There's a new fiscal sheriff in town. Gov. Matt Bevin made that much clear in his first budget address to a joint session of the General Assembly Tuesday night.
If there was a leimotif, it was this...
"We're saving for a down payment for Kentucky's future. We have to pay for the future by saving now," Bevin said early in his more than hour-long remarks.
Sounding the alarm on mounting pension debts he warned could pose an existential threat to the state budget if left unchecked, Bevin mapped out plans to trim $650 million from baseline spending - allowing exemptions for the Veterans Affairs, frontline public safety workers, and more than a dozen other groups and agencies. Divvying up the cuts (4.5 percent in 2016, 9 percent annually in 2017-18) would be the responsibility of cabinet leaders. Taking a cue from Alaska and Texas, the governor also recommended placing excess funds from legal settlements and judgments into a lockbox dedicated to shoring up pensions.
"This is the heartbeat of this entire budget," the governor told the packed chamber. "Because everything else we care about, including things I want, things I campaigned on, things that many of you in this room and in this body would like to see, we cannot afford under we get our financial house in order."
While the suggested cuts could result in layoffs for some, understaffed state police and corrections departments, social workers, and public defenders would see money for raises and new hires.
Under the plan the SEEK formula, which is used to calculate local school spending, remain unchanged. Addressing post-secondary education, the governor urged the legislature to phase in what's known as "outcomes-based funding," a strategy meant to ensure state investment in higher education translates to career-ready graduates but likely to cause some heartburn in university board rooms.
"And it will ultimately within four years apply to every dollar, not just dollars that are restored, and that's important for people to understand. There is not going to be money just for the sake of existing," Bevin announced.
Downplaying the previous administration's multi-million dollar estimates for closing down kynect, the state's online health insurance portal, the governor reiterated a promise to dismantle the exchange within a year and assured a smooth transition to healthcare.gov.
For now, attention shifts to the House where lawmakers will soon begin dissecting the document - one the governor has pledged not to sign should legislators stray too far afield from his basic priorities.
Pension Prescriptions
Not surprisingly, Bevin's first forays into reviving the state's failing pension systems encountered a skeptical audience in some Democratic quarters. House Budget Committee chairman Rick Rand, who will be among the first to dive deep into Bevin's budget, came away decidedly unimpressed.
"He hasn't proposed anything. He says we're going to put a little money in it, we'll have an audit, then we'll see what we're going to do," Rand said, adding many in the General Assembly favor swifter action.
In addition to across-the-board audits to be performed by a disinterested third party, the governor says his plan adds more than $1B in new pension funding over the next two years. As for the permanent fund of pension-bound dollars awarded to the state by the courts, House Speaker Greg Stumbo told reporters cementing the proposal in law could require voter approval.
"This General Assembly can't restrict what a future General Assembly could do as far as the appropriation of state dollars. It would require a Constitutional Amendment to do what he envisions," the speaker said.
Meanwhile, Bevin's speech appeared to sound the death knell for Stumbo's favored approach to bolstering the Kentucky Teachers Retirement System, a hefty $3.3B bond.
"[Bevin] made it very clear we cannot borrow our way out of the pension situation," House Minority Leader Jeff Hoover noted.
New Strings For Higher Education Funding
Within four years, Bevin envisions all state dollars allocated to higher education - which represent only a fraction of schools' overall budgets - being tethered to a yet-to-be-crafted performance-based formula.
Last year, the Kentucky Council on Post-Secondary Education dipped its toe into the waters, submitting a proposal tying increases to outcomes, but the governor maintains universities and colleges must go further in guaranteeing the kinds of skilled workers Kentucky businesses desire.
"I think they will be resistant to their full budgets being based on that," Rep. Rick Rand said.
The Council voted in 2015 to seek the restoration of $122M over the next two years, or an overall boost of 13.4 percent. Kentucky is one of just a handful of states that have continued to hand down cuts to higher education in the wake of the 2008 economic collapse.
University of Kentucky President Eli Capilouto declined to comment immediately following the address.
Dis-Kynecting
Just how much will is cost to shut down Kentucky's celebrated health insurance exchange and shuttle subscribers to the national site? That depends on whom you ask. In his address, Bevin disputed previous projections by Beshear administration officials who set the price tag at a whopping $23M. GOP Senate President Robert Stivers followed suit, putting the possible total somewhere closer to $2.3M.
"I don't think it's been as successful as it's been portrayed," Stivers told members of the press, adding that data show insurance premiums on the rise.
Coming to kynect's defense, House Speaker Greg Stumbo countered, "Rate-payers in Kentucky I believe are at risk by this move and nobody has shown me anything at all in the form of credible evidence to prove that this is going to be good for Kentuckians."
Where The Budget Goes From Here
Ending his speech with an urgent plea to move quickly to resolve differences on the spending plan, Bevin told House and Senate members his plan should "make it easy" for the divided chambers to agree on the basics. Now, the executive branch proposal lands in the House Appropriations and Revenue Committee, destined eventually for the House floor.
Passage requires a majority of the 100-member chamber, but without a Constitutional Majority Democrats could face more resistance from newly-empowered Republicans. Once the bill is delivered to the Senate and passed there, lawmakers meet to hammer out a compromise agreement for the governor to sign.
But if legislators engage in too much tinkering with his core priorities, Bevin has threatened to withhold his approval. Asked whether the governor's initiatives will remain mostly intact, Stumbo replied, "If things work as they historically do, it's likely that 97 percent or so of the governor's budget would be accepted."
