Kentucky Gov. Matt Bevin promised Monday to veto the state budget because it failed to provide debt service on bonds issued to build the state’s internet system, decimated emergency reserves, and lacked full funding for services such as Medicaid and prisons.
Bevin also said he would veto a related tax-reform bill that also contained revenue-raising measures to support the budget – a measure that state Budget Director John Chilton said would raise $50 million less than lawmakers projected. Bevin also complained about a pension reform bill that he said didn’t go far enough.
“This is not how you budget; not how you develop tax policy; it’s not how you develop long-term pension policy,” he said during a press conference.
The Legislature sent a $22 billion biennial budget to the governor April 2 supported by new revenues, transfers from certain accounts to the general fund, and 6.25% in baseline cuts for most state agencies. It fully funded pension contributions, but education cuts and retirement benefit changes drew protests from educators across the state.
Bevin said that the budget is not balanced as required by law. He also accused lawmakers of ignoring expenses that must be funded and would result in a shortfall at the end of the year.
“What then is the obligation for passing budget,” Bevin said. “It’s to include everything that you think that should be in there, including those things you know are going to come due, like the bond payments on obligations that have already been issued.”
Those bonds he referred to were issued to build the state’s $324 million high-speed internet system, called Kentucky Wired, which is under construction.
In 2015, the Kentucky Economic Development Finance Authority sold $230.05 million of 30-year tax exempt bonds, $57 million of privately placed taxable senior revenue bonds and a $14.9 million subordinate tranche to finance the system as the state’s first availability payment public-private partnership.
According to the Kentucky Center for Economic Policy, lawmakers designated Kentucky Wired as a necessary government expense in the budget but did not include line-item funding for the program. That would mean payment for the debt would come from the budget reserve trust fund.
“The obligation is on every man, woman and child in this state to pay those bonds off into the future and yet a budget comes forward that doesn’t even include funding of that debt,” Bevin said.
The governor also said the Legislature’s budget “spends down” emergency reserves, a move he called unwise and which credit rating agencies would view as irresponsible.
The budget passed by lawmakers spent $600 million more than Bevin had proposed.
The governor began his press conference railing about the state’s woefully underfunded pensions, although he did not say if he would veto Senate Bill 151, the retirement legislation that passed during session.
Kentucky’s eight pension plans had $62.3 billion of combined unfunded liabilities as of June 30, 2016.
“These systems are in dire, dire straits,” Bevin said. “I want to make something very clear. This pension bill that was passed does not solve the problems, doesn’t come close to solving the problem.”
Bevin said he was grateful some effort was made to due pension reform, but “more work is going to have to be done.”
Lawmakers return to the state capital in Frankfort on Friday and Saturday to consider overriding vetoes issued by Bevin.