennium.
Two combined school facility construction programs would receive the largest block of financing at nearly $200 million. A new $100 million pool bond program proposed by Bevin would be established for workforce education and development.
The governor recommended placing $178.7 million into reserves over the next two years to bring the rainy day fund balance to $388.1 million, which is expected to be 3.6% of revenue estimates over the period.
For fiscal 2017, he recommended a total budget of $32.95 billion, an increase of 3.2% over the current year. The general fund totals $10.7 billion for a 5.3% increase, and is based projections that state revenues will grow by 3.2% in the coming year.
"There is no magic wand or money tree in Frankfort to fix Kentucky's financial woes and improve the Commonwealth's credit rating," Bevin said in his executive budget introduction. "Because Kentuckians cannot afford any tax increases, this budget proposal cuts spending and allocates Kentucky's scarce taxpayer dollars more prudently than in years past.'
In September, Standard & Poor's cut Kentucky's issuer credit rating to A-plus from AA-minus for failing to address chronic pension underfunding. The outlook is stable.
Moody's Investors Service assigns an Aa2 issuer rating, while Fitch Ratings offers an implied AA-minus general obligation rating. Both have stable outlooks.
