Memo says Gov.-elect Beshear facing massive budget shortfall

LOUISVILLE, Ky. (AP) — Kentucky Gov.-elect Andy Beshear faces a budget shortfall that could exceed $1 billion as he prepares a two-year state spending plan to submit to lawmakers in early 2020, according to a memo from outgoing Gov. Matt Bevin's administration.

The memo from Bevin's budget director, John Chilton, points to additional funding needs for pensions, corrections, Medicaid and employee health benefits and projects only modest revenue growth to help pay for the state's budget needs.

The document — sent to Beshear's transition team and lawmakers — underscores the challenges awaiting the new Democratic governor and the Republican-led legislature in crafting a new state budget. The next biennium spending plan will be in effect from July 1, 2020 to June 30, 2022.

Beshear spokeswoman Crystal Staley said a budget transition team, headed by former state Auditor and Lt. Gov. Crit Luallen, is “working diligently” and preparing materials for the incoming governor, who takes office next Tuesday.

“The memo released by director Chilton is not a product from the transition team, but will be analyzed along with other materials," Staley said in a statement.

Senate Majority Floor Leader Damon Thayer said lawmakers knew they would “start out in the hole, so to speak" because of budget needs for pensions, Medicaid, corrections and elsewhere.

“Seeing it in black and white is just a reminder of how difficult this budget session is going to be," the Republican lawmaker said in a phone interview Thursday. “We need to be focused more on needs than wants. Because everybody wants something in the budget, but it's going to have to be a focus on what Kentucky really needs.”

The memo reflects the “severe budget conditions" that lawmakers recognize they face, House Speaker David Osborne said in a statement. He said lawmakers are committed to working with Beshear to pass a “responsible spending plan that balances the needs of our state with the obligation as stewards of ... the taxpayers' dollars."

Chilton's memo projects modest revenue growth in the range of about 1.7% to 2% in the next two-year budget period. Meanwhile, it lists hundreds of millions of dollars of additional spending for a host of budget items when compared with the current budget amount.

The document also sets out estimated costs for additional budget spending such as restoring prior-year reductions for higher education, increasing the per-student funding formula for elementary and secondary education and giving school teachers a pay raise.

Beshear has guaranteed that a $2,000 pay raise for public school teachers he campaigned on will be in his spending blueprint. It’s an incentive he says is needed to resolve a statewide teacher shortage. The $2,000 teacher raises would cost an additional $97 million per year, the memo said. Beshear also hopes to make smaller class sizes possible, fulfilling another campaign goal.

Asked what the memo's budget shortfall projections mean for Beshear's campaign wish list, Thayer responded: “I want to give him the space to deliver a budget that reflects his priorities. But I would just urge that it be a legitimate, structurally balanced budget and not a political document. If that's the case, it will be a good starting point for us to work with him on priorities that benefit all Kentuckians."

Beshear supports legalizing casino gambling to generate new state revenue. During the campaign, he recommended using casino revenue to shore up public pensions. But Thayer and Senate President Robert Stivers previously said any effort to legalize casino gambling would be “dead on arrival" in the Senate.

Thayer said Thursday that the memo's dire budget outlook doesn't change the prospects for casino gambling.

“I wish people would stop talking about it because we don't have the votes," he said.