Much of Kentucky's Budget Shortfall of $300 Million Can Be Attributed to Teachers' and State Employees' Retirement Systems

Kentucky's gov-elect sounds alarm about state budget

Kentucky's Republican governor-elect, who will be sworn in next week, contends that he's inheriting a multi-million-dollar financial crisis from his Democratic predecessor. 

December 2, 2015

USA TODAY - Kentucky's Republican governor-elect, who will be sworn in next week, contends that he's inheriting a multi-million-dollar financial crisis from his Democratic predecessor.

But outgoing Gov. Steve Beshear said Gov.-elect Matt Bevin's dramatic pronouncement of a projected two-year budget shortfall of more than $500 million can be solved in setting priorities.

"I have had to balance and rebalance the state's budget 15 times," said Beshear, who leaves office Dec. 8. "We are leaving the state's finances in much better shape than what I was presented with my first year in office."

The 2016-18 budget analysis from Beshear's budget office projects general fund revenue for the next two years then takes into account modest spending. The bottom line of this analysis shows a revenue shortage of $279 million in the fiscal year that ends in 2017 and a shortage of $506 million in the 2018 fiscal year.

Much of that shortage comes from a $520 million request from Kentucky Teachers Retirement System — the amount the pension system's actuary said is needed to deal with its $14 billion unfunded liability. The Kentucky Employees' Retirement Systems also need $60 million; both problems have been known for months.

Beshear took office eight years ago as the national economy was plunging into the worst recession since the Great Depression. He repeatedly had to cut funding and spending and employ other budgetary moves as revenues fell far below expectations.

"The fact is he has kicked the fiscal can down the road repeatedly," said Jessica Ditto, spokeswoman for Bevin's transition team.

In fiscal 2015, which ended June 30, the state's sales tax, personal income tax and corporate income tax revenue compared with original estimates was right on target, according to the National Association of State Budget Officers' mid-June Fiscal Survey of States. Kentucky was one of six states with accurate projections; 24 other states received more revenue, and 19 states had lower revenue.

The trade association's next 50-state report will be released in about a week. Kentucky's fiscal 2014 revenues were about $128 million short of original projections, one of 20 states that missed the mark, according to the budget officers' fall 2014 survey.

But unlike the federal government, states cannot adopt budgets with deficits. State officials must dip into reserve funds, cut spending or raise taxes to balance the budget.


Kentucky's corporate income-tax revenue is projected to fall by $29 million from fiscal 2015 to fiscal 2016 and be down $41 million over the two years from fiscal 2014 to fiscal 2016, according to the budget officers' report. However, sales and personal-income tax collections are expected to rise by $600 million from fiscal 2014 to fiscal 2016.

Bevin's problem is one of demands growing faster than revenues, mostly demands to cover the needs of Kentucky's under-funded public pension systems. Bevin, a fiscal conservative with strong tea party backing, was elected with 53% of the vote in November.

"Much work is needed to get Kentucky's financial crisis resolved," Bevin said in a press release announcing his new state budget director, John Chilton, 66, of Louisville. 

Chilton is a certified public accountant with more than 40 years of experience.

Related:

• Ky. shortchanges public education; study shows how funding falls short, September 2013
• Gov. Beshear: Deep, Painful Cuts Required to Balance Budget 
• Health departments throughout Kentucky grapple with budget cuts 
• Ky. cuts funding for service to blind children 
• Kentucky legislature haggles over gutting public health care
• Pending Medicaid Reimbursement Rate Cuts Rescinded in Kentucky